Leather, footwear industry lags behind in local content

Dependent on imported materials

In recent years, the export turnover of leather and footwear products has consistently reached double-digit growth rates. However, the added value from this industry is currently very low at only 8.2 percent, mainly because Vietnam has not developed a supporting industry, or issued policies to encourage the development of raw material areas.

Vietnam’s leather and footwear industry is now still largely based on outsourcing. Every year, nearly 60 percent of raw materials are imported to meet production demand (most of them are tanned leather).

General Department of Vietnam Customs data showed that Vietnam’s import revenue of raw materials for textiles, leather and footwear in first half of 2019 reached more than US$2.9 billion, an increase of 3.81 percent compared with the same period of 2018.

The head of a major footwear company said some enterprises in Vietnam invest in supporting industry to produce raw materials and accessories for the leather and footwear industry, such as tanned leather, technical fabric, accessories, soles, plastics, adhesives, and chemicals. However, the number and scale of these businesses are small, meeting only about 40 percent of the needs of leather and footwear businesses, necessitating billions of dollars in imports of raw and auxiliary materials for production.

A representative from a leather and footwear enterprise said, “It is the weak and underdeveloped leather and footwear supporting industry that leads to the very low localization rate of Vietnam’s footwear exports at only 30 to 40 percent.

Developing supporting industry

According to the Vietnam Leather, Footwear and Handbag Association (Lefaso), Vietnam is currently more involved in the global supply chain of footwear products, meaning that Vietnam’s leather and footwear industry must develop supporting industry by focusing on production of materials.

Lefaso also said the state needs to build industrial parks soon to produce tanned and imitation leather, fabric weaving and dyeing, all with standard wastewater treatment systems, and encourage localities to build industrial clusters specializing in producing materials. In addition, synchronous mechanism and policies are needed to attract investment from multinational corporations.

In 2019, the leather and footwear industry targets an export turnover of US$21.5 billion, maintaining a year on year increase of 10 percent. To achieve this goal, Lefaso has consulted state agencies regarding policies related to business activities of member enterprises, and the development of supporting industry to increase products’ localization rate.