As the world's second-largest textile and garment exporter, what is the level of Vietnam?

"This year, there are especially many domestic garment companies that came through that Vietnam factory video that I sent." Wang Yuan, a Chinese garment pattern maker who has been working in Vietnam for more than 10 years, told "Interface Fashion".

Wang Yuan works for a Taiwanese-owned garment company in Vietnam. The company has branch factories in Jiaxing City, China, Vietnam, the Philippines, and Cambodia. Earley 2021, Wang Yuan posted a working video on Tiktok. After this, he received a lot of messages. Some people asked if the factory he worked in needed fabrics and workers, while others wanted to place orders directly through him.

"Made in Vietnam" is a topic of concern for the textile industry in recent years. Some people see the business opportunities, others feel that there is a threat. Only when you really go to Vietnam, you can see the real face of Vietnam manufacturing.

International brands layout supply chain in Vietnam

According to data from the General Statistics Office of Vietnam, Vietnam's gross domestic product (GDP) grew by 5.3% year-on-year in the first quarter of 2022, higher than the figures for the same period in 2021 and 2020, with the processing manufacturing sector continuing to play a leading role in economic growth, up 7.79% year-on-year. As of 2021, the contribution of the manufacturing sector has accounted for nearly 40% of Vietnam's GDP.

And from data released by Vietnam Customs, from January to May 2022, textile and apparel, the fourth pillar of Vietnam's foreign trade, exported $15 billion in the first five months, up 22.2% year-on-year, with the top four exporters of the category being the United States, the European Union, Japan and South Korea.

In 2020, Vietnam replaces Bangladesh as the world's second largest exporter of textiles and clothing, after China.

A number of industry insiders mentioned to "interface fashion", international apparel brands in recent years to accelerate the expansion of Vietnam, Bangladesh, Indonesia and other Southeast Asian countries supply chain layout.

For example, the supplier list updated by Uniqlo's parent company, Xpress, in March 2018 shows that more than half of its fabric and sewing suppliers are in China, but the share of its Southeast Asian suppliers has all increased compared to its first published supplier list in 2017, with the number of Vietnamese suppliers increasing by 40%.

The low value-added, labor-intensive nature of the textile and apparel industry is destined to keep moving to lower-cost regions. In these aforementioned Southeast Asian countries, brands are seeking to further reduce production costs and increase the resilience and flexibility of their global supply chains.

In Vietnam, for example, on the one hand, since the country joined the WTO in 2007, and Japan, South Korea, the EU and other countries signed a number of bilateral and multilateral free trade agreements, so that its textile exports in many countries can enjoy the "zero tariff" policy.

In an interview with local media, QingHai Chen, Deputy Director of the Import and Export Department of the Ministry of Industry and Trade, said that the target of Vietnam's export growth rate in 2022 is 6% to 8%, and the role of the signed FTAs will be the biggest driving force to achieve the above goal.

On the other hand, the low cost of Vietnam in terms of labor and other production factors has also relatively enhanced the export competitiveness of the country's textile and apparel products.

Rees Strategic Positioning Consulting Global CEO and China Chairman Zhang Yun told "Interface Fashion" that Vietnam has advantages in labor costs in addition to itself, and initially introduced a number of preferential policies for foreign investment in the garment industry, such as taxation, land and other incentives. "Vietnam is very much like copying China's economic development trajectory in the first 30 years, relying on processing trade to pursue development."

"About the level of China's textile industry in 2008"

In addition to international brands to take the initiative to find local supply chain resources in Vietnam, the head of the Chinese textile and apparel supply chain enterprises that rely on processing services for these international brands to achieve development in the early years have also smelled business opportunities and have increased investment in Vietnam and other Southeast Asian countries.

In 2013, Chinese color spinning giant Blum Oriental built a production project in Vietnam, and now has 1.1 million spindles capacity in Vietnam, accounting for over 60% of the company's total capacity. in July 2021, Blum Oriental built another 390,000 spindles capacity in Vietnam.

In 2014, Shenzhou International, a major supplier to the four major brands of Uniqlo, Nike, Adidas and Puma, completed a new garment and fabric factory in Vietnam to achieve a vertically integrated layout. At present, Shenzhou International's Southeast Asian garment production capacity accounts for nearly 40% of the head office.

Suppliers of brands such as Calvin Klein, Tommy Hilfiger and other brands have also built factories in Vietnam since 2017.In 2021, Digesto acquired another Chinese Taiwan factory in Vietnam, and now there are more than 1,000 workers in Vietnam.In 2022, the production proportion of the Vietnamese factory of Qin Tuo Group has reached 35%of the overall production capacity, and it is expected to jump to more than 60% in 2023.

"Vietnam is the closest country to China in the level of garment and textile industry among Southeast Asian countries today," said You Hongyan, CEO of Qin Tuo Group, in an interview with "Interface Fashion".

As early as 20 years ago, many Japanese and Korean companies have started to invest and produce in Vietnam, and now the number of Singaporean and Chinese textile and clothing companies is also increasing.

The arrival of these enterprises has to a certain extent helped the overall level of Vietnam's textile and apparel industry to improve year by year.

But You Hongyan also pointed out that in her opinion the current level of Vietnam's textile and apparel industry "is about the level of China in 2008."

In fact, a number of interviewees told "Interface Fashion" that the current production of clothing products in Vietnam is based on basic models, because the complex style of Vietnamese factories "can not do".

