The World Bank predicts that if the Vietnamese government carries out further structural and institutional reforms, Vietnam’s national income level will be equal to Malaysia’s current income level by 2035.
According to the East Asia Forum, the Washington-based multilateral lending institution predicts that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) signed by representatives of 11 countries on February 4, 2016 will have This milestone will enable Vietnam’s GDP to grow by 10% by 2023.
In addition, the Vietnamese government predicts that the sales volume of the textile and clothing industry in Southeast Asian countries will increase by an average of 10% per year from 2018 to 2025.
Figure 1: In 2019, Vietnam’s revenue from the textile and apparel industry was US$39 billion
Both Bangladesh and Vietnam are in There is no distinction between the two in competing for business opportunities transferred from China. Many Chinese companies are considering expanding their operations by setting up production bases in other Asian countries and regions.
There are more than 4,500 garment factories and about 1,500 textile factories in Bangladesh, and all textile and garment factories in Vietnam add up to 6,000. Bangladesh has a reputation for its vast capacity to manufacture low-end products at affordable prices and of viable quality. Vietnam, on the other hand, pays more attention to value orientation. The country has strong backward linkage effects and has many educated and skilled labor forces.
Vietnam has come a long way from poverty and backwardness to becoming a medium-sized developing country. Since 1986, Vietnam has carried out key structural reforms in many areas, including: state-owned enterprise reform, promotion of private enterprise development, fiscal reform, public expenditure management, and trade liberalization. A series of reforms have promoted the development of Vietnam’s textile and apparel industry. Vietnam’s textile and apparel industry provides a large number of jobs for the country and is the lowest value-added link in the global apparel supply chain.
Workers in rural Vietnam will receive training in cutting, hemming and CMT modes. Vietnam’s downstream industries are underdeveloped, and work such as marketing and distribution mainly relies on foreign-funded enterprises. Although the number of state-owned enterprises in Vietnam is not large, they are the main force in Vietnam’s textile and garment industry and provide a way for foreign-funded enterprises to take advantage of Vietnam’s cheap labor force.
A state-owned enterprise called Vinatex was established in 1995 to improve textile technology, modernize management, and provide diversified businesses including investment and financing. Vietnam is at a crossroads: the textile and apparel industry may be upgraded or lose competitiveness. In Vietnam’s textile and clothing industry, foreign investment accounts for 60% of export revenue.
In 2019, the revenue of Vietnam’s textile industry was US$39 billion. By 2020, Vietnam has set the revenue target of the textile and clothing industry at US$50 billion. Vietnam’s textile industry emerged from the north of the country. Many foreign-funded companies invested here because of the skilled skills and cheap wages of Vietnamese workers. Vietnam pays its workers the lowest wages compared to the United States, Japan and China. However, the Vietnamese produce products of good quality and low prices.
The Vietnamese government has adopted flexible policies to help the textile and clothing industry leverage its own advantages and attract investment from foreign capital and local companies. With the role of the textile and clothing industry, Vietnam is expected to become one of the “Four Asian Tigers”. Usually, government policies allow duty-free import of raw materials on the condition that the raw materials are made into clothing products and then exported within 90-120 days. Vietnam’s textile and apparel industry already has the ability to quickly process new orders.
Vietnam’s accession to the World Trade Organization in 2017 has brought huge opportunities for its own development. In addition, under the influence of the CPTPP agreement, Vietnam’s textile and clothing products are very popular in the US market. Although Bangladesh has not joined the CPTPP, its garment export business in the United States has not been greatly affected, and its garment export volume has not declined.
Obstacles and methods
Due to land area and climate, Vietnam cannot grow cotton on a large scale, so it must import it from China and the United States.
Vietnam’s capacity to produce fabrics is insufficient. The country’s garment manufacturing industry mainly adopts the CMT model, where buyers control the entire process of production before and after. CMT production accounts for more than 60% of Vietnam’s total exports, while the original equipment manufacturing (OEM) and original design manufacturing (ODM) models are more profitable, accounting for only the remaining 40%.
In January 2020, the COVID-19 epidemic broke out in China, causing fabric manufacturers to suspend production, thus interrupting the supply of fabrics to Vietnam. Later, in March, the epicenter of the epidemic shifted from China to the West. The European Union and the United States canceled a large number of orders, causing huge losses to Vietnam’s garment manufacturing industry.
According to reports, about 70% of clothing manufacturers have reduced shifts and reduced the number of employees since March. By April and May, the proportion of garment manufacturers reducing work and production increased by another 10%. Data from Vietnam’s General Administration of Customs shows that in the first quarter of 2020, the country’s import and export volumes of all textile and clothing products dropped significantly.
Although the COVID-19 epidemic has impacted Vietnam’s textile and apparel industry, it has provided some valuable lessons for the industry’s recovery and pointed out the way forward. First of all, it is necessary to establish a stable supply chain of fabrics and raw materials, which mainly relies on the development of domestic fabric manufacturing industry.
A stable domestic supply of fabrics can reduce�(Trans-Pacific Partnership /TPP)’s biggest beneficiary. Under the influence of TPP, Vietnam’s GDP will increase significantly. Exports of textile and apparel products to the United States and Japan are expected to increase significantly. Vietnam has a cost advantage in the labor-intensive apparel field and can make full use of the TPP’s preferential market access rules.
However, Vietnam needs to develop industries that are complementary to existing industries in order to achieve further development. As far as the textile and apparel industry is concerned, establishing forward linkages requires the development of downstream industries, such as design, branding, marketing, distribution, and even insurance and finance.
Establishing backward linkages means investing in upstream capital-intensive industries, such as petrochemicals and other industries with high R&D costs. In addition, industrial upgrading also requires new business models. Where should Vietnam start? TPP’s rules of origin require that the materials needed to make a piece of clothing, starting with yarn, must be purchased from TPP member countries in order to enjoy preferential treatment from member countries.
In anticipation of the TPP agreement, companies from China, South Korea, Japan, and Taiwan began to invest in backward-related industries in Vietnam. Capital-intensive investment in the textile industry has relatively high fixed costs, which is also a challenge for foreign-funded enterprises.
If Vietnam wants to profit from the technological upgrading of the textile and garment industry and improve productivity, it needs to adjust two aspects: First, it urges the government to increase infrastructure construction, such as roads, ports and electricity. Doing so can reduce the costs associated with each other and promote industrial upgrading. Moreover, apart from the textile and apparel industry, other industries can also benefit from it.
If the costs of linking different industries are reduced, Vietnamese entrepreneurs can invest in related technologies and infrastructure to promote the upgrading of upstream and downstream industries. The second is to promote the privatization of state-owned enterprises and reform corporate management to cultivate the entrepreneurial spirit of company managers.
State-owned enterprises lack a sense of business competition, and enjoy economic rents due to priority access to land and capital, which further leads to a lack of enthusiasm. In addition, rent-seeking must be outlawed.
The government should take measures to encourage efficient business operation models. For the country’s economy to achieve inclusive and sustainable growth, competitive markets must allow land and capital to be allocated to private enterprises. The government will also formulate plans to help small and medium-sized enterprises develop and provide support in financing, cooperation with multinational joint ventures and the use of free trade agreements.
Tomoo Kikuchi, a senior fellow at the Center for Asia and Globalization, and Huong Vo, an MBA at Vietnam National University, said: “Releasing areas that have long been dominated by state-owned enterprises to private companies may create conflicts with vested interests. dispute. However, the textile and clothing industry will be more innovative and inclusive, and Vietnam will be able to embark on a sustained and stable development path in the future.”</p
