Overview of the Textile & Garment Sector in Vietnam

Transcription

1 EMBASSY OF DENMARK IN VIETNAM The Business-to-Business Programme BUSINESS-TO-BUSINESS FOR DEVELOPMENT Overview of the Textile & Garment Sector in Vietnam NOVEMBER 2010

2 Table of content LIST OF TABLES... 2 INTRODUCTION... 2 I. OVERVIEW OF THE TEXTILE AND GARMENT INDUSTRY IN VIETNAM GOVERNMENT POLICY ON THE INDUSTRY DEVELOPMENT SITUATION IN RECENT YEARS Domestic demands in Vietnam Import and Export Main players in business and manufacture of the textile and garment industry in Vietnam The Vietnam Textile and Apparel Association IMPORT TAX...10 II. TYPICAL SUB-SECTORS OF THE INDUSTRIES TEXTILES GARMENTS...10 III. RAW MATERIALS PRODUCTION CAPACITY...12 IV. BUSINESS COST INFRASTRUCTURE IN VIETNAM TRANSPORT COSTS: TRANSPORT IN THE COUNTRY SIDE AND SEA FREIGHT...13 V. HUMAN RESOURCES AND SOCIAL BENEFITS WAGES FOR EMPLOYEES SOCIAL BENEFITS...15 VI. SWOT ANALYSIS VIETNAM TEXTILE SWOT VIETNAM APPAREL SWOT...17 VII. CONCLUSION VIII. REFERENCES: IX. ANNEXES List of Tables Table 1: Vietnam's Textile and Apparel Export to EU in 1st Quarter Table 2: EU Clothing Imports in First Quarter Table 3: Companies in Vietnam by product category... 9 Table 4: US Imports Table 5a: Transport fee from Vietnam to Denmark Table 5b: Transport fee from Vietnam to Denmark Table 6: Wages in North Vietnam Table 7: Start salary for special Jobs in South Vietnam Table 8: Costs for overtime ANNEX 1: ANNEX ANNEX

3 INTRODUCTION Danida s Business-to-Business (B2B) Programme is part of the Danish development cooperation. The programme supports the establishment of long-term and commercially viable partnerships between Danish and Vietnamese companies to improve the business competencies in Vietnam, and thereby improve the competitiveness of Vietnamese companies, generate economic growth and reduce poverty. In connection with the delegation of Danish garment and textile companies to Hanoi, Vietnam in March 2011, the B2B programme provides an extensive research report to give a comprehensive overview of the garment and textile industry, updated with facts, trends and recent history essentials to get an understanding of the Vietnamese market. This report is reinforced by desk research, interviews/meetings with, but not limited to, reliable, updated and public information from national agencies, local business associations, and relevant local and international organizations in Vietnam. List of references is provided at the end of this report. I. Overview of the Textile and Garment industry in Vietnam 1. Government policy on the Industry The future for the textile and garment industry in Vietnam is promising. The Vietnamese government is highly supportive of the textile and garment sector, and there are strong incentives to attract foreign investment. The government has outlined ambitious plans for the industry s development. If these plans are fulfilled, employment and exports in the sector will double by The industry expects an on-year growth of 12% to $10.5 billion this year following the global economic rebound. The Vietnamese prime minister has decided to choose March 25 as the traditional day of Vietnam Textile and Garment Sector. Vietnam's 1992 textile trade agreement with the EC Community constituted one of its first trade deals with a Western partner. This was followed by a broader cooperation agreement in 1995, which granted Vietnam most favoured nation treatment in its trade relations with the EU. A new Market Access Agreement in 12/2004 lifted all EU quantitative restrictions for Vietnamese textiles as of 1/1/2005 in exchange to some first-mover advantages to EU companies in VN. This agreement constituted the EU s green lighted to VN accession to the WTO and a boost to the process. The free trade agreements (FTA) that Vietnam and other ASEAN members have signed with their partners have benefited the country immensely, including an impressive rise in export earnings in the first half of the year. Vietnam enjoys a number of FTA s, including the ASEAN Free Trade Agreement (AFTA), the ASEAN-China FTA, the ASEAN-RoK FTA, the ASEAN-Japan Comprehensive Economic Partnership Agreement, the ASEAN-Australia-New Zealand FTA, and the ASEAN-India FTA. Vietnam joined the World Trade Organisation (WTO) at the beginning of 2007 and seems set to build upon its recent export success. The garment and apparel ranks in the categories having advantages in EU market because Vietnam enjoys the Generalized System of Preferences (GSP). However the Vietnamese exporters have not yet well utilized this benefit due some limits in product design and quality as required by EU customers. Vietnamese factories have a business certificate legislation to export. Currently, the textile and garment sector is encouraged by the government to export its products. There are no restrictions on the export of garment products, which have made it simple for Vietnamese enterprises to arrange the export of their products. They can deal directly with the Customs 3

