16:51 | 15/11/2015 Investment
(VEN) - Growing foreign direct investment (FDI) in the Vietnamese textile and garment sector has become a concern to domestic companies as they feel inferior to foreign businesses in terms of financial capacity, management skills, and good quality human resources.
The Vietnamese textile and garment sector has attracted large FDI projects
According to Tran Bac Ha, Chairman of the Board at the Joint Stock Commercial Bank for Investment and Development of Vietnam, (BIDV), in the first eight months of this year, foreign investors poured US$2.8 billion into the Vietnamese textile and garment sector (in 2014 the sector attracted US$2 billion of FDI), with many huge projects in terms of capital.
In his opinion, free trade agreements (FTAs) will gradually reduce taxes to zero percent, and this is the main factor leading to increased FDI in this sector. Vietnamese textile and garment exports to the EU are forecast to grow 50 percent in the first year after the EU-Vietnam Free Trade Agreement takes effect, and about 20 percent in the ensuing years. These figures attract foreign investors.
The presence of foreign investors has created a source of encouragement for domestic textile and garment companies to improve their technology and increase the quality of their management. However, domestic companies remain weak and cannot compete with foreign investors when it comes to benefiting from FTAs. “Domestic companies are increasingly inferior to foreign businesses,” said Vietnam National Textile and Garment Group (Vinatex) Chairman Tran Quang Nghi.
Dong Xuan Knitting Sole Member Limited Liability Company (Doximex) General Director Truong Thi Thanh Ha said FDI businesses had exerted big pressures on domestic companies, especially in terms of human resources with foreign language skills and the capability to operate specialized machinery and equipment. Moreover, in most cases, foreign investors move their manufacturing facilities from third countries to Vietnam and bring with them large material suppliers. Therefore, domestic companies can hardly compete with them.
Truong Thi Thanh Ha added that Doximex currently exported 90 percent of its output to Japan. To make its products exportable to the US and the EU, the company has to invest in new technology but its limited financial capacity does not allow Doximex to do this. Moreover, the company still depends on material imports.
Tran Quang Nghi said that in the past when it was yet to join FTAs, the only advantage Vietnam had was a large workforce, and the domestic textile and garment sector had chosen that way to develop by doing the manufacturing jobs according to the orders of foreign firms because this did not require large amounts of investment capital. Today, however, to meet FTA rules of origin, they have to invest in material production. Therefore, Vinatex will offer domestically-produced fabrics to foreign firms when receiving their manufacturing orders.
Dang Vu Hung, Chairman of the Member Council of the 8-3 Textile Company Limited, said that in the last two years the company had reorganized production and focused its investment on material production. Therefore, the company is confident of its ability to meet FTA rules of origin, including the Trans-Pacific Partnership.