The region has created a comparative advantage for Vietnamese garment products. Cheap labor is one of the favorable conditions that gives Vietnamese garment products more opportunities and advantages than those of other countries.
However, cheap labor is only a relative advantage compared to garment-producing countries. In fact, Vietnam's labor is cheap but labor productivity is low. When calculating the absolute value of labor wages per product, this makes labor costs increase. Moreover, today, science and technology are strongly developed, production processes are automated, cheap labor is no longer the advantage as before.
In addition to the labor source with not really cheap costs, there are also high costs of raw materials. Most of the raw materials and accessories of garment enterprises are imported in the form of temporary import for re-export provided by processing customers, or purchased by enterprises themselves. There are also many customers who buy fabrics and accessories from Vietnamese enterprises to garment enterprises for processing, but the prices of domestically produced raw materials are often more expensive than imported prices, the designs are poor, unattractive, the quality of the shipments is often uneven, the purchasing procedures are complicated, the delivery schedule is often wrong with the contract... Therefore, garment enterprises often import raw materials from abroad, pushing the production price and selling price of garments very high. The prices of garment enterprises are often higher than the prices of similar products in ASEAN countries. At the same time, importing inputs leads to unstable production processes of enterprises, dependence on suppliers, contract implementation is often slower than the predetermined schedule, negatively affecting the reputation of enterprises with customers.
The above reasons make the price of Vietnamese garments higher than that of some garment exporting countries (Table 2.2). The average price per square meter of Vietnamese textiles imported into the United States in 2006 was 2.96 USD/m2, nearly 2 times higher than the average price of total textile imports into the United States of 1.79 USD/m2. Meanwhile, the average price per square meter imported into the United States from other countries is often lower than the price of Vietnam.
Table 2.2. Average unit price/m2 of textiles imported into the US
Water
Average unit price/m2 of goods imported into the US in 2006 (USD/m2) | % compared to Vietnam (Vietnam =1) | |
India | 1.98 | 0.67 |
Bangladesh | 2.01 | 0.68 |
Canada | 1.02 | 0.34 |
Honduras | 2.14 | 0.72 |
Indonesia | 2.44 | 0.82 |
Mexico | 1.84 | 0.62 |
China | 1.55 | 0.52 |
Vietnam | 2.96 | 1.00 |
Country average | 1.79 | 0.60 |
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Source: 17 .
In addition, some items are priced much higher than the prices of similar imported goods from other countries (Table 2.3). Statistics in 2007 show that the average export price of Vietnamese goods to the US is higher than the average import price to the US from other countries from nearly 2 USD to 5 USD/m2, typically items with codes 440, 338, 645, 638, and many other items.
Table 2.3 - Comparison of Vietnamese textile prices with other countries
Catg 338
Average US import price
2005
Imported from Indonesia | Enter word Bangladesh | Imported from Vietnam | |
31.5 USD/dz Down 4.76% vs. with 2004 | 46.9 USD/dz Down 33% from 2004 | 24.6 USD/dz Down 36% from 2004 | 52.2 USD/dz Up 7.35% over with 2004 |
Source: 46
In addition, due to lack of business capital, many enterprises have to borrow short-term capital to invest in development and pay high interest rates, which also reduces the price competitiveness of garment products. Thus, in general, product price is still not a competitive advantage of Vietnamese garment products.
Market
Market entry conditions
As mentioned in the previous section, the garment industry requires a small investment capital, not too complicated technology, low investment rate, and quick capital recovery. On average, the investment cost for a station on a classic or semi-automatic line is no more than 3,000 USD, and on an automatic line it is about
4,000 USD. Thus, for a sewing line of 50 workers, the investment cost for a production line is about 2.8 to 3.5 billion VND (calculated according to the interbank exchange rate of June 2010). Thus, if a small and medium-sized enterprise has 3
- The investment cost for 4 production lines is about 10 billion VND, which is not a large number. This is also the reason why the conditions for entering and exiting this market are not too difficult or complicated. It is because of this characteristic that the competitiveness of garment enterprises is often not sustainable.