4 Department. Vietnamese factories have a GSP Form A. GSP stands for Generalize System of Preference. With this GSP Form A certificate producers have a lower tax compared to normal. With the certificate, the export tax for jacket and trousers is only 10%. Without the GSP Form the export tax is 14 or15 %. To arrange the export, the documents are sent by the producer to (1) the Bank for LC payment and (2) to the buyer to show to the customs department when goods arrive. Furthermore the GSP form should be sent to the Chamber of Commerce and Industry. The export part and sending of required documents to the right institutions is arranged on the Vietnamese side and is no different than the procedure of exporting any other product. Any Vietnamese company with export experience will be able to arrange all necessary documents. 2. Informal trade barriers in the Vietnamese garment industry As mentioned earlier, there is a high labour competition going on in Vietnam due to low labour costs and the increasing demand for more technical skilled workers. The workforce is young and mobile and a trend of job hopping is developing. This makes it difficult for enterprises to maintain a stable, capable workforce. About how to do business in Vietnam it is mainly important to establish a good relationship with the seller. Although the Vietnamese garment industry is a busy one, the people are open, friendly and well willing to start a new interesting business relationship. However, there are some difficulties. Just like job hopping there is also a trend noticed that big customers hop between garment factories, because they search for the lowest price. Garment factories are aware of this, building a relationship will take time. Because the Vietnamese garment market is mainly ruled by big customers, it is more difficult for smaller (mainly European) customers to build a relationship. Because of the boom in the industry, Vietnamese business people are becoming more and more short term minded and it can be very difficult to arrange meetings. When established, meetings or appointments they should be confirmed numerously to avoid them to be forgotten. 3. Development situation in recent years Vietnam s textile and garment industry has experienced accelerated development in the last decade. By 2004, it was estimated that the industry employed 2.1mn people directly, or 4.7% of Vietnam s total workforce. In 2005, Vietnam s textile and garment exports totalled US$4.8bn and the government set the target of doubling that to US$10bn by Officials at the time said they expected the number of people employed in the industry to also double, reaching 4mn or more. Vietnam has a long tradition of what could be called cut and sew operations, but it was more recently that it began to invest heavily in spinning and weaving. A key milestone for the industry was the 1986 launch of the Doi Moi ( opening up ) policy, which allowed the development of a private sector and the liberalisation of trade. Also of importance was Vietnam s gradual increase and normalisation of trade with the rest of the world. In December 2001, the United States granted Vietnam normal trading relations (NTR) and later most-favoured nation (MFN) status, which led to a sharp reduction in tariffs on Vietnamese exports to the US. This was followed in early 2007 by Vietnam s accession to the World Trade Organization (WTO). Over the last many years, Vietnam textile and garment industry has witnessed strong development. Products made in Vietnam have penetrated to the world market, thus it was contributing to the economic development of the country. The export values increased rapidly, and this sector is one of the industries that for many consecutive years has ranked very high in terms of key export products. Over many years, the industry continuously invested and changed equipment and technology to meet the market demand and to improve its competiveness. 4

5 In general there are two major factors which contribute to Vietnam s remarkable performance. The first is the transition of central planning to an open market system and the second is the increasing integration between regions and countries by becoming a member of the Association of Southeast Asian Nations (ASEAN), ASEAN Free Trade Area (AFTA) and the World Trade Organization (WTO). These 2 factors are strongly related to each other. The Vietnamese textile and garment industry made significant achievements, thanks to the above mentioned factors and the political stability. The industry employs a large labour force, with low labour cost. Thanks to the open door policy, the government of Vietnam took bold reform measures to promote the economic development of the country. In 1995, Vietnam became a member of the Association of Southeast Asian Nations (ASEAN). Vietnam actively participated in all activities of this organization and step by step integrated into the regional and global economy for the benefit of the country (and region). On 1 January 1996 Vietnam officially joined the Commonly Effective Preferential Tariff (CEPT) and implemented the AFTA with the roadmap of ten years ( ). In that period all tariff on textile and garment products is down to 0 5% only. Given the current trend of economic globalization and integration of countries around the world, the competition is hard in gaining market share. Vietnam (and other developing countries) has to cope with many difficulties: it is currently less developed in terms of machinery and equipment, technology, and labour skills. Another difficulty is the high inflation (2007: 16%) compared to economic growth (2007: 8,5%). Besides this, labour costs are becoming more competitive. There are many workers in this sector, so companies compete with each other to get (the best) workers. On the other side, it could be possible that in future labour costs are getting less important when there is more demand for technical skills. However, nowadays economies of scale play an important role in all of these activities. Vietnam s accession to the WTO on 11 January 2007 brings significant opportunities to the garment exporters. They are not restricted anymore by export quota s (quantity restriction). However the WTO brings opportunities to enter markets of all countries, and therefore competition among the exporters is becoming tougher. In Vietnam, many enterprises in the sector, especially small and medium sized enterprises and some FDI enterprises have faced difficulties in 2009, i.e. the lack of purchase orders for production for the first quarter (orders reduced by 20-25%), 10-15% lower in prices and redundancy. Because such solutions as cost and price reductions for increased competitiveness and redirection to the local market are applied, the situation has been improved since the second quarter; enterprises have been fed enough with orders for their production, even some large enterprises have shared their orders with other small and medium sized enterprises. Currently, enterprises, especially large enterprises have had a lot of orders even till end of 1 st and 2 nd quarters of Generally, price level is still lower than previously but enterprises must accept the orders to maintain the production and keep the workers. The local market has had a little prosperity, the retail sale turnover increased by more than 18% and more and more enterprises have paid attention to investment in the local market development and the first successful step is a new feature which encourages other enterprises to follow Domestic demands in Vietnam By the first half 2010, Vietnam s population of over 90 million with growth rate of 6,5 % rendered the domestic market more important for Vietnam s garment and textile producers. Thus, companies recognized the importance of the domestic market when exports were shrinking at the beginning of Domestic year-on-year sales increased by 20 % in Increasing salaries and improving living standards made the Vietnamese market more attractive for domestic as well as foreign enterprises. The vast growth of VINATEX, Vietnam s biggest textile producer, is partly 5

