Vietnamese Textile & Garment Industries Set for Strong Growth

Strong growth is predicted for the textile and garment industries in Vietnam, according to a report in the latest issue of Textile Outlook International.

Between 2016 and 2020, production is forecast to rise by an annual average of 12-14%. Exports are expected to rise by 15% per annum and, as a result, they are set to reach US$50 billion by 2020, up from US$28 billion in 2016.

To achieve these targets, however, a number of policies will need to be implemented. For a start, Vietnamese companies will need to shift their focus away from CMT (cut, make and trim) garment production where they act merely as subcontractors for foreign firms. Instead, they will need to produce more garments on a so-called fob (free on board) basis, and deal directly with foreign buyers.

Also, only a small percentage of Vietnamese garments is made from domestically produced fabrics, and this needs to increase significantly. Additionally, there needs to be a shift from producing lower end garments to high-quality, high-value fashion items. There also needs to be a move toward more efficient sourcing through vertical integration, as well as an improvement in productivity by enhancing research, training and development.

The industry has already begun to make significant investments in textile manufacturing facilities. Vietnam was the second biggest investor in shuttleless looms among ASEAN countries during 2006-15. Moreover, it was the largest investor among these countries in ring spindles and open-end rotors. There has also been a marked expansion in the knitting sector.

The industry’s development has been assisted by strong government support, which has encouraged high levels of investments, especially from foreign investors.

Development has also been assisted by government success in negotiating a number of free trade agreements (FTAs). Having said that, not all Vietnamese garment exports benefit from preferential tariffs under these FTAs, because many of the agreements stipulate the use of locally produced fabrics, and a large proportion of the fabrics used for garment production in Vietnam are imported.

Vietnam’s fabric production accounted for barely 15% of the garment industry’s fabric needs in 2015. Furthermore, the growth in garment production has outpaced that of fabric production in recent years.

Another issue for the industry is that activities such as marketing and distribution are underdeveloped. Consequently, the industry relies heavily on the help or participation of foreign companies to carry out these activities.

However, the position is beginning to change. The government is promoting opportunities for the textile and garment industries by pursuing a program of specialization and modernization. Its objective in doing so is to produce more items with greater added value, and it is significant that a number of internationally recognized brands are increasingly active in the country, including Adidas, Puma, Nike and Gap.