You Hongyan mentioned that at present, QIN TUO GROUP customers still keep some complicated design styles in China for production. Besides, digital printing and environmentally friendly fabrics are also difficult to realize in Vietnam.

In order to improve the quality of products and processes in the Vietnam factory, Wang Yuan's company not only purchased automated equipment, but also sent Chinese employees to manage and train Vietnamese employees. Wang Yuan, as the layout room manager of the Jiaxing branch of the Taiwanese factory he works for, was sent to Vietnam in 2012 to take charge of local worker training.

In addition, Vietnam lacks a vertically integrated enterprise with a complete industrial chain like Shenzhou International, as well as a mature upstream and downstream industrial cluster.

In Vietnam, upstream supply chains such as yarn, fabric and accessories are scarce, and raw materials needed for Vietnam's textile and garment manufacturing industry are still dependent on imports. According to the Vietnam Textile and Apparel Association (VITAS), 55% to 60% of the supply of raw and auxiliary materials for Vietnam's textile industry comes from China, especially raw and auxiliary materials for garments, yarns, fabrics, etc. are mainly imported from China.

This has affected the overall resilience of Vietnam's textile and apparel industry, and at the beginning of the COVID-19 in 2020, WU DE Jiang, chairman of the Vietnam Textile and Apparel Association (VITAS), publicly stated that Vietnam's textile industry was facing a serious shortage of raw and auxiliary materials.

The increasingly expensive "Made in Vietnam"

It is worth mentioning that several interviewees mentioned that the other side of the rapid development of "Made in Vietnam" is the gradual loss of various cost advantages.

The first and foremost is the labor cost advantage.

For the last ten years or so, Vietnam has been raising the minimum wage once a year. Due to the COVID-19, Vietnam has not adjusted the minimum wage from 2020 to the first half of 2022. However, according to Vietnam News Agency, from July 2022, Vietnam's minimum wage will rise 6% from the current wage base.

The minimum salary in Vietnam is divided into 4 regions according to the difference of places, the first region is VND4.42 million (about RMB1286); the second region is VND3.92 million; the third region is VND3.43 million and the fourth region is VND3.07 million. After adjusting 6%, the regional minimum salary ranges from VND3.25 million to VND4.68 million, an increase of VND180,000 to VND260,000.

"If you look at the highest paying District 1 alone, which includes Hanoi and Ho Chi Minh City, the cumulative increase in the minimum wage over the last decade has reached 57%." Yang said.

Yang also mentioned that before each wage increase for employees, the union and the company need to play with each other on the timing and rate of wage increases, which is a complicated process.

In textile recruitment, the actual wage costs are much higher.

Ho Chi Minh City is the business and economic center of Vietnam and is considered by many foreign companies as the preferred destination for investment, which in turn makes it the city with the highest average salary in Vietnam.

You Hongyan said the base salary for recruiting workers for spinning and clothing factories in Ho Chi Minh City is now between $200 and $250/month, with an average salary of up to $450 to $500/month (about RMB 3016/month to RMB 3352/month) after adding piecework commissions. "This is equivalent to our recruiting costs in small towns in Anhui province, where wages are around RMB 3,000 to 4,000."

Yang also pointed out that it would be difficult to recruit workers if the take-home pay did not reach these levels, as the number of factories in Ho Chi Minh City is saturated to the point where they need to move out to neighboring cities. This gives workers the right to choose instead.

Wang Ziyong, the owner of Changxing Ruilaiyi Textile Co., Ltd. rented a stall to run a fabric business in his storefront in Hanoi, the capital of Vietnam. Now, he wants to find a local helper who can communicate in Chinese, and the salary should be about 3,500 to 4,000 RMB.

Doing business in Vietnam also involves dealing with local regulations and customs.

"Many local customers of large goods like to credit before and you long-term cooperation, said to be concerned about human relations, but the money can not be recovered I have encountered several times." Wang Ziyong said.

Wang Yuan's factory, on the other hand, often receives tickets because of local environmental laws. "It's not just the factory's emissions, but our employees' laundry effluent is also sampled from time to time to check if we're using pollution-free laundry detergent. Sometimes it can feel like a deliberate attempt to catch you in the act." He said.

But in Yang's opinion, in fact, the laws and regulations in this area of environmental protection is written very clearly, there is evidence to follow. But the same rule from what angle to analyze or depends on the attitude of law enforcement officers. Practitioners who comply with the regulations, the official has no opportunity to list a significant amount of punishment.

To some extent, textile and garment as a low value-added, high pollution, high energy consumption industry in Vietnam has been less "popular". Now, Vietnam is more interested in attracting "high precision" industries to gather.

In 2014, the Vietnamese government had stated that by 2025, priority would be given to the development of raw and auxiliary textile and footwear materials for domestic production and export; and after 2025, priority would be given to the development of high fashion and footwear industries. And in the latest issued action plan for economic restructuring 2021-2025, the increase in the number of technological innovation enterprises is listed as a priority.

At the recent Vietnam-EU Business Forum, Ho Chi Minh City also made it clear that priority should be given to high-tech and environment-friendly enterprises.

Now unless high-tech companies, such as Apple, Samsung's supply chain, like the general supply chain of clothing production now to enter Vietnam has been difficult to get approval," said You Hongyan, "I think Vietnam also has 5 years of development space, after all, less than 100 million people, and our manufacturing province of Guangdong equivalent. Next, I am ready to go to Indonesia and Bangladesh to investigate."