What is the future for Vietnamese clothing and footwear in US-China tensions?

"In the two previous times participating, our business delegation closed quite a few contracts. Last year, there was a unit that sold dozens of machines right at the exhibition, with each machine costing tens of thousands of USD," Mr. Liang Qi Ming - Event Project Management Director, Representative of Guangdong Garment Equipment Chamber of Commerce (China) shared before the VTG 2018 textile technology exhibition which will take place at the end of November in Ho Chi Minh City.

FDI capital flow into Vietnam’s textile and garment industry is one of the reasons that foreign manufacturers and traders of machinery and raw materials are excited. Mr. Liang Qi Ming said that there are even Guangdong enterprises that have pre-registered for the 2019 exhibition.

FDI capital in textiles and garments has increased sharply since Vietnam began negotiating the TPP. At its peak in 2014 and 2015, foreign capital committed to pouring in was 1.75 and 2.6 billion USD, respectively. In 2017, when the US announced its withdrawal from the TPP, total FDI capital poured into textiles and garments was 651.4 million USD. However, CPTPP, EVFTA and US-China trade tensions are the reasons why FDI capital in textiles and garments is expected to increase again.

"This war will accelerate the process of Chinese textile and garment enterprises leaving the country. If they want to move their factories, Southeast Asia, Africa and South Asia are the three destinations they will go to. In Southeast Asia alone, Vietnam is a bright spot. In fact, before the tension, they had already moved," commented Mr. Nguyen Binh An - General Secretary of the Vietnam Cotton and Spinning Association (VCOSA).

The story is similar in the footwear industry. "There are 30 footwear enterprises in our province that have factories or offices in Vietnam," said Zhong Yan Li, from the Guangdong Shoe Machinery Association.

Vietnam is an important shoe manufacturing country in the world, with the second largest export position, accounting for 7.4% of global export volume, just behind China. Famous retail brands such as Nike, Adidas, The North Face, Timberland, Columbia... all have their production orders placed in Vietnam.

More than 700 manufacturers, 1.5 million workers are involved in the footwear sector. Of these, more than 200 are foreign enterprises, contributing 70% to export turnover. However, the US-China trade tension can create certain risks if not careful.

If the US does not buy goods, China will certainly come to Vietnam. In theory, the US-China trade tension is partly an opportunity for textiles and footwear to welcome the investment wave and have more outlets to sell to the US. From production costs to labor prices, land rent, electricity and water, Vietnam has an advantage over China.

However, there are many internal and external challenges. Objectively, both the textile and footwear sectors in Vietnam are witnessing new factors. If Vietnam is the textile star in Southeast Asia, Bangladesh is its direct competitor. In the footwear sector, newer origins are starting to compete with the "Made in Vietnam" label.

The "door" to the US is not only for Vietnam. Before 2010, the shoe export industry had Vietnam and India. Now there are Bangladesh and Myanmar. Or 4-5 years ago, Cambodia did not produce shoes but now they can do it.

Subjectively, these two industries are facing a series of challenges in terms of raw materials and labor. To satisfy investors, maintain the miraculous growth momentum of textiles and garments or meet the tax exemption conditions of CPTPP or EVFTA, these two obstacles must be resolved soon.

Currently, 75-85% of leather materials for making shoes must be imported, 30% of materials for making soles are also purchased from abroad. In 2017, the garment industry needed 9 billion square meters of fabric but the domestic supply was only about 4 billion square meters, the rest was also imported.

According to the Hanoi University of Textiles, the textile industry has about 2.5 million workers, but 75% of them are untrained. Meanwhile, investors are gradually applying modern machinery and demanding increased productivity. Before 2005, a textile worker only needed to sit at one machine, but now a skilled worker is required to operate 2-3 machines.

In the first 8 months of the year, the textile and garment industry exported 19.4 billion USD, up 15% over the same period. However, the balance in this industry is at about 70 - 30, with a small part belonging to domestic enterprises. Along with that, the majority of Vietnamese textile and garment exports are still simply processed goods (CMT).

Moving up to the FOB and ODM export level, which means being given more autonomy in deciding on raw materials, is not easy, also because of the lack of autonomy in raw materials. When the FOB and ODM export ladder has not been conquered, the dream of entering the world fashion industry is still relatively far away.

However, in textiles, Vietnam lacks fabric the most, and has not been proactive in fabric sources. Without fabric, we cannot go further to develop the fashion industry.