2015 VIETNAM TEXTILE AND GARMENT INDUSTRY REPORT

Transcription

1 2015 VIETNAM TEXTILE AND GARMENT INDUSTRY REPORT

2 TABLE CONTENT Part Page Part Page List of abbreviations 1.4. Sewing Executive Summary 1.5. Distribution and export I. Business environment 2. Vietnam s Textile and Garment Industry 1. Macroeconomic situation 2.1. Overview 2. Government Policies Relating to the industry 2.2. Spinning II. Industry Overviews 2.3. Weaving, dying and finishing 1. Global Textile and Garment Industry Sewing 1.1. Global Textile and Garment Value Chain 2.5. Distribution and export 1.2. Spinning III. Industry s potential analysis 1.3. Weaving, dyeing and finishing 1. Industry s development plan 2

3 TABLE CONTENT Part Page Part Page 2. Forecast and potential assessment V. Conclusion VI. Industry s key players Reference 1. Key players in Garment Industry Appendix 2. Key players in Textile Industry 3

4 LIST OF ABBREVIATIONS LIST OF ABBREVIATIONS Acronyms Expansion Acronyms Expansion CMT Cut Make Trim CNTAC China National Textile & Apparel Council OEM Original Equipment Manufacturer VINATEX Vietnam National Textile and Garment Group ODM Original design manufacturer GDVC General Department of Vietnam Customs OBM Original brand manufacturer GSO General Statistics Office of Vietnam PET Polyethylene terephthalate MoIT Ministry of Industry and Trade EU European Union UAE United Arab Emirates CARG Compound Annual Growth Rate VITAS Vietnam Textile and Apparel Association VCOSA Vietnam Cotton and Spinning Association GDP Gross Domestic Product CPI Consumer Price Index 4

5 EXECUTIVE SUMMARY GLOBAL TEXTILE AND APPAREL INDUSTRY 5

6 EXECUTIVE SUMMARY VIETNAM TEXTILE AND APPAREL INDUSTRY 6

7 TABLE CONTENT Part I. Business Environment 1. Macroeconomics Situation 2. Regulatory Framework 7

8 Part I. Business environment 1. Macroeconomic situation Vietnam GDP and GDP growth rate Unit: billion US$ % 7% 6% 5% 4% GDP tend to grow stably over time % This page is intentionally removed 2% for demo purposes 1% T/2015 0% GDP GDP growth rate Source: VIRAC from GSO Textile and Garment industry is a vital part of the industrial sector, contributing significantly to the economic restructuring process. T&G industry promotes both upstream and downstream ones, from agriculture such as jute cotton, silk and etc. to other industrial sectors, namely power, chemical to manufacturing. Vietnam s textile industry has increased significantly since normalizing relationships with the United States in the 1990 s. Vietnam was granted most favored nation status (MFN) in December 2001, which led to a dramatic reduction in import tariffs in the US market. The textile industry is now the second biggest exporter in Vietnam and is expected to become the biggest in the near future. However, the industry only makes up for about 7-8% of Vietnam s GDP since it is dependent on imported raw materials and only operates on low-value-added stage. 8

9 Part I. Business environment 1. Macroeconomic situation 2500 GDP per capita and GDP per capita growth rate Unit: US$/capital 25% Increasing GDP per capita is a positive factor to promote apparel spending % % % 500 5% GDP per capita GDP per capita growth rate GDP growth rate 0% Source: VIRAC from GSO 9

10 Part I. Business environment 1. Macroeconomic situation Vietnam total import value Unit: billion US$ % 10% 8% 6% 4% 2% 0% This 2012page 2013 is intentionally T/2015 removed for demo purposes Import Proportion of T&G industry in GDP Source: VIRAC from GDVC Vietnam total export value Unit: billion US$ T/ % 20% 15% 10% 5% 0% Export % of T&G industry Source: VIRAC from GDVC 10

11 Part I. Business environment 1. Macroeconomic situation VND/CNY exchange rate Impact of China devaluating the CNY. China is currently the largest trading partner of Vietnam. When it devalued the CNY, there would be a major impact on many industries of Vietnam, including textiles. Vietnam annually imports up to 40% of textile raw materials from China, equivalent to about 4 billion meters of fabric and other clothing materials By devaluing its currency, China helps lower the price of its domestic 3000 commodities, thus creates competitive advantages for its businesses in global market. Competition in Vietnam s key export markets, such as the US and EU, 2900 increases significantly since Chinese textile product prices falls sharply. Main export products to China in 2014 Unit: million US$ Main import products from China in 2014 Unit: million US$ Source: VIRAC from VGDC, Yahoo Finance 11

12 Part I. Business environment 1. Macroeconomic situation In 2015, Vietnam constantly devalues VND. In the first six months of 2015, the State Bank increased interbank average exchange rate twice, from VND21,246 to VND21,458 in 7 th Jan 2015 and to VND21,673 in 7 th May 2015, to actively lead the market to correspond with international financial market developments. China s central bank devalued its tightly controlled currency, causing its biggest one-day loss in two decades, State Bank reacted by increasing trading band of VND/US$ from +/-1% to +/-2%. Orienting itself as an exporter, Vietnam s devaluation of VND helps lower exporting price, increases competitiveness for domestic enterprises including garment ones, and helps increase export revenue while input costs are not considerably affected by CNY devaluation. USD/VND exchange rate 31/12/ /12/ /12/ /12/ /6/2014 6/1/2015 7/5/ /8/2015 Source: VIRAC from SVB 12