Competitors in the market
When penetrating the world garment market, especially the EU, Japan, and US markets, through export, the most formidable and giant competitor for Vietnamese garment enterprises is China 18 .
China is the most populous country in the world and is located on the Silk Road, so the Chinese textile industry has developed for thousands of years, ensuring both domestic consumption and international trade. China holds the leading position in the world's textile industry in terms of cotton and garment output, and is second in chemical fiber. The Chinese textile industry has always been a pioneer in the national economy, the output value of the textile industry accounts for approximately 20% of the total value of industrial output nationwide and is the largest industry in China. The export value of Chinese textiles and garments accounts for an increasingly high proportion of the total global textile and garment trade, in which China's traditional markets are Hong Kong, Japan, the US, the EU, and Australia. Especially since 2005, when the global textile and garment quota system ended according to WTO regulations, not only Vietnam but the whole world has been horrified by the wave of Chinese textiles and garments. Since 2005, Chinese textiles have accounted for approximately 75% of the textile market share in Japan and Australia. In 2008, Chinese textiles accounted for approximately 40% of the EU market and 40% of the US market. Especially since January 1, 2009, the US Government abolished quotas for China, Chinese textiles have gained more power and strength to compete strongly in the US market, one of Vietnam's traditional markets. According to estimates, in 2009, China accounted for approximately 28% of the world market in this industry.
Currently, China's strategic task is to enhance competitiveness through restructuring the textile industry, adjusting production scale, modernizing equipment and increasing product added value with the aim of transforming from a country with a large textile industry to a country with a strong textile industry. This strategy is implemented based on some advantages of the Chinese textile industry such as: a team of skilled technical staff, low prices of garments (only about 80% of the price of similar products in Vietnam); work
effective marketing; the textile and garment industry structure has developed to a certain extent and especially the Chinese government's support and incentive policy system, such as the most recent tax refund rate increase regime since August 2008. It is forecasted that in the coming years, China will still be the world's leading textile and garment exporter. Therefore, the development of the Chinese textile and garment industry has put Vietnamese garment products in more difficulty when doing business in the same target market with companies of this giant country.
Besides China, South Korea, Taiwan, Thailand, India and some other countries in Asia are also competitors of Vietnam in the international textile market. The table below provides the textile export value of these countries in 2008.
Table 2.4 - Textile and garment export turnover of some countries in the Asian region in 2008
Water
Textile and garment export turnover (million USD) | |
India | 9,852.0 |
Cambodia | 3,100.0 |
Taiwan | 10,902.0 |
Korea | 13,800.0 |
Indonesia | 11,800.0 |
Thailand | 7,200.0 |
Vietnam | 9,120.0 |
Source: 13
The data in the table above shows that the value of textile exports of some countries in the Asian region, not including China, is also quite large. This proves that Vietnam also has to compete with other countries in the international market.
Not only providing good quality products, countries like Thailand and Taiwan also always convey the message of producing garments with the motto of being environmentally friendly (box 2.1). The perfection of the production process with the effort to care for the community through the motto of "environmentally friendly production" is also a competitive advantage in the textile market of these countries.
Box 2.1: The future of Thailand's textile industry lies in new and environmentally friendly technology
Innovation and environmental friendliness are always what consumers want. And that is the key that the Thai textile industry is using to increase its competitiveness in the world market.
According to Mr. Virat Tandaechanurat, Director of the Thailand Textile Institute (THTI), Thailand is producing highly innovative and environmentally friendly textile products. Thanks to modern technology, these products have fully met the consumption needs of individuals and businesses .