6 based on a new domestic distribution system, established in spring 2009, with 55 supermarkets and 20 fashion shops in 22 cities and provinces. The government has tried to boost domestic sales by paying due attention to the development of the domestic market with appropriate products, competitive prices and marketing linkages, and the development of retail markets. An old saying form the Politburo: Vietnamese people use Vietnamese goods has been modernised into a program called: Company with the Vietnamese textile and garment businesses for people in the national seas and islands. However despite the increasing and growing consumption by the Vietnamese domestic market, the textile and garment sector main part of customers are foreign, and it s an industry which is very export minded Import and Export In short, the textile and garment sector has made a remarkable contribution to the economic development of Vietnam. With nearly 2 million people involved in 2006, the industry contributed 8,2% to Vietnam s industrial value, and 5 billion USD or 16,5% of the country s export turnover, and this figure has been growing since. In table 1 an overview of the growth of the textile and garment export of Vietnam is given. The textile and garment industry still depends heavily on imported materials and accessories. Investment policies to boost production of materials and accessories have faced with many obstacles because the localities do not set aside land for the textile and garment industry or require an expensive wastewater treatment system. Textiles and garment products is one of the most important sectors for Vietnamese export and outsourcing of production. Vietnam s apparel exports are estimated to have risen 22.3% from a year earlier to $9.1 billion in the ten months of 2010, according to the General Statistics Office. In October, the country exported $1.1 billion worth of apparel products (+39.1% - and up more than 7.2% just against Sept.) In the ten-month period from January to October this year, the country has imported $4.35 billion worth of cloth (+26.5%), $2.13 billion of apparel and footwear materials and accessories (+37.1%), $905 million of fiber (+41.6%), and $554 million of cotton (+77.4%). Earlier, the Vietnam Textile and Apparel Association (VITAS) forecast the sector would finish its full-year export target of $10.5 billion by November. VITAS also predicted the apparel export turnover will hit roughly $1.5 billion monthly in this year s remaining quarter (GSO Oct 26). September was the third consecutive month the industry fetched more than $1 billion from exports, bringing the sector s total export value in the first nine months of this year to more than $8 billion, a year-on-year increase of 20.6 per cent, according to the General Statistics Office. Vice chairman of the Vietnam Textile and Apparel Association (VITAS) Le Van Dao said many garment exporters had orders for the end of this year and even for the beginning of next year. Le Van Dao Dao estimated that the industry would earn more than $1 billion each month in the fourth quarter. This sector holds promising opportunities and posts an export turnover of 9 billion USD in the first nine months of this year, the sector continued taking the lead amongst export staples since the beginning of Export growth since 2001 has been steep. It was particularly strong in 2003 at 33% and in 2002 at 40%, but growth slowed in 2005 to just 10%. This was due mainly to the fact that quotas restricting imports from other Asian countries were eliminated at the beginning of the year, but imports from Vietnam into the USA Vietnam's largest export market were still subject to quotas. US retail buyers therefore turned to countries such as China and India for their clothing. In 2006, however, the USA implemented safeguard quotas on several categories of Chinese textiles 6

