Vietnam domestic apparel hanging on by a thread

16:51 | 29/06/2016 Trade

Doubts are mounting about whether domestic clothing and textiles manufacturers will be able to keep their doors open much longer as dwindling orders, rising costs and fierce competition is taking its toll on profits.

Vietnam domestic apparel hanging on by a thread

At a mid-June industry conference, Pham Xuan Hong, chairman of the Ho Chi Minh City Textile, Garment, Embroidery and Knitting Association, acknowledged there is an industry wide slowdown in orders.

A garment employee in Bangladesh working a 40-hour week will earn US$68 dollars, US$90 in Vietnam and US$127 in Mexico, according to the International Labour Organization, said Mr Hong.

When one factors in all the related costs – including import tariffs and transport – that puts the Vietnam domestic industry at a huge disadvantage in competing with Bangladesh and Mexico on price.

We’re seeing lots of orders moving to Bangladesh, Cambodia and Mexico, said Mr Hong, and half-way through the year we can already tell it’s unlikely the industry as a whole will meet the set targets for 2016.

He said buyers are now rushing to Bangladesh and Cambodia, in particular, due to the two countries UN least developed country status, which entitles them to benefits of tax waivers on exports.

It’s not just slowing of orders, said Nguyen Duc Thang, head of the market department at Dap Cai Garment Joint Stock Company, our sales prices are off by as much as 10% from a year ago.

We’re seeing an industry that’s bursting at the seams, said Mr Thang, with profits being eaten up by rising wage and insurance costs as a result of giving effect to new government mandated rules.

We’re really getting backed into a corner as the foreign invested segment of the industry is booming largely at the expense of the domestic segment. With the rise of foreign manufacturers, we’re seeing a definite shift of orders away from domestic producers, said Mr thang.

They have advantages of better technologies, which not only offer production efficiencies and lower costs, but improve the overall quality of the final output, which in and of itself, lessens demand for domestic product.

They are also in the global supply chain of many large retailers and wholesalers in foreign markets and are somewhat insulated, protected from the competitive factors the domestic industry must confront.

Even worse, some foreign clothing companies have begun moving parts of their production back to overseas markets such as the US and EU — a process known as reshoring that cuts into domestic sales even further, other analysts said.

Minister Tran Tuan Anh of the Ministry of Industry and Trade underlined gross sales for clothing and textiles for the five months running up to June jumped 6.1% to US$8.6 billion on the back of increased sales by foreign companies.

Make no mistake, the domestic industry is shrinking, said Minister Anh. We’ve adjusted this year’s sales target down from US$31 billion to US$29 billion and still believe we may have difficulties hitting the revised target./.

Source VOV