State of Vietnam’s Textile and Clothing Industry
Vietnam has a substantial textile and clothing industry comprising around 4,000 enterprises, of which the majority were located in the country’s two principal population centers—Ho Chi Minh City and Hanoi. Around 70% of these enterprises were involved in the manufacture of clothing. A further 17% were involved in the fabric sector, 6% in the yarn sector, 4% in the dyeing sector and 3% in the accessories sector.
It is estimated that around 70% of Vietnam’s textile and clothing production is dependent on the cut and trims operations, using imported textiles and other inputs predominantly from China. This problem is not limited to a single category as the country needs to import man-made fibers, yarns, fabrics, and accessories as well as raw cotton.
The dyeing and finishing segments of the supply chain remain fairly underdeveloped. In the past, the Vietnamese government has issued tightly controlled permits for these operations. Also, there has been a deficiency of investment in these segments because of unclear regulations, and this has resulted in a bottleneck in the supply chain.
Similarly, high added-value design and “downstream” activities rely on the input of foreign companies are also underdeveloped. Consequently, in carrying out these activities, the industry relies heavily on the help or participation of foreign companies.
State of Vietnam’s Textile and Apparel Export
Vietnamese textile and clothing exports began to gain momentum in 2001 when trading relationships were established with Western countries (e.g., the US-Vietnam Textile Agreement). The industry’s exports received a further boost after Vietnam joined the World Trade Organization (WTO) at the start of 2007, and the quotas which had been restricting imports of Vietnamese goods in the US market were eliminated.
In 2016, Vietnam’s textile and clothing exports totaled $28 billion (84% were clothing), which represented 16.0% of Vietnam’s total merchandise exports. Globally, Vietnam was the world’s third largest apparel exporter in 2015, after China and Bangladesh (WTO, 2016).
The Vietnam Textile & Apparel Association (VITAS) expects Vietnam’s textile and clothing exports to enjoy an average 15% annual growth in the next four years and exceed $50 billion USD by 2020.
Vietnam’s textile and clothing exports went to around 180 countries. The United States is Vietnam’s top export market (around 40%), followed by the EU (around 12.5%), Japan (10.3%) and South Korea (8.1%).
Outlook of Sourcing from Vietnam by US Fashion Companies
According to the 2017 US Fashion Industry Benchmarking Study, Vietnam is the 2nd most used sourcing destination by respondents. Particularly, the most commonly adopted sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many”:
- China typically accounts for 30-50 percent of respondents’ total sourcing value or volume.
- Vietnam typically accounts for 11-30 percent of companies’ total sourcing value or volume.
- For the “many” part, each additional country (such as US, NAFTA members and CAFTA members, EU countries and members of AGOA) typically accounts for less than 10 percent of respondents’ total sourcing value or volume.
Respondents also see Vietnam overall a balanced sourcing destination, regarding “speed to market”, “sourcing cost” and “compliance risk”.
Additionally, U.S. fashion companies intend to source more from Vietnam through 2019, but imports may grow at a relatively slow pace, possibly due to the United States’ withdrawal from the Trans-Pacific Partnership (TPP) and the increasing labor costs in the country.
References：Textile Outlook International (2017); WTO (2017); UN Comtrade (2017)
The report can be downloaded from HERE
Key findings of the study:
While the majority of respondents remain confident about the five-year outlook for the U.S. fashion industry, the percentage of those who are “optimistic” or “somewhat optimistic” dropped to a record low since we began conducting this study in 2014. This change could be due to concerns about the “protectionist trade policy agenda in the United States” and “market competition in the United States from e-commerce,” the top two concerns this year.
- The percentage of those who are “optimistic” or “somewhat optimistic” fell from 92.3 percent in 2016 to 71.0 percent in 2017, a record low since we began conducting this study in 2014. As many as 12.9 percent of respondents are “somewhat pessimistic” about the next five years, mostly large-scale retailers with more than 3,000 employees.
- Despite the challenges, demand for human talent in the industry overall remains robust. This year, around 80 percent of respondents plan to hire more employees in the next five years, especially supply chain specialists, data scientists, sourcing specialists, and marketing analysts.
- Cost is no longer one of the top concerns; respondents are less stressed about “increasing production or sourcing cost,” which slipped from #2 challenge in 2016 to #7 challenge in 2017. Only 34 percent rate the issue among their top five challenges this year, significantly lower than 50 percent in 2016 and 76 percent in 2015. Labor cost remains the top factor driving up sourcing cost in 2017.
Although U.S. fashion companies continue to seek alternatives to “Made in China,” China’s position as the top sourcing destination remains unshakable. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a relatively slow pace.
- 91 percent of respondents source from China; while 100 percent sourced from China in our past three studies, China is still the top-ranked sourcing destination this year, and the percentage of those expecting to decrease sourcing from the country fell from 60 percent in 2016 to 46 percent this year—and many more expect to maintain their current sourcing value or volume from the country in the next two years.