7 and clothing, with the result that buyers returned to Vietnam. As a result, Vietnamese exports soared by 20,6% to USD million. As mentioned before Vietnam joined the WTO in 2007, and the USA was obliged to remove all quotas on textile and clothing imports from the country. The removal of quotas boosted US demand for Vietnamese clothing, especially for lower end products. In Table 2 an overview is given of the expert divided to several markets: EU, US, Japan, or other countries. Vietnam plans to double the value of its textile and garment exports from USD 4.8 billion in 2005 to USD 10 billion, according to a new report by Textiles Intelligence. At the same time it hopes to double the number of people working in the industry from 2 million to 4 million workers. Vietnam s textile and garment industry plans to achieve these targets by streamlining production and thereby reducing unit costs to boost international competitiveness. These 2010 goals will certainly be reached at the end of this year. With a current workforce of 4,1 million and an export of already 9,1 billion this year, these goals have proved that the Vietnamese textile and garment industry has been able to grow rapidly despite enhanced global competition and a the devastating financial crisis. Key markets are still markets with high purchasing power such as United State, EU, Canada, Japan, Korea, Australia and retail markets which play a role as shopping centres in the region such as Hong Kong, Singapore, Sweden, and England. The key markets include EU, where the annual import demand in recent years has been about USD180 billion, the export of Vietnam in 2008 to EU only is accounted for 1% of its import value, Vietnam is striving to raise this rate to 1.4% by 2010 (equal to USD 2.2 billion of the value). In 2008 EU abolished textile quota for China, this had substantial impacts on the Vietnamese textile and garment export to this market. Vietnam and other countries have to be in a fierce competition with the Chinese textile sector which has strong competitiveness, available materials and accessories and ability to meet various types of goods ranks. Table 1: Vietnam's Textile and Apparel Export to EU in 1st Quarter 2010 Market 1st Quarter 2010 (USD) 1st Quarter 2009 (USD) 2010/2009 (%) EU Germany England Spain Netherlands France Italia Belgium Sweden Czech Rep Denmark Poland Luxembourg Ireland Austria (Source: 7

8 Table 2: EU Clothing Imports in First Quarter 2010 Volume (100 Kg) Value (USD) Unit Price (USD/ 100kg) Change 2009 Change 2009 Change 2009 Suppliers Q1 08 Q1 09 Q1 10 (%) Q1 08 Q1 09 Q1 10 (%) Q1 08 Q1 09 Q1 10 (%) EU27_ext ra 22,394,666 20,883,410 20,444, ,743,813,617 41,243,743,404 39,737,574, China 9,952,322 10,016,666 10,190, ,127,732,618 18,094,721,717 17,391,473, Turkey 2,175,400 1,856,240 1,918, ,528,369,119 4,955,167,175 5,291,257, Banglade sh 2,817,384 2,925,426 2,778, ,400,135,164 3,704,326,915 3,368,954, India 1,409,092 1,472,660 1,383, ,514,604,166 3,350,431,107 3,219,335, Tuynisia 529, , , ,113,028,645 1,612,916,771 1,672,585, Morocco 577, , , ,894,778,112 1,458,728,045 1,388,126, Vietnam 749, , , ,771, ,539, ,503, Sri Lanka 355, , , ,659, ,400, ,976, Indonesi a 395, , , ,065, ,433, ,374, Pakistan 567, , , ,860, ,488, ,811, Thailand 279, , , ,820, ,600, ,076, Switzerla nd 27,964 26,582 21, ,527, ,009, ,593, Macedon ia 122, ,674 93, ,712, ,644, ,369, Egypt 181, , , ,383, ,738, ,320, Hongkon g 386, , , ,066,570, ,809, ,558, Cambodi a 190, , , ,716, ,054, ,523, Unite States 47,534 63,084 55, ,659, ,800, ,347, Mauritius 110,294 95,690 82, ,168, ,727, ,625, Croatia 54,092 45,792 43, ,090, ,868, ,915, Ukraine 99,884 66,738 63, ,227, ,628, ,574, (Source: Over the past nine months, exports to the big markets have recorded high growth. Exports to the US increased 22.1 per cent to $3.94 billion, while the export to the EU and Japan rose 6.7 per cent and 14.3 per cent to $1.18 billion and $691 million. Exports to North Korea surged 64 per cent thanks to the impact of its Free Trade Agreement with ASEAN. However, Pham Xuan Hong, VITAS deputy chairman, said the garment industry was facing a shortage of labour and an increase in the price of transport and power. A surge in the price of cotton on the world market also had a negative impact on the industry. A tonne of cotton has risen 45 per cent since the same period last year to $1,900-2,000 while the industry has to import up to 95 per cent of its cotton. The industry imported 260,000 tonnes of cotton in the first nine months of the year and estimates that figure will reach roughly 370,000 tonnes by the end of the year. Hong said garment exporters were seeking new sources from Japan and ASEAN countries in order to enjoy preferential taxes. To fulfil the target of $19 billion from exports by 2015 and $25 billion by 2020, the garment sector is actively implementing programmes related to cotton cultivation to increase domestic supplies and develop human resources to meet the increasing demands of the sector. The sector is also promoting its trademark and setting up distribution networks nationwide to take a firm foothold in the domestic market. 8