13 Part I. Business environment 1. Macroeconomic situation Related Industries (Petrochemical Industry) Oil derivatives are raw materials for production of some products in textile industry such as plastic beads, synthetic rubber, synthetic fibers and etc. However, it is associated with the development of petrochemical industry. With crude oil reserves of 4.4 billion barrels, Vietnam is the second largest in oil reserves in East Asia, after only China. Vietnam, however, now mainly exports crude oil and imports refined oil products due to undeveloped domestic refinery industry. At present, Vietnam has only Dung Quat oil refinery and a small factory named Cai Lai in operation, the rest are in the process of deployment. Out of six oil refinery projects mentioned below, only Nghi Son project is on the right track to deploy by the end of 2014 and has been disbursed about US$3 billion; of five other projects, one was ground-breaking a long time ago but currently on hold and under time extension, one is awaiting building permit, one is under the risk of revoked license. In the coming years, synthetic fiber industry of Vietnam will still have to continue importing raw materials derived from petroleum and is under the risk of global price and exchange rates fluctuations. Oil refine projects currently built in VN Project name Location Capital (US$ billion) Capacity (million tons / year)

14 Part I. Business environment 1. Macroeconomic situation Related Industries (Retail) Vietnam is estimated to have approximately 8,500 markets, 1.3 million grocery stores, nearly 500 convenience stores, 750 supermarkets and 132 commercial centers. The retail businesses have seen rapid growth and enhanced competitiveness in the fiercely competitive market. Many have established extensive distribution and retail network, and fulfilled all consumer needs. In 2014, retail sales estimated to be US$76.5 billion and reached 96.4 billion US$ in 10 months of Retail revenues are forecasted to reach US$ 109 billion in 2017 with an average growth rate of about 13%/year. With a population of over 90 million people and increasing per capita income, apparel spending in Vietnam is relatively adequate. In 2010, spending on textiles was US$2.2 billion, US$2.5 billion in 2012, US$3 billion in 2014, an average increase of 10-20%/year. Together with supermarkets, commercial centers are developing fast, some textile enterprises establish and constantly expand their own system of retail store chains on their own brands (Viet Tien, Vinatextmart, Canifa, Hanosimex, etc.). Access of Vietnam s people to modern retail is very low at the moment (22%) compared to other countries in the region; its potential for retail sector, therefore, is still very large. Vietnam retail sales Unit: US$ billion Share of modern retail in total retail Unit: % % 14% 12% 10% 8% 6% 4% 2% Malaysia China Thailand Indonesia Philippines Vietnam F 2016F 2017F 0% Retail revenue Growth rate Source: VIRAC from Deloitte

15 TABLE CONTENT Part I. Business Environment 1. Macroeconomics Situation 2. Government Policies Relating to the industry 15

16 Part I. Business environment 2. Government Policies Relating to the industry Group of regulations and standards for textile production: TCVN 6054:1995 compiled by Technical Committee TCVN / TC 133 Apparel size and design system, proposed by the Directorate for Standards - Metrology - Quality, and issued by the Ministry of Science, Technology and Environment; TCVN 4737:1989 on textile material - garment fabrics - list of quality indicators issued by Committee on Science and Technology; TCVN 2109:1977 on Garments - sampling methods issued by the Committee of Science and Technology; QCVN 13-MT:2015/BTNMT: National Technical Regulations on textile dyeing industrial wastewater (replace NTR 13: 2008 / BTNMT from 1st June 2015)» Raising the maximum value of pollution indicators allowed for urban and residential wastewater (wastewater type A and B), helping reduce pressure for textile dyeing enterprises. Temporary Circular on permissible limits for formaldehyde content, aromatic amines that may be released from azo dyes in reducing conditions on textile products (32/2009/TT-BCT);» Ministry of Industry and Trade issued Circular 37/2015/TT-BCT to replace Circular 32/2009/TT-BCT, regulating limits and checking the content of formaldehyde and aromatic amines from azo dyes in textile products. This circular is an improvement from circular 32; it provides clear regulations on number and specification when testing product samples, hence reducing and simplifying inspection time. Since this circular only applies textile products for domestic consumption, companies have to prove that their products are eligible for formaldehyde content and aromatic amines test, which is already shown on the import declaration. This is contrary to the reform of administrative procedures which the State authorities are trying to do. Furthermore, the unclear terms also make it difficult for enterprises. Decision on the approval of laboratories performing the assessment of formaldehyde content, aromatic amines that may be released from azo dyes in the reducing conditions in textile products (1208/QĐ-BCT).» Approval Ltd. TUV Rheinland Vietnam are allowed to perform inspections formaldehyde content, aromatic amines may be released from azo dyes in reducing conditions on textile products. 16

17 Part I. Business environment 2. Government Policies Relating to the industry Group of regulations for textile imports and exports: Circular No. 38/2015/TT-BTC dated 25 th March 2015 issued by the Ministry of Finance on custom procedure, custom control and monitor, import tax, export tax and tax management for imported and exported products.» In general, Circular No. 38 complies with administrative reform and procedure simplification, helping save time and cost and creating favorable conditions for businesses. However, many shortcomings and difficulties have arisen in the implementation of this circular. Specifically, it stipulates that enterprises must submit tax refund documents but does not specify the form and reporting requirements, hence businesses have difficulties in preparing and checking the documents. Moreover, period of implementation of tax records and inspection procedures under Circular 38 is another barrier. According to clause 5, article 114 and clause 5, paragraph 6, article 129, tax files including import, export documents for manufacturing goods exported from enterprises which are inspected first, then refunded tax or charged no tax, and inspection must be conducted at the headquarter of enterprises.» The examination before tax refund under the provisions of Article 130 under the authority of the Director and Head of the department due to implementation. To properly perform this process will take a lot of time, hard to ensure complete reimbursement records, do not collect taxes within the 275-day grace period, leading to the risk of coerced now very high taxes and taxes will amount to hundreds of billions of dong. Group of regulations on taxes Import tariff Products MNF tariff prior WTO Preferential import tax Cotton Fibers Fabrics Clothing» After Vietnam joining WTO in 2007, import tariffs on textile materials reduced significantly, driving investment and development in textile industry. Nevertheless, huge import tariff cut in apparel made imports cheaper than locally made products, increasing domestic competition and making more difficult for Vietnamese firms to gain shares. Corporate Income Tax Decision No 1483/QĐ-TTg issued in 26 th August 2011 provides regulations on tax incentives for businesses: Natural fibers: cotton, jute, hemp, silk; Synthetic fiber: PE, Viscose; Fabrics: technical fabric, non-woven fabric; Chemicals, auxiliaries, dyes for fabric dyeing and finishing industry; Garment accessories: Buttons, mex, zippers, elastic bands» Accordingly, new investment projects in the industries listed above are subjected to preferential tax rate of 10% in 15 years, 4 years of tax exemption and a 50% corporate income tax during the next 9 years. This decision supports investment in weak links in the value chain of Vietnam T&G industry. 17