- Likely reflecting the United States’ withdrawal from the Trans-Pacific Partnership (TPP) and the expectation of increasing labor costs, only 36 percent of respondents expect to increase sourcing from Vietnam in the next two years, much lower than 53 percent who said the same in 2016.
- Respondents are cautious about expanding sourcing from Bangladesh in the next two years, with only 32 percent expecting to somewhat increase sourcing While “Made in Bangladesh” enjoys a prominent price advantage over many other Asian suppliers, respondents view Bangladesh as the having the highest risk for compliance.
U.S. fashion companies continue to maintain truly global supply chains.
- Respondents source from 51 countries or regions in 2017, close to the 56 in last year’s study.
- 57.6 percent source from 10+ different countries or regions in 2017, up from 51.8 percent in last year’s survey. In general, larger companies have a more diversified sourcing base than smaller companies. Additionally, retailers maintain a more diversified sourcing base than brands, importers/wholesalers, and manufacturers.
- Around 54 percent expect their sourcing base will become more diversified in the next two years, up from 44 percent in 2016; among these respondents, over 60 percent currently source from more than 10 different countries or regions.
- The most common sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many.” The typical sourcing portfolio today is 30-50 percent from China, 11-30 percent from Vietnam, and the rest from other countries.
- While Asia as a whole remains the dominant sourcing region for U.S. fashion companies, the Western Hemisphere is growing in popularity. This year, we see a noticeable increase in sourcing from the United States (70 percent, up from 52 percent in 2016) and countries in North, South, and Central Americas, which offer a shorter lead time and relatively lower risk of compliance.
Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.
- 5 percent of respondents say ethical sourcing and sustainability have become more important in their company’s sourcing decisions in 2017 compared to five years ago.
- 100 percent of respondents currently audit their suppliers, including how suppliers treat their workers, suppliers’ fire safety, and suppliers’ building safety. The majority (93 percent) use third-party certification programs to audit, with a mix of announced and unannounced audits.
- As many as 90 percent of respondents map their supply chains, i.e., keep records of name, location, and function of suppliers. More than half track not only Tier 1 suppliers, suppliers they contract with directly, but also Tier 2 suppliers, i.e. supplier’s suppliers. It is less common for U.S. fashion companies to map Tier 3 and Tier 4 suppliers though, which could be because of the difficulty of getting access to related information with such a globalized and highly fragmented supply chain.
Free trade agreements (FTAs) and trade preference programs remain underutilized, and several FTAs, including CAFTA-DR, are utilized even less this year than in previous years.
- Of the 19 FTAs/preference programs we examined this year, only NAFTA is used by more than 50 percent of respondents for import purposes.
- Even more concerning, some U.S. fashion companies source from countries/regions with FTAs/preference programs but, for whatever reason, do not claim the benefits. For example, as many as 38 percent and 6 percent of respondents, respectively, do not use CAFTA-DR and NAFTA when they source from these two regions.
Respondents unanimously oppose the U.S. border adjustment tax (BAT) proposal and call for the further removal of trade barriers, including restrictive rules of origin and high tariffs.
- 100 percent of respondents oppose a border adjustment tax; 84 percent “strongly oppose” it.
- Respondents support initiatives to eliminate trade barriers of all kinds, from high tariffs to overcomplicated documentation requirements, to the restrictive yarn-forward rules of origin in NAFTA and future free trade agreements.
- Respondents say the “complex standards on labeling and testing”, “complex rules for the valuation of goods at customs” and “administrative and bureaucratic delays at the border” are the top non-tariff barriers they face when sourcing today.
The benchmarking studies from 2014 to 2016 can be downloaded from https://www.usfashionindustry.com/resources/industry-benchmarking-study
The EU-Vietnam Free Trade Agreement was concluded in December 2015. The agreement is EU’s second free trade agreement with a Southeast Asian country (after Singapore) and is the most ambitious and comprehensive FTA that the EU has ever concluded with a middle-income developing country.
Statistics from the Eurostat show that Vietnam was EU’s sixth largest extra-region apparel supplier in 2015 (after China, Bangladesh, Turkey, India and Cambodia), accounting for 3.5% of imports in value (or €28.0 billion) and 2.8% in volume.
The EU-Vietnam free trade agreement is expected to substantially expand Vietnam’s textile and apparel exports to the EU market. On the one hand, EU’s import duties on textile and apparel from Vietnam will be eliminated through a seven-year phaseout period once the agreement comes into force (see below). On the other hand, a garment made in Vietnam which contains fabrics made in South Korea or other ASEAN countries with which the EU has a free trade agreement in force will still be qualified for duty-free treatment under the agreement.
Complied based on the EU-Vietnam Free Trade Agreement: Agreed text as of January 2016.
The legal review of the negotiated text is currently on-going and will be followed by translation into the EU’s official languages and Vietnamese. The EU Commission will then present a proposal to the Council of Ministers for approval of the agreement and ratification by the European Parliament. The agreement is expected to come into force in 2018.