9 3.3. Main players in business and manufacture of the textile and garment industry in Vietnam Table 3: Companies in Vietnam by product category: By product categories Number of companies Materials and spinning 96 Woven 382 Non-woven 6 Garment 1446 Accessories 35 Services 265 Source: International Business Research Vietnam 2008 pp.21 The textile and garment industry in Vietnam includes 450 foreign-owned enterprises, with over 4 million employees. Fifty-five % of them are located in and around Ho Chi Minh City, 30% in and around Hanoi, and 15% in and around Da Nang. There are 50 state owned companies, the others are limited liability companies, joint stock companies and private companies (on average 1.500). The remaining enterprises are (foreign) investment projects and joint ventures. The main difference between state owned companies and private companies is the decision making process and the size of the company. In state owned companies the decision making is rather slow. This is because these companies are really big, and that there is much more hierarchy than in private companies. In these enterprises there is more decentralization, less hierarchy and thereby a faster decision-making process, and having the possibility to decide on your own. Many garment factories cooperate with another factory, where they have subcontracts. Most factories cannot do every activity to finish a garment product. That is the main reason why companies have subcontracts and why they are more dependent of each other The Vietnam Textile and Apparel Association The Vietnam Textile and Apparel Association (VITAS) is a non governmental umbrella association working in the field of textile and garment industry in Vietnam. They have 15 branches in Vietnam and in total 635 members. These members account for 70% of the total capacity of the industry. The role of VITAS is to promote business and investment cooperation as well as exchanging information among members, between members, and the outside. Furthermore, VITAS represents its members and consults the state and Government bodies that are relevant and comforting policies and mechanisms relating to the development of the Textile and Garment industry in Vietnam. VITAS is representing the Vietnam textile and garment industry in international organizations and tries to be a bridge of cooperation between the domestic industry and the outside world. The VITAS also supports foreign companies in looking for Vietnamese textile and garment producers. One of the biggest members of VITAS is The Vietnam Textile and Garment Group (VINATEX), which is the biggest group of companies in the field of textile and garment in Vietnam. It has over 90 member companies in Vietnam which together cover activities from spinning, knitting, weaving, and dyeing to finishing. The total labour force of the VINATEX is nearly employees and another employees work in joint ventures with foreign and local partners. The production capacity of the VINATEX is tons of spun yarn, 250 million square meters of fabrics, 350 million pieces of woven garment, 80 million pieces of knitting, 200 million pieces of garment, and tons of raw cotton (data from ). The VITAS gives 9

10 advice to the government, and together with the big stakeholders they set some plans for future to increase development, competition, and export. In the next paragraph those plans are described. 4. Import tax Denmark is the nation which is received most favour-nation status in trade cooperation with Vietnam. Therefore, Danish companies will benefit from the special tax which is 30% lower as the normal rate. The government introduced new tax measures in late April 2009, intended to stimulate consumption. There were specific measures for the textiles and clothing sector. Under a ministry of finance circular, the Value added tax (VAT) rate was reduced by half for textiles and garments, as well as a number of other selected products VAT payment deadlines were also extended on certain types of imports. In addition footwear and garment companies benefited from exemptions on certain types of income tax liabilities. II. Typical sub-sectors of the industries 1. Textiles Factually, the apparel industry develops based on a round production chain from producing cotton, fibre, textile, dye, cloth and then garment. In this chain, Vietnam can now only do the last phase well. Apparel companies proposed that Vietnam should invest and develop the domestic material supply source. As a segment of the value-added chain, the Vietnamese textiles sector is going to be caught in an uncomfortable place in the next two years. It will be dependent on production orders from key customers in the garments business, and those have been falling more steeply than at any time in the last decade. This has forced a number of plants to lay off workers, reduce shifts, and extend holidays. In addition, these companies rely on imported raw materials, so exchange rate fluctuations and uncertainty in international trade is another potential negative. However the future looks reasonably bright concerning their ability to survive the tough times. It is predicted that textile value added, having expanded by an estimated 6.2% in 2008, contracted by 0.6% in 2009 and will recover by 3.0% again in 2010, and with 7.0% growth in Garments The Vietnamese garment export is one of the biggest in Asia. Vietnam exported garment at the value of 7,20 billion dollars in 2007 (WTO, 2008) and imported 0,43 billion dollars worth of garment, which meant a net export of 6,77 billion dollars. Vietnam is the fifth biggest export in Asia, where only garment giants as India, China, Hong Kong and Bangladesh is above Vietnam. Vietnam had 2,1 % of the worlds garment export in 2007, which was a rise from only 0,9 % in 2000, and Vietnam has now positioned itself as the 22 nd biggest export of the world. The Vietnamese garment sector has been the fast growing of its kind in Asia. Averaging a growth rate of 22 % in the period of made Vietnam the fastest growing garment exporter in Asia, where only China with 18 % could keep up. In 2007 alone the growth in export was 29 %, where only China was also able to reach percentages above 10. If you compare Vietnam and the rest of the world on for instance US import of garment and textiles in (see table 6 below), there is clear evidence of Vietnams growing market share in the garment sector, and that Vietnam in the future is to be reckoned with as a major player in the garment sector. 10