18 TABLE CONTENT Part II. Industry overviews 1. Global Textile and Garment Industry 1.1. Global Textile and Garment Value Chain 1.2. Spinning 1.3. Weaving, Dyeing, Finishing 1.4. Sewing 1.5. Distribution and export 18

19 Part II. Industry overviews 1. Global textile and garment industry 1.1. Global Textile and Garment Value Chain

20 Part II. Industry overviews 1. Global textile and garment industry 1.1. Global Textile and Garment Value Chain Global Textile and Garment Industry: As business increasingly make use of outsourcing and pursue opportunities beyond their domestic markets, their supply chains are becoming global. For example, product design often uses inputs from around the world and products are sold globally. Some manufacturing operations or services may be outsourced to other countries for the low labor cost or material costs. Textile value chain is divided into 5 global basic stages: ❶ Raw materials production: Raw input materials of the textile industry are composed of two main categories: cotton, wool, silk,... (agriculture sector), PET chips, nylon,...(chemical industry). Cotton is the main raw material for the production of natural fiber. Cotton is cultivated mainly ❹Export: This is a knowledge-intensive stage, including garment companies with brand reputation, buying offices, and trading companies of other countries. One of the most notable characteristics of the textile chain decided by the purchasers is the creation of large traders who do not make any specific manufacturing activities. These companies act as intermediaries to connect the supply chain between apparel manufacturers, subcontractors and retailers throughout the world. Traders as intermediaries play key roles and hold substantial value of the global apparel chain although they never own any manufacturing plants. Currently, traders, buyers in Hong Kong, Taiwan and South Korea, which are considered the "big three" in the world apparel supply chain, hold the majority of the nodal points of the network. in India, China and the US. ❺ Marketing and distribution: Branding and building distribution network ❷ Materials and accessories production: This stage is capital intensive, are knowledge-intensive. Ralph Lauren, Nordstrom, Nike, are some of the requires high investment on machines and skilled labors; hence the biggest retailers in the world with enormous revenues every year. added value is relatively high. For example, materials and accessories Distributors are usually designers, because they fully and well understand the determine the quality and account for 60-70% of final product cost. China, Europe and USA take over this stage. ❸ Sewing: This is the most labor-intensive phase but brings lowest rate of return. Only new entrants to global T&G value chain operate in sewing, other developed countries have moved up the chain into needs and conditions to satisfy the tastes of customers.. Companies in this stage often do not directly produce products, instead they only perform distribution activities to final consumers. However, they play an important role in shaping and influencing the world textile chain by making fashion trends and holding distribution channels. higher added function. Added-value in this stage varies according to This is the phase with the highest rate of return, because the big companies production methods, for instance: ODM, CMT, FOB, Vietnam, in the world hold this chain and often creates barriers of entry for new Bangladesh, India, Pakistan are some largest sewing factories in the countries to join the value chain so it is very difficult to penetrate this stage. world. 20

21 Part II. Industry overviews 1. Global textile and garment industry 1.1. Global Textile and Garment Value Chain The concept of adding value or economic upgrading is a central part of the GVC analysis. Economic upgrading can be achieved by improving the efficiency of the production processes (process upgrading); adding CMT A simple textile export method and also yields lowest added value. Accordingly, outsourcing businesses are provided with all input materials by customers, new product lines that are of higher value-added because of including raw materials, transportation, design and specifications; businesses only improvements in designs or technical specifications (product implement tailoring and finishing products. Enterprises which carry out CMT only upgrading); increasing value addition by moving up the value chain and taking on new functions which are of higher skills and knowledge intensity (functional upgrading); or switching to a different sector which final products are more technologically sophisticated and of higher value-added (inter-sectoral upgrading) ODM need the ability to produce and understand the basics of design to perform sample products. OEM/FOB FOB is export method which refers to buying raw materials, selling finished products", providing higher added value than CMT. Exporting enterprises who engage FOB take part in production and are responsible for purchasing necessary The exporter is responsible from the design stage, fabric and material materials and final product manufacturing. Based on the form of the actual purchasing, cutting, sewing, finishing, packing and shipping. Stage design contractual relationship between the supplier and the foreign customers, FOB are is knowledge intensive and offers great added value for businesses. divided into 02 categories: FOB I: Enterprises engaging this category purchase inputs from a group of suppliers assigned by the customers. This method requires businesses to be responsible for their finance for input material purchase and transportation. FOB II: Enterprises engaging this category receive product designs from foreign buyers and responsible sourcing of raw materials, production and transportation of raw materials and finished goods to the port of buyers. The key point is that businesses have to find material suppliers capable of providing special materials and reliable on the quality and lead-time. The risk of this method is higher but also brings higher added value to manufacturing companies. OBM This is the improved production form based on OEM, with which manufacturers design and contract to supply goods for domestic and foreign customers on their own brands. The producers in developing economies who are currently engaged with OBM method primarily distribute products for domestic and proximity customers.

