Domestic footwear firms have big shoes to fill

Outsourced manufacturing of shoes for export at the Dong Anh Footwear Joint Stock Company

The export value of footwear products made in Vietnam grew at a double-digit rate in the first seven months of this year. However, exports of products made by domestic businesses, without foreign investment, continued their downward trend.

In recent years, production and exports by companies with foreign direct investment (FDI) grew strongly. In 2013, FDI companies generated 75 percent of the footwear sector’s export value, and this increased respectively to 78 percent and 81 percent in 2015 and 2016. Meanwhile, the percentage of exports by domestic companies decreased from 25 percent in 2013 to 21.4 percent in 2015 and 19.2 percent in 2016.

According to Pham Hung Viet, Chairman of the Board at the Hanoi Rubber Joint Stock Company, due to limited capital resources, most domestic footwear companies do outsourcing work for foreign firms. This lack of capital to finance production of their own is one of the reasons for the low competitiveness of domestic companies.

Moreover, most domestic companies do not export directly but via a third party. They have yet to carve niches in the global market and remain weak in business management. This also explains why domestic companies cannot win the trust of major foreign importers and have to do outsourcing work for third-party partners.

Doan Thi Thu Ha, General Director of the Thanh Dung Company Limited, said that with advantages in terms of technology, market and capital resources, FDI companies have increasingly overwhelmed domestic businesses. Moreover, FDI companies buy each other’s materials rather than those produced by domestic firms. Domestic companies have yet to take advantage of opportunities presented by free trade agreements.

Phan Thi Thanh Xuan, Secretary General of the Vietnam Leather, Footwear and Handbag Association, says the industry must identify the factors making domestic businesses inferior to FDI companies so that suitable remedies can be devised. Speaking at a recent workshop in Ho Chi Minh City to discuss the future of the Vietnamese leather and footwear sector, she said the state needs to put in place appropriate policies to facilitate domestic firms’ access to capital resources. For their part, businesses need to improve their manufacturing capabilities, enhance product quality and intensify trade promotion to expand their markets.

She also urged implementation of the government’s decree regarding the development of support industries, the encouragement of investment in domestic production and supply of support industry products to increase the local content rate.

A representative of the Ministry of Industry and Trade’s Science and Technology Department emphasized that the leather and footwear sector needs to shift to the knowledge-based economy to compete on value rather than on price.