Current Status of Supporting Industry Development for Vietnam's Textile and Garment Industry

- During the period when Chaebols developed strongly, in the 1980s and 1990s, the Government implemented directional measures, encouraging Chaebols to focus on industries with high scientific content.

- In the current period, with many economic events, especially the 1997 financial crisis, the Government advocates restructuring the Chaebols, lending large sums of money from international financial institutions.

CHAPTER 2: CURRENT STATUS OF SUPPORTING INDUSTRY DEVELOPMENT FOR VIETNAM'S TEXTILE AND GARMENT INDUSTRY

I/ OVERVIEW OF VIETNAM'S TEXTILE AND GARMENT INDUSTRY

1. Introduction to Vietnam's textile industry

The Vietnamese textile industry has a long history of development, with the milestone being 1897 when the French began colonial exploitation in Vietnam and built the first yarn factory in Nam Dinh. Having gone through many difficult periods, in recent years, the Vietnamese textile industry has achieved remarkable achievements with strong growth in quantity, structure, type, value and has become a key export item occupying an important position in the national economy. In addition to meeting domestic demand, Vietnamese textile products have gradually found a foothold and gained trust in the international market. Currently, Vietnamese textile products are present in many countries around the world, including many important markets such as the US, Japan and the EU.

The development process of Vietnam's textile industry can be divided into the following four stages :

- Phase 1: Before 2000, the textile and garment industry mainly focused on processing and exporting.

- Phase 2: Opening the way for export to the European market (2000-2002). Export peak was about 2 billion USD in 2001.

- Phase 3: Entering the US export market (2002-2006), maximum export of nearly 5 billion USD in 2005.

16 Research documents on Vietnam's textile and garment industry , Ho Chi Minh City Trade and Investment Promotion Center (2005)

- Phase 4: After 2006, marked by Vietnam's accession to the WTO, a period of many opportunities and also challenges for the Vietnamese textile and garment industry.

In particular, in November 2009, Vietnam officially became the 6th member of the Asia Fashion Federation (AFF). This event will create favorable conditions for Vietnam to have the opportunity to learn and cooperate with member countries with developed fashion industries in Asia to develop the fashion industry in particular and the Vietnamese textile industry in general rapidly in the coming time. This is also an opportunity to affirm the Vietnamese textile brand and at the same time open up many export markets for domestic enterprises.

2. Current production status of Vietnam's textile and garment industry

2.1. Production capacity

Compared to the early years of development, the production capacity of the Vietnamese textile industry has developed in both breadth and depth. The number of enterprises participating in the textile industry is increasing, and the level of science and technology has also improved significantly. However, the actual production level of the textile industry is still lower than the designed capacity, so it cannot meet the needs of enterprises, and the situation of having to import raw materials and textile products from abroad still occurs. In addition, if comparing the equipment and application of science and technology of the Vietnamese textile industry with the textile industry of other countries in the world, Vietnam's machinery and equipment are 2-3 generations behind, especially in the textile technology industry, according to the assessment of the United Nations Development Program - UNDP.

Table 2.1: Production capacity of Vietnam's textile and garment industry in 2009 17

NUMBER OF TEXTILE AND GARMENT ENTERPRISES (updated in 2009)

Standard	Quantity
Total	3719
Classification by equity
State	0.5%
CP, LLC foreign capital>50%	1%
CP, LLC with foreign capital <50%, Private	76%
Foreign	18.5%
Cooperative	4%
By region
Red River Delta	27%
Northern midlands and mountains	3%
North Central and Central Coast	7%
Central Highlands	1%
Southeast	58%
Mekong Delta	4%

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If in 2008, there were only more than 2000 enterprises participating in supplying raw materials and textile products, this number increased to 3719 enterprises in 2009. Textile and garment establishments in our country are mainly concentrated in two regions: the Southeast region, accounting for 58%, and the Red River Delta, accounting for 27%, the Central region only accounts for a very low proportion. The types of textile and garment manufacturing enterprises are quite diverse, in which the majority are joint stock companies, private limited liability companies, accounting for 76%, state-owned companies, accounting for only 0.5%, and foreign-invested companies, accounting for 18.5%. Thus, it can be seen that the level of attractiveness of Vietnam's investment environment in the textile and garment sector for foreign investors is still low. It is worth noting that the raw material production establishments are mostly state-owned, only in recent years have some foreign-invested enterprises and

17 http://vietnamtextile.org/ChiTietTinTuc.aspx?MaTinTuc=1553&Matheloai=57

New private enterprises are hesitant to enter the raw material production market. The reason for this situation is that the capital investment in raw material production is quite large, requiring a long time, and the Vietnamese consumer market is not stable.

2.2. Human resources for production

According to the Vietnam Textile and Apparel Association, in 2008, the total number of workers in the textile and garment industry was about 2 million people, of which industrial workers accounted for about 1.1 million people, of which the Vietnam Textile and Garment Group Vinatex alone had about

100,000 people 18. Is the industry with the largest number of employees, although

However, the current allocation of labor in the Vietnamese textile industry is not reasonable.