22 TABLE CONTENT Part II. Industry overviews 1. Global Textile and Garment Industry 1.1. Global Textile and Garment Value Chain 1.2. Spinning 1.3. Weaving, Dyeing, Finishing 1.4. Sewing 1.5. Distribution and export 22

23 Part II. Industry overviews 1. Global textile and garment industry 1.2. Spinning Global yarn production and consumption Unit: million ton Cotton, cotton yarn and polyester filament indices Source: VIRAC, The fiber year, FRED Chemical fibers, mainly polyester fibers, are increasingly dominating natural fiber market share. In general, the world s fiber production grows steadily over the years. In 2014, fiber production was 89.4 million tons, increased by 4.1% compared to previous year. Average growth rate during was 4.1%, of which chemical fibers accounted for 5.7% and natural fiber 0.9%. Being a part of textile supply chain, growth rate of fiber sector is determined by population growth rate and average personal income, particularly in developing countries with high population. Synthetic polyester fiber is the most common chemical fiber, with stable price over the years in spite of fluctuation of crude oil in economic crisis or recent price drop in July In contrast, cotton price varied significantly and created risks to producers. Furthermore, fabric made of synthetic polyester and other chemical fibers is generally more durable and less wrinkled compared to natural fiber. Therefore, chemical fibers, in particular polyester, are replacing natural fibers in modern textile applications. In 2010, chemical accounted for 65% of total production and increased to 70% in 2014 Consumption was lower than production in the past five years because producers keep stock in case of price and supply crisis. 23

24 Part II. Industry overviews 1. Global textile and garment industry 1.2. Spinning SPINNING Fiber application of the world in 2014 Natural fibers 32% Cotton 26% Others 6% Fiber applications of the world in 2014 Unit: % Fibers 100% Filament yarn PA This page is intentionally Synthetic 42% removed 5% for demo purposes Chemical fibers 68% 61% Manmade fibers 7% Fibers 19% PES 34% Others 3% Source: VIRAC, The fiber year Cotton and polyester fibers are two main products. In 2014, the world used 86 million tons of fibers of which chemical fibers accounted for 58.5 million tons, equivalent to 68, natural fibers 27.5 million tons equivalent to 32%. Cotton and polyester accounted for 60% of consumption, equivalent to 51.6 million tons. Fibers are mainly used for apparel applications, accounting for 55%, and for other domestic applications such as carpets, bedsheets, towels, etc., and other applications in health, water resource, traffic, etc.

25 Part II. Industry overviews 1. Global textile and garment industry 1.2. Spinning SPINNING World fiber trade Unit: US$ billion World fiber export structure in This page is intentionally removed 1.0 for demo purposes Source: VIRAC from Uncomtrade In , growth rate of fiber exports was 3.1% on average. In 2014, fiber export value was US$77.9 billion (reduced by 5.9% compared to previous year), fiber production volume reached 27.2 thousand tons (reduced by 2.9% compared to previous year) with average price of US$2.9 per kg. In general, fiber trading stayed stable over the years but its price varied remarkably due to the impacts of input crude oil. In 2011, average fiber price peaked in 5 years, reaching US$3.1 per kg because of strong increase in cotton price.. Natural fiber accounted for 45.9% of total trade while chemical fiber accounted for 54.1%.

26 TABLE CONTENT Part II. Industry overviews 1. Global Textile and Garment Industry 1.1. Global Textile and Garment Value Chain 1.2. Spinning 1.3. Weaving, Dyeing, Finishing 1.4. Sewing 1.5. Distribution and export 26

27 Part II. Industry overviews 1. Global textile and garment industry 1.3. Weaving, Dyeing, Finishing TEXTILE, DYEING AND FINSHING World fabric production in 2014 Unit: US$ billion World fabric trade in Unit: US$ billion Source: VIRAC from Marketline, Uncomtrade In 2014, world fabric production was US$595.4 billion, largest producers are China, Europe, the US and India. China is the largest fabric producer with 24.5% of global production. According to Chinese Bureau of Statistics, its fabric production was approximately 70 billion sqm, of which 51% was cotton with value of US$146.1 billion. Europe ranks second with production of US$104.3 billion. European enterprises are mainly of SME type, but equipped with high-end machinery and technology, they achieve high productivity. World fabric trade in 2014 was US$124.7 billion, increased by 2.7% compared to previous year. In general, fabric export value did not change over the years, it only slightly decreased in 2012 due to negative impacts of European economy. Trading value of woven fabrics are 3 time higher than that of knitted ones. Knitted fabrics used to be preferred for their durability and versatility (apparel, health, engineering, etc.). In contrast, woven fabrics are more slippery and curly, and only used for infant clothing, socks, hats, etc.

28 TABLE CONTENT Part II. Industry overviews 1. Global Textile and Garment Industry 1.1. Global Textile and Garment Value Chain 1.2. Spinning 1.3. Weaving, Dyeing, Finishing 1.4. Sewing 1.5. Distribution and export 28

29 Part II. Industry overviews 1. Global textile and garment industry 1.4. Sewing The production value of the global textile and apparel industry in 2014 reached US$ billion, increased 6 % compared with the same period of The production value of the textile industry ( including fabric, thread and fiber) reached billion dollars in 2014, its average growth rate was 6.3 % during Fabric is the main product of the sector with production volume of billion dollars in 2014, equivalent to 83.5 % of the whole industry. China, the US and Japan are the three significant countries with 2014 producing volumes of 191.5, 81 and 26.7 billion dollars, respectively. Global textile industry is predicted to grow steadily at a rate of approximately 5 % and to reach billion dollars in Due to a number of favourable policies on taxation in North Carolina and Georgia along with intellectual labour as well as modern transport and storage systems, American textile industry is expected to grow strongly at a rate of about 8 % per year. Southeast Asia area, which used to have strength only on outsourcing, will be the new destination of investment in textile production, especially Cambodia, Vietnam and Indonesia. Global textile and apparel market size Unit: billion US$ Sales Revenue of global garment production reached 837 billion dollars in 2014, an average growth rate of 5.2 % during ; garment production value accounts for 62 % of total production with 519 billion dollars. With 57.5% of market share, Asia Pacific area is the largest player in garment industry, comprising of such remarkable manufacturing countries as China, India, Vietnam, Pakistan, etc. Production of China in 2014 was 304 billion US dollars, followed by India and Brazil, 82.7 billion US$ 57.4 billion, respectively. According to Marketline, during , garment industry will grow at a higher average rate compare to textile, approximately 6.4% during this period. The reason is garment production does not require high first cost and its entry barriers are lower than that of textile industry, enable countries to easily expand their garment production, even for developing ones. Source: VIRAC from Marketline 29