Thailand’s new and environmentally friendly products include dust-proof and anti-bacterial bed sheets; anti-bacterial nylon used in clothes, socks, and hats; nano - coats to keep warm; herbal elbow and knee pads; cellulose pads to stop bleeding; polyester mixed with coconut charcoal to increase moisture absorption and create natural scents; synthetic fibers used to replace metals in protective clothing…
“ Using modern technology to produce innovative and environmentally friendly products is essential for the Thai textile industry to compete with other countries in the world market, especially those that enjoy preferential treatment from free trade agreements ,” said Mr. Virat.
Source: 13
In general, the opportunities for Vietnam in the international market are huge. However, Vietnamese garments have not yet firmly established themselves in this very large market. In the mid-range market segment, Vietnamese garments are being overtaken by Chinese goods, while in the mid- to high-end market segment, Thai, Taiwanese, Korean and other brands dominate. Because
Therefore, affirming a stable position in the international textile market is an important issue for Vietnamese garment export enterprises.
2.1.2. Production capacity and export scale
Production capacity
According to statistics from the Vietnam Textile and Apparel Association (VITAS), currently the entire Vietnamese textile and garment industry has about 3,500 enterprises with a diverse business structure by owner, by locality and by product group (Table 2.5).
Table 2.5 - Structure of textile and garment enterprises in 2010
Classify
Type | Quantity | Proportion | |
Classification by locality | North | 1050 | 30 % |
Central region | 280 | 8% | |
Southern | 2170 | 62% | |
Sort by product group | Textile & Garment | 840 | 24% |
May | 2450 | 70% | |
Spinning | 210 | 6% |
Source: 12
Among the above enterprises, garment establishments are members of VITAS with 1,360 establishments belonging to economic sectors in 35/61 provinces and cities nationwide, mainly export garment establishments. These establishments have attracted about 2 million regular workers. The production capacity of the entire industry has reached more than 2,500 million standard shirt products/year and is mainly concentrated in some localities such as Hanoi, Da Nang, Quang Nam, Ho Chi Minh City, Long An, Dong Nai, Binh Duong, Can Tho...
The scale of production facilities also varies. There are enterprises with production capacity of up to 20 million products/year, but there are also many establishments with production capacity of only about 1 million products/year. In general, each establishment only focuses on producing a number of fixed product codes. This is due to the specialized investment of processing establishments, but there are also reasons from the side of the enterprises.
outsourcing businesses, because most foreign customers are also only strong in certain products. Due to limited production capacity, most businesses only receive orders in small quantities.
Table 2.6 - Main products of the garment industry
Year
Unit | 2004 | 2005 | 2006 | 2007 | 2008 | % 2008 | |
Ready-made clothing | Million pieces | 923.0 | 1010.8 | 1155.5 | 1936.1 | 2503.2 | 100 |
In there | |||||||
State | Million pieces | 219.0 | 218.9 | 144.9 | 121.2 | 127.2 | 5 |
Non-state | Million pieces | 414.0 | 482.3 | 426.3 | 951.9 | 1426.7 | 57 |
DTNN | Million pieces | 290.0 | 309.6 | 584.3 | 863.0 | 949.3 | 38 |
Source: 40
Thus, the output of Vietnam's garment industry has increased rapidly over time with an average growth rate of 50% per year. In particular, in 2007, the number of garment products increased dramatically by 67% compared to 2006. This was also the year that Vietnam's garment exports achieved impressive growth.
Production organization level
According to statistics of the Vietnam Textile and Apparel Association at the end of 2007, in Vietnam there were 2,450 garment enterprises with 918,700 machines and equipment.
12 . In general, machinery and equipment in the garment industry have reached the world's advanced technological level. The level of machinery and equipment with advantages in human resources has helped garment export enterprises create products that can enter demanding markets in the world.
However, the level of production organization of garment export enterprises in Vietnam, although has improved significantly in recent years, is still modest. According to experts, about 90% of current garment export enterprises still use the classical production method, also known as the bundle method. This production method has many disadvantages.