The shortage of labor in big cities and industrial zones is putting the textile industry in great difficulty. Many enterprises in the above areas are struggling to maintain their production and business activities while failing to meet the requirements of quantity and quality of labor. In fact, labor in the textile industry is mainly concentrated in big cities, especially Hanoi, Ho Chi Minh City and neighboring provinces. It is expected that in order to meet the "Strategy to accelerate the development of the entire textile industry until 2010", the number of laborers needed for the textile industry will reach over 3.5 - 4 million people. It will be even more difficult for textile enterprises if the number of recruited workers is less than the number of workers resigning as it is now.

So what is the cause of the above situation? According to experts, with an average income of less than 1 million VND/month, it is impossible to ensure the lives of workers in the textile industry, especially those living in big cities, in the context of increasing inflation.

18 http://chungkhoan247.vn/Desktop.aspx/Tin-DN/Tieu-diem/Giai_bai_toan_lao_dong/ : Labor problem: still struggling to find a solution

In fact, although Vietnam's textile and garment industry was the leading industry in the country in terms of export turnover in 2009, the added value of the textile and garment industry was still not high compared to other countries in the region as well as in the world due to poor machinery and equipment and having to import too many raw materials.

Regarding the quality of labor in the industry, the Vietnam Textile and Apparel Association said that Vietnamese garment workers are considered to have fairly good skills compared to the region and the world. However, this is a worrying issue for the textile industry. Vietnamese textile workers, due to lack of training, can only meet the requirements of machinery and techniques at an average level, while with modern machinery and techniques, Vietnamese textile workers still have many shortcomings. Although in recent years, the number of vocational training schools for the textile and garment industry has increased, the actual number of workers is still not enough to meet the needs of businesses, some businesses even have to accept retraining for workers, thus increasing the cost of textile and garment production.

For the textile industry, improving the quality of labor is a sustainable and long-term development solution for the textile industry. At the same time, it is necessary to improve policies and working conditions for workers and build harmonious labor relations. The industry also needs to re-arrange the labor force through restructuring production sites appropriately, avoiding disputes and labor shortages that will continue.

2.3. Production situation

Vietnam's textile and garment industry led the country in export turnover in 2009, surpassing even crude oil. This event marked a significant development step for Vietnam's textile and garment industry. 2009 witnessed the global economic crisis and recession and was an extremely difficult year for the Vietnamese economy in general and the textile and garment industry in particular.

However, with the outstanding efforts of enterprises along with policies and measures to combat economic recession through stimulus packages, interest rate compensation, investment support, and trade promotion of the Government, the Vietnamese textile and garment industry has stood firm and achieved encouraging results. Specifically: the industrial production value is estimated at 14,712.6 billion VND, reaching 103% and the total revenue is estimated at 24,710.7 billion VND, reaching 104% compared to the same period in 2008. The added value in the textile and garment industry is 44%, the profit margin on charter capital is over 14% 19 . The growth of the textile and garment industry in recent years can be clearly seen through the following chart:

Figure 2.1: Export turnover of Vietnamese textiles and garments from 1998 to 2009 20

Thus, the export turnover of Vietnam's textile and garment industry has continuously grown over the years. In just 7 years from 2001 to 2008, Vietnam's export turnover increased 4.65 times to 9.130 billion USD. In 2009, it also reached a level close to 2008, which was 9.108 billion USD. Textile and garment industry

19 Weekly Newsletter No. 50: Week from January 20, 2009 to December 26, 2009, Information compiled by Information & Communication Department, Vietnam Textile and Garment Group

20 http://vietnamtextile.org/ChiTietTinTuc.aspx?MaTinTuc=1456&Matheloai=58

has really brought a large source of foreign currency, increasing accumulation and foreign currency reserves for the economy.

Figure 2.2: Export growth rate of Vietnam's textiles and garments from 1999 to 2009 21

The chart above illustrates the fluctuations in the growth rate of textile and garment exports over the years, from 1999 to 2009. In 2002, the textile and garment industry had a breakthrough growth rate of 40.3%, opening a period of strong growth in both turnover and proportion in the overall export of the whole economy. In 2002, textile and garment exports reached over 2.7 billion USD and accounted for over 16% of the total export turnover of the whole country. Although the growth rate decreased in the following years, it was still maintained at a high level. Since 2006, the growth rate of the textile and garment industry has made a big step forward. The event of Vietnam joining the World Trade Organization (WTO) has helped the textile and garment industry eliminate trade barriers as well as textile and garment quotas in the US market. In 2008, Vietnam's textile and garment export turnover reached a record of 9.1 billion USD, putting Vietnam in the top 10 largest textile and garment exporting countries in the world.

21 http://vietnamtextile.org/ChiTietTinTuc.aspx?MaTinTuc=1456&Matheloai=58

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