30 Part II. Industry overviews 1. Global textile and garment industry 1.4. Sewing Global Textile and Apparel trade Unit: billion US$ Global textile trading is highly influenced by such large economies as EU and US. Exports of global textile industry in 2014 reached US$ billion, 4.3% lower than that of last year. Growth rate during is 2.8%. The main export products are clothing which accounts for 53.3%, followed by raw materials and accessories 16.3%, fibers 10.2%. Because the global textile production chain is based on the characteristics and competitive advantages of the countries, beside clothing as final products they need to trade for raw materials and other This page is intentionally removed materials. for demo purposes In general, textile exports grew slowly and unstably in the past five years. After Source: VIRAC from Uncomtrade a promising growth in 2011, trading value of textile products dropped by US$ 50 billion in the following year. This was caused by Europe s economic depression due to public debt crisis, and its members tightened their spending in order to mitigate budget deficit. Europe is the world s second largest textile producer and largest importer, its economic fluctuations caused deep impacts on global textile. European textile exports and imports reduced by 8% and 6%, respectively compared to 2011, causing critical impacts on countries who consider EU the most valued market, such as Pakistan, India, Korea, etc. According to Technopak, global textile exports can reach US$1,000 billion in 2018 and US$1,300 billion in 2023, with growth rate of approximate 6-7%. Grounds for these optimistic projections are based on the acceleration of signing Trade Agreements, in particular TPP and RCEP with attractive tax incentives for textile industry. Moreover, world economy is showing promising signs and on its recovery. 30

31 Part II. Industry overviews 1. Global textile and garment industry 1.4. Sewing Top 10 T&A exporters Unit: billion US$ China is the world s largest textile exporter with US$298.4 billion, accounting for 39% of global trade value in 2014, followed by EU with US$57.2 billion which is equivalent to 7.5%. Germany and Italy are the most outstanding exporters of EU. Vietnam is ranked 9 th with 3.1% of global textile exports, its major product is outsourced clothing. China is the leader in textile production and export in many recent years, it establishes a sufficient and solid supply chain that can provide raw materials to distribution network. EU-28 is leading in textile imports with US$131.1 billion, accounting for 17.2%, followed by the US with US$107.5 billion and Hong Kong with US$25.5 billion. Vietnam is ranked 10 th in textile import even though it is a small market, the reason it is still unable to self provide raw materials and accessories, and has to rely on imports of those products to produce and export Top 10 T&A importers Unit: billion US$ Source: VIRAC from CNTAC 31

32 Part II. Industry overviews 1. Global textile and garment industry 1.4. Sewing Global T&A trade breakdown Global apparel trade Unit: billion US$ Source: VIRAC from Marketline 32

33 Part II. Industry overviews 1. Global textile and garment industry 1.4. Sewing Apparel market size by countries Unit: billion US$ Source: VIRAC, Euromonitor Global textile industry reached US$ 1,288.5 billion in 2014, equivalent to 1.7% of world s GDP Major markets include China, Germany, Japan, UK and India, with more than 60% of global consumption In 2019, China is expected to lead the market with US$333.3 billion. India will enjoy largest growth with CARG of 6.1% during These two developing countries with combined population of more than 36% of global population, and their fast growing urban population structure, will be promising markets in the next five years Apparel markets in developed countries tend to remain stable or slightly decline in coming years. The reason is that these markets tend to be saturated, and economy of Japan and EU countries are facing difficulties Large gap of annual average clothing expenses per capita between developed and developing countries UAE is the world s highest clothing expenses per capita with US$1593, followed by Hong Kong with US$1077 and Germany with US$909 Despite being world s largest clothing market, annual clothing expenses per capita of China is only US$194 in 2014, equivalent to 10% of personal income. Meanwhile, Americans spend US$816 annually for clothing, equivalent to only 3% of personal income It is anticipated that up to 2019, U.A.E, Hong Kong, and Germany will still be three countries with highest clothing expenses per capita due to their high personal income Spending on apparel per capita Unit: US$/year Source: VIRAC, Euromonitor 33

34 Part II. Industry overviews 1. Global textile and garment industry 1.4. Sewing Average wage in textile sector 2014 Unit: US$/hour Minimum wage 2016 Unit: US$/month There is a huge gap in average wage in textile industry between developing and developed countries. The average wage textile industry tends to increase (from 0.69 US$/hour in 2000 to 2.1 US$/hour in 2011 and 2.65 US$/hour in 2014). From 2000 to 2014, the average salary of textile industry workers rose 25%. However, the average salary in China textile industry in 2014 is equivalent only 15% of that in the US. Textile manufacturers could face a minimum wage increase of 5% in India, Malaysia, Thailand and Pakistan are the countries with the largest increases in minimum wages (up to 15%), while the minimum wages in Bangladesh, the Philippines are almost unchanged. The increase in the minimum salary from many reasons. In Cambodia, the increase is mostly pushed by local labor unions. Indonesian government raises the wage aiming to shorten the gap between minimum and living wage in under-developed regions. Additionally, countries such as India adjust their minimum wages more based on economic factors such as inflation rate, GDP growth rate and consumers price index. The gap between the minimum wage among Asian manufacturers are gradually expanded. For example, monthly minimum wage in some parts of China has reached $321 US$ in 2016, which is $253 US$ higher than in Bangladesh ($68 US$/month), up from $225 US$ in A wide gap in minimum wage is also found within some Asian countries. For example, in Philippine, Indonesia and China, the highest minimum wage could be almost twice as high as the lowest minimum wage in the country. Despite the increase, minimum wage in Asia remains a fraction of the level in the developed countries. For example, minimum wage in the United States was $7.5/hour in 2015, meaning a worker s monthly minimum wage shall no less than $1,200 (assume working 40 hours/week, 4 weeks/month). 34