The following analysis is from the latest Just-Style Op-ed Is China Losing Its Edge as a US Apparel Supplier.
A fact-checking review of trade statistics in 2016 of a total 167 categories of T&A products categorized by the Office of Textiles and Apparel (OTEXA) suggests that textile and apparel (T&A) “Made in China” have no near competitors in the U.S. import market. Specifically, in 2016:
- Of the total 11 categories of yarn, China was the top supplier for 2 categories (or 18%);
- Of the total 34 categories of fabric, China was the top supplier for 25 categories (or 74%);
- Of the total 106 categories of apparel, China was the top supplier for 88 categories (or 83%);
- Of the total 16 categories of made-up textiles, China was the top supplier for 12 categories (or 68%);
In comparison, for those Asian T&A suppliers regarded as China’s top competitors:
- Vietnam was the top supplier for only 5 categories of apparel (less than 5% of the total);
- Bangladesh was the top supplier for only 2 categories of apparel (less than 2% of the total)
- India was the top supplier for 2 categories of fabric (9% of the total), one category of apparel (1% of the total) and 5 categories of made-up textiles (41.7% of the total)
Notably, China not only was the top supplier for many T&A products but also held a lion’s market shares. For example, in 2016:
- For the 34 categories of fabric that China was the top supplier, China’s average market shares reached 41%, 23 percentage points higher than the 2nd top suppliers for these categories
- For the 88 categories of apparel that China was the top supplier, China’s average market shares reached 53%, 38 percentage points higher than the 2nd top suppliers for these categories.
- For the 16 categories of made-up textiles that China was the top supplier, China’s average market shares reached 57%, 40 percentage points higher than the 2nd top suppliers for these categories.
It is also interesting to see that despite the reported rising labor cost, T&A “Made in China” are NOT becoming more expensive. On the contrary, the unit price of U.S. T&A imports from China in 2016 was 6.8% lower than a year earlier, whereas over the same period the unit price for U.S. T&A imports from rest of the world only declined by 2.9%.
Furthermore, T&A “Made in China” are demonstrating even bigger price competitiveness compared with other suppliers to the U.S. market. For example, in 2016, the unit price of “Made China” was only 78% of the price of “Made in Vietnam” (in 2012 was 89%), 88% of “Made in Bangladesh” (in 2012 was 100%), 86% of “Made in Mexico” (in 2012 was 103%) and 72% of “Made in India” (in 2012 was 81%).
Are the results surprising? How to explain China’s demonstrated price competitiveness despite its reported rising labor cost? What’s your outlook for the future of China as a sourcing destination for U.S. fashion brands and retailers? Please feel free to share your views.
According to Thanh Nien News, Vietnam’s textile and apparel (T&A) exports only increased 5.1 percent to $10.7 billion in the first half of 2016. This was the lowest growth rate since 2010. Data from the General Statistics Office of Vietnam shows that Vietnam’s T&A exports totaled $22.63 million in 2015, up 8.2 percent from a year earlier.
In the U.S. market, apparel imports from Vietnam also see a much slower growth in the first five months of 2016: 4.1% by value (compared with 13.1% on average between 2010 and 2015) and 5.0% by quantity (compared with 11.8% on average between 2010 and 2015).
The new trade data echos the findings in the latest 2016 US Fashion Industry Benchmarking Study. Although Vietnam remains one of the top sourcing destinations, respondents seem to be more conservative about Vietnam’s growth potential in the next two years. Only 4 percent of respondents expect a strong increase of sourcing value or volume from the country, which is a substantial drop from 21.4 percent in the 2015 study.
China as the top textile and apparel sourcing destination for U.S. companies remains “unshakable”, according to product level data from the Office of Textiles and Apparel (OTEXA) under the U.S. Department of Commerce. Specifically, based on the import value in 2015:
- Of the total 11 categories of yarns, China was the top supplier for 3 categories (27.3%)
- Of the total 34 categories of fabrics, China was the top supplier for 23 categories (67.6%)
- Of the total 106 categories of apparel, China was the top supplier for 95 categories (89.6%)
- Of the total 16 categories of made-up textiles, China was the top supplier for 12 categories (75.0%)
In comparison, Vietnam, the second largest textile and apparel supplier to the United States, was the top supplier for only four categories of apparel (3.8% of the total 106 categories).
For many textile and apparel products, China not only is the largest supplier, but also holds a lion’s market share. Specifically, for those textile and apparel product categories that China was the top supplier in 2015 (by value):
- China’s average market share reached 20.7% for yarns, 2.3 percentage points higher than the 2nd top supplier
- China’s average market share reached 42.0% for fabrics, 25 percentage points higher than the 2nd top supplier
- China’s average market share reached 52.7% for apparel, 37.2 percentage points higher than the 2nd top supplier
- China’s average market share reached 56.8% for made-up textiles, 42.7 percentage points higher than the 2nd top supplier
by Sheng Lu