11 Table 4: US Imports Source: UNIDO III. Raw materials Upward trend of the material import prices is considered to be the nightmare of the textile and garment businesses whose 80 percent production relies on material import. During the last months of 2010, the industry is facing more difficulties caused by lack of imported materials which currently account for 80% of total material demand for production. Since the second quarter of this year, price of materials has increased making production costs even higher. In the period, the import of cotton, cloth, fibre and materials (including leather shoes) surpassed $4 billion. To ensure the export growth at percent in this year and deliver shipments on time under signed contracts, the demand for apparel materials also must post a corresponding increase, which clarified the rapidly increased import of the industry in Jan-May Prime Minister Nguyen Tan Dung has approved a programme to increase Vietnam s cotton acreage to 30,000 ha in 2015 and 76,000 ha in The total output of raw cotton in 2020 is expected to triple the figure of 2015 to 60,000 tonnes. Under the programme, the areas of cotton cultivation in the rainy season will be expanded in Dak Lak, Dak Nong and Gia Lai provinces in the Central Highlands; Ninh Thuan, Binh Thuan, Binh Phuoc, Dong Nai and Ba Ria-Vung Tau in the south-east and central coastal regions; and Dien Bien, Son La and Bac Giang in the northern region. Meanwhile, the cotton acreage in the dry season will be expanded in provinces where new seeds and advanced technology can be applied. The State will help build infrastructural facilities, 11

12 irrigation works in concentrated cotton growing areas. Research establishments and hi-tech labs will also receive financial assistance from the State. In addition, cotton processing businesses will be encouraged to assist cotton growers while a fund will be established to stabilise cotton prices. 1. Production capacity In 2004, the Ministry of Industry estimated that the country s production capacity included 1.05mn fibre rollers and annual fibre output of 150,000 tonnes. There were 10,000 weaving machines, an additional 5,500 specialised weavers including 2,000 large-width ones, all producing an annual output of around 500mn metres of cloth. Some 1,540 knitting machines produced 70,000 tonnes of fabric products. Dyeing facilities had the capacity to process 380mn metres/year of dyed fabric. The sector also had towel production capacity of around 25,000 pieces per year. The International Textile Manufacturers Federation (ITMF) estimated that in the period , companies invested to install 840,132 new spindles and 19,784 open-ended rotors. A total of 6,012 shuttle less looms were also added during the same period. IV. Business Cost 1. Infrastructure in Vietnam According to the law in Vietnam, soil and ground are in possession of the state. The enterprises can however rent property on a long-term basis of the State of the respective provincial government for business purposes. Concerning our researches for the costs for renting property and a factory workshop, the following things should be considered: Cost of renting for property usage The investor must suggest an investment project to the provincial government and request an appropriate property, which can be worked out by the office for planning and investment. The following costs are to be paid to the provincial government: Remote areas (unit: USD/m ² /year) City Hanoi and Ho Chi Minh: 0,18 USD - 1,08 USD Cities of Vung Tau, Bien Hoa and Hai Phong and on borders: USD Other areas: USD After the investor received the property from the provincial government, he must invest by himself in the infrastructure, as well as in the construction of the factory workshop and into the storage etc. Another possibility for the acquisition of an investment property is to rent an object in industry- or export zones. Leasing fee for projects in export production zones: (USD/m ² /year) Area Hanoi: 0.5 USD to 1.05 USD Area Ho Chi Minh town centre: 2 USD to 18 USD Other areas: no more than 0.06 USD The cost to rent an already existing factory/workshop as locations for production etc. is: Areas around Hanoi and at the motorway direction Hai Phong: USD/m ² /month Areas around Ho Chi Minh town centre: 1.6 to 3 USD/m ² /month Other areas: 1.2 USD USD/m ² /month 12