35 TABLE CONTENT Part II. Industry overviews 1. Global Textile and Garment Industry 1.1. Global Textile and Garment Value Chain 1.2. Spinning 1.3. Weaving, Dyeing, Finishing 1.4. Sewing 1.5. Distribution and export 35

36 Part II. Industry overviews 1. Global textile and garment industry 1.5. Distribution and Export Exports and Marketing: is a knowledge-intensive stage, including popular apparel companies, purchase departments, and commercial companies of the country or the mass merchants Middle-man merchants and suppliers play a key role and hold the majority of the value in the global apparel chain even though they are not owning any factories. Hong Kong, Taiwan, and South Korea hold a majority of the nodes of this network. Commercialization Commercialization is a knowledge-intensive process and provides high added value, including the network of marketing and product distribution. Retailers such as Ralph Lauren, Nordstrom, Nike, etc. are holding this stage and earned huge profits every year. The distribution companies often are the designers because they comprehend requirements and conditions to satisfy the customer tastes. Companies in this stage do not often directly produce, and only perform distribution to end users, but they play an important role in shaping and influencing the world of textile chain because their understanding of customer needs, ability to form fashion trends for the product design and holding system sales, distribution channels worldwide. This is the link to be engaged by the developed countries, and it is often the case that developing countries and new entrants of global textile chain find it difficult to implement due to high entry barriers World s apparel retail revenue Unit: US$ World s apparel retail (including menswear, women's wear and children's clothing) is estimated at US$ billion in 2014, up 3 % yoy. Marketline predicted world s apparel retail would reach US$ billion in 2019, and average growth rate in the next 5 years would reach about 4.6%. Source: VIRAC from Marketline

37 TABLE CONTENT Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.1. Overview 2.2. Spinning 2.3. Weaving, Dyeing, Finishing 2.4. Sewing 2.5. Distribution and export 37

38 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.1. Overview General Information Criteria Value Revenue GDP percentage The number of companies Business size Business ownership structure Business segment structure Geographical distribution Number of labours Average income Textile export in 2014 Textile export in 2013 Main export markets Main import markets Main products Production methods

39 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.1. Overview Textile industry is currently using the most labour. Its labour force accounts for over 20 % of employment in the industrial sector and nearly 5 % of the total national workforce According to the latest statistics of the Vietnam Textile and Apparel Association, textile sector has created stable jobs and income for about 2.5 million people directly and nearly 2 million indirect jobs (under the auxiliary industry, warehousing, transportation, etc.). With an average income of VND4.5 million / month / person, equivalent to VND54 million / year, the total payroll paid to 2.5 million people live in one year is VND135 trillion (approximately US$6.7 billion) is a considerable figure, contributing significantly to social spending and economic growth. Analysis of the Vietnam Textile and Garment Group shows every US$1 billion in exports would create jobs for 100,000 people in the apparel business and approximately people in other supporting businesses. Textile export turnover Vietnam 2020 is estimated at US$50 billion, so the textile sector of Vietnam needs around million workers. With 54 million people in their working age, Vietnam has many geographical balance labour for the textile industry. Besides, textile labour costs in Vietnam are very competitive compared to many countries which possess strong competitive advantages in export of textile production. In particular, the average textile labour cost in Vietnam is US$0.6 / hour, much lower than China's US$ 2.1 / hour, Thailand s US$2.14 / hour, Korea s US$8.22 / hour and the US s US$17.57 / hour. Therefore, the textile sector is not only attractive to domestic businesses, but also to foreign ones. However, 80% of labour force is female workers, mainly with ordinary education level. Besides, the industry is in a short of managerial and technical workforce, as well as professional designers that prevents Vietnam s textile from matching with international level.

40 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.1. Overview Textile enterprises of Vietnam Sectors Number of enterprises Machinery Production Capacity Cotton laminating Synthetic fibers Filament fibers Spinning Woven fabrics Knitted fabrics Non-textiles Dyeing and finishing Towels Garments Most fiber businesses in Vietnam have unbalanced structure, with majority of businesses working on garment sector (over 80%), and of SME category (over 95%) Vietnam only produces short fibers and spinning, only 4 enterprises engage synthetic and filament production. Besides, there are 212 businesses which produce auxiliary materials such as labels, embroidery, etc.

