06:00 | 20/09/2020 Society
(VEN) - Although the Covid-19 pandemic has seriously affected leather and footwear exports, this is also an opportunity for businesses in the sector to change their supply chain of raw materials, restructure production and markets, and reduce dependence on the Chinese market.
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According to the Vietnam Leather, Footwear and Handbag Association (Lefaso), Vietnam's leather shoe exports in the 2015-2019 period grew an average of more than 10 percent per year with revenue increasing from US$1.2 billion in 2015 to US$17.94 billion in 2019.
The 2020 target of leather and footwear exports was set a record exceeding US$20 billion. However, the Covid-19 pandemic had a rapid and heavy impact on the industry, with first half export turnover only reaching US$8.1 billion.
Lefaso Vice President Diep Thanh Kiet assessed that the pandemic has seriously affected the leather and footwear industry in terms of raw material supplies and export markets. The industry imports most of its raw materials from China, but the pandemic slashed supplies by 50 percent. By March 2020, when Chinese material supplies resumed, the leather and footwear industry once again encountered difficulties due to the consumption decline in Europe and the US, where all stores closed because of the Covid-19 spread. Vietnam exports 95 percent of its footwear products to the US and European markets, generating heavy losses for the industry.
The decline in the pandemic spread is expected to provide an opportunity for export recovery. Regarding the leather and footwear industry, the year-end shopping season starts in October and export businesses expect trade to resume soon, especially exports to the US and EU markets.
Since August 1, 2020 when the EU-Vietnam Free Trade Agreement (EVFTA) took effect, the footwear industry has started enjoying a decline in import taxes from seven percent to zero in four years. Thus, Diep Thanh Kiet predicted that if the pandemic is controlled, the leather and footwear industry will recover from October 2020 and will regain its growth momentum from 2021.
New supply chains
According to the World Trade Organization (WTO), the total value of global footwear exports in 2019 was US$142 billion, of which Chinese exports accounted for about US$44.7 billion, nearly 31.5 percent of the total. China also provides 25 percent of the world’s importers of raw materials for the footwear industry, which is therefore heavily dependent on China in terms of both raw materials and consumption markets.
The supply chain interruptions following the Covid-19 outbreak affected a large number of global footwear producers, including Vietnam’s, forcing manufacturers to locate new supply sources.
Lefaso President Nguyen Duc Thuan said that China currently accounts for 60-70 percent of the global supply chain of the leather, footwear, and handbag industry; India, Vietnam, Indonesia, the Philippines, Myanmar, Bangladesh, and Cambodia hold about 30-35 percent; African and South American countries account for 5 percent. Enterprises nationwide are repositioning their supply chains to lessen dependence on China, planning to reduce China’s share to 45-50 percent and move 15-20 percent of their supply chains to Indonesia, India, the Philippines, Myanmar, Bangladesh and Cambodia. The shifting of supply chains will provide an opportunity for direct foreign investment in Vietnam’s leather and footwear raw materials manufacturing industry and the footwear and handbag manufacturing industry for export.
Vietnam has the additional advantage of membership in key free trade agreements, especially the EVFTA which has just come into effect, providing tax incentives for Vietnamese producers and exporters to many major markets like the EU. Vietnam’s reputation as a safe investment destination has also improved due to its handling of the Covid-19 pandemic.
In southern provinces such as Dong Nai and Binh Duong, footwear production and export centers have quickly seized opportunities.
In Dong Nai, 110 enterprises operate in the supporting industry for the footwear industry, accounting for 18 percent of the total number of supporting enterprises in the province. Binh Duong Province has also attracted many supporting industry enterprises serving the footwear industry.