Vietnam year-end review 2023: Aiming for scalability

Vietnam’s garment and textile industry has been a cornerstone of the country’s rapid economic development. According to the World Economic Forum (WEF), Vietnam is the world’s fourth-largest exporter of textiles and garments, and has a development strategy for the sector aiming to achieve an export value of $60-80 billion. The industry of this size is expected to create an additional 800,000 to 1 million job opportunities by 2030.

Favourable factors

The country has a strong textile and garment manufacturing infrastructure which has been main driving force behind the growth of export of these items. In recent years, Vietnam’s textile and garment export has seen growth driven by a number of factors such as low labour costs and Free Trade Agreements (FTAs) with its key export markets, most of which have eliminated tariffs on garments and textiles almost completely. In addition, the combined effect of manufacturing shift from China to Vietnam due to the labour-cost advantage and on-going troubled trade relations between China and the US has helped Vietnam’s textile and garment industry to consolidate its position at the global stage. The country has been able to increase its market access through favourable bilateral and multilateral FTAs and technology. With implementation of new FTAs of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Vietnam-EU FTA (EVFTA), Vietnam’s textile industry is expected to see further increase in exports. There will also be a push to further develop the industry’s supply chain to take full advantage of preferential tariffs.

Manufacturing landscape

Vietnam’s textile hub is located in its southern part where Ho Chi Minh city and the surrounding provinces of Dong Nai and Binh Duong are home to a large number of garment factories servicing a broad range of international brands. Southern Vietnam – the country’s textile and garment hub for decades – has a strong infrastructure and highly-skilled workforce to support the manufacturing activities. In 2021, roughly 40 per cent of Adidas footwear was produced in Vietnam, following the company moving its supply chain out of China to Vietnam’s south over the past decade. During the same year, another sports behemoth Nike also received 51 per cent of its footwear production from Vietnam having 138 suppliers in the country. By November 2022, this number of suppliers had increased to 155.

Backdrop of 2022

Vietnam’s textile and garment export was marked by positive prospects in the first two quarters of 2022 before encountering a turbulence in the latter half of the year. The country’s export continued peaking till August 2022 and then saw a sharp decline in orders from September onwards, following the similar trend observed in most nearby manufacturing nations. As a result, the country’s textile and garment export in 2022 had surged to approximately $44 billion – marking a 14.7 per cent y-o-y increase. The surge in export value reflected Vietnam’s formidable position in global textile market.

Troubled 2023

However, beginning of 2023 brought some headwinds with exports dipping 19.6 per cent to $4.55 billion in January and February. In the first half of 2023, Vietnam’s textile and garment exports reached $18.6 billion, extending the continued decline at 17.6 per cent when compared to the first half of 2022. These dips raised some doubts about Vietnamese textile and garment export’s ability to sustain growth momentum amidst evolving market movements. The data by World Trade Organization put the country’s share of the global textile market at about 5.7 per cent, lagging behind Bangladesh’s 6.5 per cent. The lower share is the result of a highly competitive environment as other countries also strived to increase their respective market share. For the period of first nine months (January to September in 2023), the General Department of Customs reported that Vietnam’s export had reached $24.6 billion. As an interesting trend, Vietnam has witnessed fluctuations in export values over the years with periods of growth followed by challenges owing to declining global demand and profitability issues among leading companies. These trends are a reflection of industry’s sensitivity to external factors and market dynamics.

Overall, 2023 witnessed a significant decline in textile and garment production due to lower demand in the key export markets. The contraction in production was echoed by S&P’s Purchasing Manager’s Index which consistently found itself below the 50-point mark. Furthermore, there were layoffs around the country in the apparel sector due to lower-than-expected orders. For instance, Taiwanese footwear manufacturer Pou Yuen (Vietnam) reduced its workforce by almost 10,000 across three rounds of job cuts. Industry experts, however, see this down turn as a temporary phase. They see signs of recovery that started to take shape in the form of increase in Vietnam’s GDP over three consecutive quarters of 2023. The textile and garment products have been major contributors to the country’s export turnover, underlining their pivotal role in Vietnam’s economy. With the continued GDP growth from quarter to quarter, the textile and garment sector is expected to bounce back. Despite global challenges, the sector has proven somewhat resilient and still presents a wealth of opportunities for foreign firms to invest in Vietnam’s textile capabilities.

Sustainability development

In response to global demands for sustainable practices, Vietnam took some substantial steps to promote eco-friendly approaches in the textile and garment sector. These initiatives are aimed to address the environmental and social challenges associated with the industry’s rapid growth.

The Vietnam Textile and Apparel Association (VITAS) has set a goal of ‘going green’ by the end of 2023. The goal includes reduction of energy consumption by 15 per cent and water consumption by 20 per cent, while transforming Vietnam’s textile and garment industry as well as building 30 international brands. To align with the plan, many corporations and textile companies have built a strategy of green materials and applied them to making sustainable products and eco-friendly fashion. VITAS proposed a sustainable programme, emphasising the need for special support policies such as mechanisms for accessing loan capital and reduced taxes. In addition, the government support attempts to enable businesses to invest in new technologies, machinery and equipment that are necessary for sustainable production. As per Vietnam’s ministry of industry and trade, greening the textile and garment industry is a global trend and stakeholders need to achieve sustainable development goals. They are also expected to increase exports to major markets that have signed FTAs.

Vietnam is additionally committed to and working towards its long-term strategy of circular economy model by 2035, which aims to promote resource efficiency, reduce waste and enhance its industry’s environmental and social performance. The full impact of this strategy will only be realised in the coming years, and will provide a roadmap for sustainable development in the industry.

Getting ready for a larger role

In May 2023, Vietnam agreed to coordinate with CPTPP member countries in implementing the 2023 rotating chair New Zealand’s initiatives on elevating the deal as a model one of the region and the world. Finding it necessary to continue promoting the effective implementation of the agreement, the ASEAN member agreed to the initiative to bring full and practical benefits to people and enterprises, especially small- and medium-sized ones. Vietnam’s garment, textile and leather shoe industries boosted shipments to CPTPP members by 15 per cent, compared to the prior of agreement. The country’s local firms also benefitted from the tax preferences put on its goods by the CPTPP.

At the same time, in the wake of Indo-Pacific Economic Framework (IPEF)’s Pillar III of clean economy, Vietnam expects more cooperation activities among the ASEAN partners in regard to clean energy production, and the development and transfer of technologies and solutions serving the elimination of greenhouse gases.

In October, Vietnam hosted its annual textile and garment machine and fabric event in Hanoi. The event showcased industrial-grade machines, spare parts, technologies, fabrics and garment accessories for the textile and garment industry. The expo was able to gather over 200 international exhibitors from more than seven countries (regions) spread over 200 plus booths covering an exhibition area in excess of 6,000 sq m – an increase of 30 per cent over previous edition in 2022.

Way forward

Vietnam is looking to build a national brand image that is competitive and quality driven. For this, it is focusing on moving up the value chain. Since Vietnam, a nation with proven track record of making garments and textiles for foreign firms, has set these goals, its garment and textile sector is well poised to regain its upward trajectory as a global clothing manufacturing powerhouse in the near future.

ALCHEMPro News Desk (WE SB)