41 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.1. Overview Geographical distribution of textile businesses Unit: % Source: VIRAC from MoIT The Southeast region concentrate the highest number of textile enterprises in the country with three key cities: Ho Chi Minh City, Binh Duong and Dong Nai. HCMC s People Committee has recently issued Decision 50/2015/QĐ-UBND on Program of Investment Stimulation to facilitate infrastructure construction and support loans to projects in the field of industrial production, particularly supporting industry. Accordingly, the loan with subsidized interest by State budget for the technology and equipment capital of the textile enterprises will be raised to 85 % from previous portion of 70%. With this increase, leaders of HCMC expected to raise the proportion of domestic material consumption from 45-50% to 70-80%. Binh Duong Province currently ranks second in the number of textile businesses, only after HCMC. The province has always focused on minimise import and export procedure to provide maximum support for businesses, in particular FDI ones. By this approach, local businesses will be supported with best information and import-export procedure, and Binh Duong Custom Department is willing to support FDI and domestic businesses with custom clearance during weekends, public holidays, etc. Dong Nai province currently has hundreds of enterprises and factories involved in textile industry. Textile enterprises in Dong Nai has annual export sales of over 1.7 billion, and textile is one of the key industries of this province. Province s leaders focus on developing textile industry in intensively and extensively. To catch up with TPP, Dong Nai Department of Trade is incessantly calling for investment in supporting industries. Leading the investment in supporting industries in Dong Nai are now Japanese and Korean Businesses in the province of Dong Nai currently only import about 20% of raw materials, reduced by 80-90% compared to the past and significantly lower than the national average level

42 TABLE CONTENT Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.1. Overview 2.2. Spinning 2.3. Weaving, Dyeing, Finishing 2.4. Sewing 2.5. Distribution and export 42

43 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.2. Spinning Production of fibers of Vietnam in recent years has been steady, in 2014 Vietnam produced thousand tons of cotton, increased by 27.3% yoy. In 2014, synthetic fibers and natural fibers accounted for nearly 90% of total fiber production in Vietnam, only 10% was artificial fibers. The proportion of natural fibers of Vietnam has tended to increase slightly after cotton prices stabilized, from 26.7% in 2012 to 32.9% in The reason is Vietnam has only focused on spinning while chemical fiber production is still low, currently there are only 5 synthetic fiber factories in Vietnam, including Century Synthetic Fiber Corporation, Formosa Hung Industrial Co., Hualon, Ltd. Dong Tien Hung, Petrochemical and Textile Fiber Joint Petroleum (PVTex). In addition, because import taxes for fiber products was lowered since joining WTO (about 2-5%), businesses of synthetic fibers are having difficulty in price competition. Recently, PVTex had to suspend production for the third time since commissioning. According to the Vietnam Cotton and Spinning Association, almost most of domestic fiber production is short fiber, accounting for 93%, the rest is long fibers due to the limited engineering and machinery, while machinery for short fiber production is relatively available. Vietnam s fiber production is not diverse in types, their quality is low and only concentrated in low to middle end products, so they do not meet high requirements of luxury garment commodity which require various fiber types with special raw materials and advanced production machinery. Consumption volume, despite levelling off in 2012 due to increased cotton price, is generally growing stably. In 2014, Vietnam consumed thousand tons of fiber, increased by 17.4% yoy. Fiber production in Unit: thousand tons Natural fibers Synthetic fibers Artificial fibers Total Fiber consumption volume and value in Consumption (million tons) Consumption value (US$ million) Source: VIRAC from GSO

44 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.2. Spinning Vietnam fiber and yarn exports Unit: million US$ Import Export Trade balance *: estimates Source: VIRAC from VGDC Vietnam still depends on imported yarns despite continuously recording trade surplus in fibers. The domestic produced fibers are mostly in low to medium quality, thus they do not meet the industry s demand. On the other hand, companies that produce high quality yarn such as Century, PVTex, Formosa prefer to serve export markets since they can enjoy higher prices and it is also hard to compete with imported yarns at reasonable prices. According to preliminary data of the General Department of Customs, in the first 11 months of 2015, Vietnam witnesses a slight downtrend in fiber and yarn trade, only importing 1.39 billion US$ of yarns and fibers and exporting 2.3 billion US$. It is understandable since Vietnam faced anti-dumping investigation on fibers in Turkey our second-largest export market in 2014 while the government also raised import duties to protect PVTex. 44

45 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.2. Spinning China and Turkey are Vietnam main export market of yarns and fibers, accounting for 51.1% and 10.4% of total export quantity respectively. Chinese companies are moving production of yarn and fiber to Vietnam due to increasing cost of manufacturing. Although China has reformed subsidy policies for cotton industry, its cotton prices are still high compared to the rest of the world s. Therefore Chinese enterprises prefer importing yarn than selfproducing. It is estimated that a company can save approximately 22 US$/ton if it imports fiber instead of producing in China. Meanwhile, share of Turkey significantly dropped from 20$ to 10.4% due to the anti-dumping investigation on polyester textured yarn launched against Vietnam. Yarn and fiber import by countries Unit: % Yarn and fiber export by countries Unit: % Source: VIRAC from VITAS 45

46 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.2. Spinning Number of spindles, rotors of Vietnam Unit: Item Company name Power Products segmentation Soi The Ky (STK) JSC Formosa Hung Nghiep Ltd.,Co Hualon Corp Dong Tien Hung Ltd.,Co PV Tex JSC Spindles Rotors Source: VIRAC from VITAS Vietnam has a total of 116 enterprises producing yarns by the end of 2014 with 6,200,000 spindles and rotors. In recent years, Vietnam has been one of very few countries in Asia who have expanded production activities of the yarn spinning sector, increased from only 2 million spindles in 2000 to over 5.1 million spindles in Most of Vietnamese products used to be natural fibers, however moving towards global trends, domestic enterprises have gradually switched to produce synthetic fibers, especially polyester fibers from low-to- high segment. Currently within the country there are only 5 enterprises producing synthetic fibers.