13 2. Transport costs: transport in the country side and sea freight There is a strong competition among the logistics companies in Vietnam. Many international logistics companies are located in Vietnam. We sampled the offers and listed the costs in the following schedule: Table 5a: Transport fee from Vietnam to Denmark Quotation from Vinconship Company VICONSHIP SAIGON - HANOI BRANCH No. 04, Tran Hung Dao Str. (Room. 508, Floor. 05) Ha Noi, Vietnam Tel: (84-4) (Ext: 801) - Fax: (84-4) Website: Volume 40DC Pol/Pod Haiphong/Copenhagen & Aarhus Rate offer - USD4490/40DC including Baf, Caf, T.AD(ILH), PSS + USD113/40DC (THC - Terminal handling charge) - USD2000/40DC(OF-Ocean freight) + USD1374 (Baf-Bunker adjustment factor) + USD342 (17.1% Caf-Currency adjustment factor) + USD350 (T.AD- Inland) + USD318 (PSS) + THC/L Transit time days Table 5b: Transport fee from Vietnam to Denmark Quotation from Schenker Vietnam 194E Pasteur Str., Dist. 3, HCMC, VN Tel: Ext : 541 Fax: Website: Unit: USD HOCHIMINH CITY TO COPENHAGEN / AARHUS 20 DC 40 DC OCEAN FREIGHT BAF CAF (17.4%) of the ocean freight ISPS 7 7 LFS SCS 9 18 OWS 200 PSS (From ) THC Baf in august 675 / 20dc usd 1350 / 40dc Caf: 17.1 % In total Vietnam offers over 30 enterprises that deliver services in logistics, shipment and transportation. In the 2008 membership directory of the European Chamber of Commerce in Vietnam we found 8 large enterprises and 21 small and medium enterprises operating in the logistics and transportation services. Of the 8 large enterprises, three of these are very wellknown DHL, Fed Ex and TNT. 13

14 V. Human resources and social benefits 1. Wages for employees Resources of worker At the end of 2006 Vietnam had 45.3 million workers, three quarters of it within the rural range. While the demand for highly qualified workers rose strongly due to the fast economic growth in the past years, the quality of the work didn t grow in the same speed. This is strongly discussed also in Vietnam. Particularly by investing into education the government tries to improve the situation. Usual earnings In Vietnam the salary is calculated in due to the relation between the cost of living and living standard. At present there are three minimum salaries, depending on the kind of enterprise (e.g. state enterprise, private business or enterprise with foreign investments). In addition there are different divisions in urban or in rural regions. Generally a minimum wage in the south is higher than in the north. The salary from foreign companies in Vietnam constantly changes because of the different and rapid development of the cities and the regions. Engineers, who work in in the south, get a higher salary than those in the north. Engineers, who can show for example three to five-year professional experiences, get a wage of dollar per month in the south. In the north there is still less wage, dollars, with same qualification. Even less gets an engineer with same skills in the countryside. The salary is based, as in other countries also, on the qualification. An untrained worker within the range of industrial production gets approximately 82 USD monthly inclusive social security and overtime. Meanwhile many workers use the opportunity to improve their qualification by learning an additional language. It is expected that the minimum wage will increase from USD 38,42 per month to USD 44,00 per month in Table 6: Wages in North Vietnam 1 USD = VND; 1 EUR= VND Position Average wages in USD per month 1 Director Manager Specialist engineer Sale manager Interpreter Material manager Assistant Electric engineer Sales executive and commission 10 Secretary Administrator Welder Driver Building worker

15 15 Mechanic Worker Security Cleaner Source: Own research in 6 companies in North Vietnam Table 7: Start salary for special Jobs in South Vietnam Position Average wages in USD per month 1 worker (common industry) Middle engineer Middle Manager 572-1,054 4 Minimum wage 38,42 5 Gratification (salary + variable salery) One to two monthly wages Source: ITPC (International Trade Promotion Centre Saigon) 2. Social benefits Social politics and work law The work law of Vietnam is determined by the industrial law of Vietnam. The industrial law confirms the right to work, the right of the interests and other rights of the employees. At the same time this law protects the rights and legal interests of the employer. Therefore it is important to develop harmonious and stable work relations. This promotes creativity and talents in addition, intellectual and manual abilities. Due of that productivity rises, as well the quality and last but not least a social upswing. Work, production and service will rise. Efficiency within the management will be improved and contributed thus to the industrialization and modernization of the country, which brings finally prosperity for the population and strengthens the country, into a civilized and modern welfare state. Industrial law and Employees The Vietnamese industrial law (Labour code) includes three different occupation models: limited, unlimited and seasonal work contracts. With conditions of employment, which last during one period from more than three months, the work contract should be in a written form. The trial period for qualified workers may not last longer than 60 days, for all other workers not longer than 30 days. In accordance with the law of the Vietnamese work law book new regulations are valid since 1 January According to the law limited work contracts can only be expanded twice a time with the same employee. If the employee remains thereafter further in the employeremployee relationship, then an unlimited work contract must be signed. If this does not take place within 30 days at expiration of the limited work contract, then the previous work contract is automatically considered to be valid as an indefinite time contract. With these innovations it is possible to avoid that employers sign predominantly limited contracts, in order to escape certain additional obligations. This collective labour agreement is signed on 26/04/2010 at the head office of Vietnam Textile and Apparel Association and applies to employer and collective employees of enterprises whose conditions were stipulated in Article 1 and article 15 of Decision No 1846/QD-LDTBXH promulgated by Ministry of Labour Invalids and Social Affair dated on December 25 th This agreement stipulates rights, obligation and responsibility of employer and collective employees of 15

