Vietnam’s garment industry is already a success story. Now, with more free trade agreements on the floor, it looks set to boom again. Words by Jon Aspin
It’s a good time to be in the textiles game. Even without the impact of multiple tariff-reducing Free Trade Agreements (FTAs) and legal partnerships looming, experts anticipate the sector to grow by an average annual rate of above 10% for the next five years. That’s good news.
In addition to low cost, insiders cite Vietnam’s geographic location, factory productivity (which might surprise naysayers) and one-party political stability as positives when it comes to producing clothes for export.
To put recent growth into perspective, in 2005, the total export figure for the textiles sector was US$5.4 billion (VND121.5 trillion). By 2013, that figure was close to US$22 billion, largely driven by the country’s top trading partner (the US) and to a lesser extent the European market demand for affordable, high-quality brands, and the government’s willingness to deal with them. If you’ve bought from the likes of H&M, GAP or Top Shop over the last five years, there’s a very good chance it was manufactured in Vietnam.
A Growing Market
The number of major international retailers and luxury brands entering Vietnam has continued to rise. The ‘Coming Soon’ signs have been taken down, because they’ve now arrived. According to industry insiders, it's growth that’s unlikely to slow down for the next two to three years at least.
What’s different about this next period is that, while key offshore markets will continue to be crucial, domestic demand for affordable and even not-so- affordable fashion is anticipated to explode. It’s a trend we can see reflected on the high street in Vietnam’s big cities, now mostly relocated to the suburban megamalls being opened at a rapid pace.
Add to that a reduction in tariffs between participating nations of the Trans Pacific Partnership, signed by countries representing 40% of the world’s economy last year, and you have an environment that remains attractive for new and existing fashion entrepreneurs.
In a 2013 interview with industry news website businessoffashion.com, Ms. Tran Thi Hoai Anh, founder of Globalink, a luxury retail distribution enterprise she opened in 2006 and through which she has brought luxury brands including Marc Jacobs and Givenchy to the country, said that Vietnam was changing so fast, it had become hard to recognise.
“The last five years mark the coming of many more big fashion brands and the market is becoming seriously challenging for everyone,” she said. “There is a huge potential, but it is not an easy market. No official statistics can truly help us measure its growth and maturity, so we can only ever really estimate how the competition is performing.”
Skill, Creativity and Turnaround
M.V. Vijesh has been in the textiles business for 15 years, 10 of them here and before that in India, with regular sourcing trips to China, Taiwan and Indonesia throughout this period. Now Country Manager at Kaybee Exim Vietnam, an importer of raw material with operations in Ho Chi Minh City, he reiterated some positives working in Vietnam’s favour.
“It’s been a very successful last few years in this business,” he said. “Vietnam is a stable country, and compared to a place like India for example, it’s much quicker at turning around large orders for big customers, especially when 50% of all raw material is still coming from China.”
“Well, obviously the geographic reality is important — Vietnam is much closer to China than India — but the workers in Vietnam here are much more skilled than in a lot of other countries, and that makes the end-product of much higher value.
“Needlework is superior, and workers here can work across a lot of different fabrics. This is what makes Vietnam attractive for customers like Walmart or Old Navy, who drive hard bargains because they want a lot of good product fast.”
A native of Chennai, Vijesh tells me there are over 4,000 factories in Vietnam that compete fiercely on price and delivery times, with some biting off more than they can chew from time to time. It’s a number that he says has swelled during his time in the country, but is also well supported, with Vinatex, a government-invested joint stock company, working hard to develop skills and raise standards across the board.
That said, it’s a business that relies heavily on reputation, which can rise and fall with equal speed. He also confirms the trend towards growing domestic demand, saying that while the focus when he first began was very much on the overseas customer, it’s changing now, with some factories focusing solely on producing for local retailers. They are increasingly catering to the middle market, exposing a new segment to higher end brands, some for the first time.
Working in the closely related field of footwear, Andrew Leslie is an Irish-born, Scottish-raised product engineer for Adidas. He stresses the need for innovation in product development, and has been here working with young designers over the last six months. He sees creativity as a competitive advantage for Vietnam. The oft-quoted analogy about any race of people who can strap a refrigerator to a bike and make it work rings true — the Vietnamese are intuitively creative problem solvers.
But he is aware of the limitations on the factory floor, pointing to education and proper skill development as important in countries like this. Leslie believes this will be the difference in helping Vietnam take the next step towards research and development. History shows that garment manufacture moves on, once economies equalize, and new players are brought into the reckoning. He uses his own industry as an example.
“Footwear started in Taiwan, moved to the Philippines, China, and now it is moving to Indonesia and Vietnam. Soon it’ll move again, Myanmar and probably India.”
He then offers some insight into how economies need to react.
“So what happens to those people when it has moved on, is that those people move into different areas of the supply chain, including innovation, research and development. This happens as their level of education and skill-sets improve.”
He points to projects like Fashion 4 Freedom as opportunities that exist now to start innovating and change the marketplace for Vietnam in the future, moving from being considered a cheap service provider to a place that can lead the way in technical and ethical designs.
He envisions a future more about what he calls “co-creation” where local producers across multiple sectors contribute to product designs from the ground up, quite literally, and not just a marketing gimmick.
Opportunities and challenges abound. It will be interesting to see how the pending TPP and the free-trade agreement with the EU comes to bear on an industry charged with satisfying an increasingly sophisticated and risk-taking domestic market.