47 TABLE CONTENT Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.1. Overview 2.2. Spinning 2.3. Weaving, Dyeing, Finishing 2.4. Sewing 2.5. Distribution and export 47

48 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.3. Weaving, Dyeing and Finishing Vietnam s fabric production during M/2015 Unit: million sqm Vietnam's fabric production meets only 15-16% of the demand. The role of fabrics for the apparel industry in particular and the whole textile industry is very important because the fabric is an important factor determining the cost and quality of the final garment products. Despite its critical role in providing local materials for the textile industry, but in fact, dyeing and finishing have not developed as expected, creating bottlenecks and hindering the development of industry. Vietnam Textile and Apparel Association (VITAS) estimates, our country is only capable of dyeing and finishing 110,000 tons of knit fabric and 800 million meters of fabrics per yea. Production wise, Vietnam has average growth rate of 12.5% / year but has yet caught up with its demand. Output reached million sqm in 2014, Woven fabrics Knitted fabrics Total Vietnam fabric consumption Unit: US$ million which knitted products accounted for only 20%, reaching million sqm, woven fabrics reaching million sqm In terms of quality, only about 20-25% of the woven fabric qualifies to make finished products for export, while most knitted fabrics do not meet export quality requirements and can be only used for domestic market. Vietnam fabric production by inputs M/2015 0% 20% 40% 60% 80% 100% From natural yarn From chemical yarn Source: VIRAC, MoIT, GSO

49 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.3. Weaving, Dyeing and Finishing Fabric import by countries/regions Unit: % Vietnam fabric export and import Unit: million USS T/2015* Import Export Trade balance *: estimates Source: VIRAC from VGDC Overall, Vietnam's fabric imports growth in the period with an average rate of 15% in order to serve the needs of the domestic production. Exports fabric stable over the years and low value (only about 8% of the value of imports). According to statistics from the General Department of Customs, Vietnam imports of fabric in 2014 reached more than 9.4 billion, up 13% compared to the same period last year. According to preliminary data of the General Department of Customs, the first 11 months alone, in 2015, Vietnam imported 9.3 billion fabric (+ 8% yoy), exports reached 0.9 billion US$ (up 25%) compared the same period. Cause favorable textile exports, the business has been signed until the end of the line and even to the end of the first quarter next year should need to import raw materials for production. Most of Vietnam's fabric imported from China with 50%, followed by South Korea 20%, Taiwan 15%, Japan 6%,... 49

50 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.3. Weaving, Dyeing and Finishing General assessment of the technology, textile machinery Vietnam Woven: Textile Machinery of Vietnam is inadequate. Some businesses such as Success or Vietnamese Tien has equipped more air jet looms, rapier from Europe, Korea, Taiwan,... Knitting: Most of the knitting machine in Vietnam is horizontal knitting. 70% knitting machine in FDI enterprises imported from countries as Korea Investment and Japan. Knitting machinery of domestic enterprises is largely flat knitting machines, producing only wool, tulle curtain, socks,... General assessment of Vietnam's dyeing technology Some Vietnam has now been equipped with machinery continuous and discontinuous dyeing machines imported from the Netherlands, Germany, Italy, Japan,... Technology used in the textile and dyeing village underdeveloped, largely used machinery and equipment in the village is primitive, homemade or from the domestic production base of processing and assembly. Production methods is often interrupted, asynchronous devices. Dyeing wastewater often untreated, polluting the environment. Dyeing of Vietnam is still developing, consume more water and energy than developed countries such as Germany, Finland... Currently developing world waterless dyeing technology. Such as Nike and Adidas firms have tested this technology on their products and save up to 90% water, 70-80% of the energy and toxic chemicals discharged into the environment as conventional dyeing methods. Criteria Unit Vietnam Germany Finland `1. Chemistry Pigment Additives kg/ton kg/ton 2. Water m3/ton 3. Energy Thermal energy Electrical Power ton FO/ton kwh/ton

51 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.3. Weaving, Dyeing and Finishing Root causes of undeveloped dyeing in Vietnam: Unlike tailoring, textile industry is capital intensive, requiring machinery and high technology processes, particularly dyeing where business must invest in wastewater treatment technologies. Estimated, the initial investment for dyeing lines costs around US$20 to US$30 million with a surface area of about 10 hectares needed, while investment tailoring machine only about 50,000 to 100,000 US$. Vietnam s yarns and fabrics are having difficulty in competing with imported products. Currently, Vietnam is importing fabrics mainly from China and South Korea, two countries with modern and complete technological lines, complete, production experience and advantages of scale. Producing similar quality products, Vietnam s production cost is higher, in particular after joining in many FTAs, which requires removal of tariff barriers for many commodities. Production mode of Vietnam fabric exports is primarily CMT (cut, make, trim), accounting for 85%. Subsequently, foreign customers will order input materials for domestic manufacturers to process. This makes domestic garment companies not active in seeking input sources. Qualified labour for textile dyeing are in a severe short. Unlike sewing, dyeing processes have strict requirements on labour due the complexity of machinery. State are cautious with its policies to encourage investment in textile dyeing. Despite supporting policies, Vietnam remains wary with dyeing development (in comparison with developed textile countries such as India, Bangladesh, etc.) because of it causes environmental pollution, and does not generate many jobs

52 TABLE CONTENT Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.1. Overview 2.2. Spinning 2.3. Weaving, Dyeing, Finishing 2.4. Sewing 2.5. Distribution and export 52

53 Part II. Industry overviews 2. Vietnam Textile and Garment Industry 2.4. Sewing Apparel production M/2015 Unit: million products Apparel production is growing, but most for export. Vietnam s Apparel production grew steadily due to stable order from foreign customers. In 2014, production reached 3.5 billion units (increased by 2.5% yoy ), of which Vinatext contributed million units (increased by 238 % yoy ), equivalent to about 6%. It can be seen that Vietnam's garment industry is relatively segmented, and its businesses are unable to secure their position, and are competing with many FDIs M/2015 Industry Vinatex Source: VIRAC from GSO Despite large production, domestic production accounts for only approximately 60% of domestic market, remaining 40% is imported products, of which Chinese products account for 20% as quota. One of the reasons that makes Vietnamese businesses lose their market share is weak distribution system, only a small number of enterprises such as Viettien, Nha Be, and so on could set up proper distribution system. According to Nielsel s research, Vietnamese consumers are willing to use textile products made in Vietnam if they meet the requirements for price and quality Domestic apparel market share Source: VIRAC from VINATEX