16 textile firms of Vietnam Textile and Garment Group in terms of salary, allowance, bonus and other kinds of arrangement of labour relations. Rights of employees The rights and the interests of the employees are represented and defended by the Trade Union Organization. The employers are legally obligated to permit the work of the trade union. The right of participation concerning contracts is to be negotiated with the trade union. Collective agreements are negotiated between the respective representatives of the trade union and the employer side. A collective agreement can be only negotiated, if the agreement of more than 50% of the employee is present. Table 8: Costs for overtime 1 Overtime on working days 150% 2 Overtime at weekend 200% 3 Overtime on public holiday 300% 4 Working time (nightshift) from 10pm to 6am or from 9pm- 5am 130% Source: ITPC (International Trade Promotion Centre Saigon) VI. SWOT analysis Based on information collected and analyzed above, the highlights of the textile and garment sector in Vietnam can be summarized as following: 6.1 Vietnam Textile SWOT Strengths Plentiful supplies of competitively priced labour Vietnamese salaries are currently slightly lower than those in China, giving the country a distinct cost advantage Supportive government policies, including incentives to attract foreign direct investment Opportunities Main opportunity will be provided by the expected export-based recovery of the local garment sector kicking in from 2011, which will boost demand for textile inputs Industry restructuring over next two years may attract new investment and boost productivity Weaknesses Fairly heavy reliance on imported raw materials Although Vietnamese labour costs are lower, competition from China is an important issue, as that country s geographic proximity and larger production runs means made in China fabrics can flood the local market Threats A general upsurge in global protectionism in the next two years, particularly in traditional markets such as the US and EU, could seriously hold back the sector Continuing financial turbulence may impede the much-needed flow of credit to textile firms 16

17 6.2 Vietnam Apparel SWOT Strengths Government policy is generally supportive, allowing for example duty free imports of raw materials on condition they are re-exported as clothing products within 90 to 120 days The Vietnamese industry has shown capacity to react quickly and flexibly to new orders Opportunities The development of non traditional markets for Vietnamese clothing products holds out promise: the industry is looking at the Middle East and Russia as important new opportunities in this regard Greater product differentiation and specialisation may boost margins for example in functional work wear, home furnishings, and other niche markets Weaknesses Vietnamese garment makers have to import around 70% of woven fabric, while in neighbouring China, about 90% of the fabric is locally produced The country lacks a group of welltrained and experienced fashion designers Threats The global slowdown in will depress Vietnam s traditional export markets for clothing, including the US and EU, leading to lower sales and production levels Vietnam s competitive labour costs may be threatened by even lower-priced competitors (e.g. Bangladesh, Cambodia, Laos, Myanmar); this will depend on a number of factors including currency fluctuations VII. Conclusion Vietnam, a country of over 90 million people with a fast-growing garment and textile industry, has created many opportunities for Danish enterprises, especially those having high quality products, competitive prices and active market approaches. The low labour cost, increasing domestic demand, export minded approach of the garment and textile sector, low level technology of Vietnamese enterprises and favorable government policies bring good chances for foreign investors who want to invest methodically and in long term into Vietnam. Choosing a suitable business partner will be the most important factor for Danish enterprises interested in investing in Vietnam. In order to overcome the foreseeable difficulties as well as initial threats, Danish enterprises have to be well-equipped with knowledge of the market, the country and have a long-term strategy. Besides, human resource training is also essential to ensure successful and stable business. 17

18 VIII. References: - Vietnam Labour Law - Investment Law - Associations o o o The Vietnam Textile and Apparel Association (VITAS) Association of Garment and Textile Embroidery Knitting (AGTEK) Vietnam Silk Association (VSA) - Ministry of Investment and Trade - Trade Vietnam - Foreign Investment Agency - Surveys by the B2B Programme - Some existing reports on garment and textile industry o Textile and Garment industry in Vietnam by International Business Research, 2008 o o Vietnams textile and Clothing Report Q by Business Monitor International The impact of World Recession on the Textile and Garment industries of Asia by United Nations Industrial Development Organization (UNIDO),

19 IX. ANNEXES ANNEX 1: Source: Vietnam textiles and clothing report Q by BMI LTD 19

20 ANNEX 2 Source: Vietnam textiles and clothing report Q by BMI LTD 20

21 ANNEX 3 Source: Vietnam textiles and clothing report Q by BMI LTD 21

22 EMBASSY OF DENMARK IN VIETNAM The Business-to-Business Programme The Danida B2B Programme Embassy of Denmark 19 Dien Bien Phu Street Ba Dinh, Hanoi Tel: +84 (4) Fax: + 84 (4) hanamb@um.dk 22