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+ Confirmatory factor analysis (CFA): to confirm that the scales are reliable before testing the relationships in the model.
+ Structural Equation Modeling (SEM): SEM combines measurement models (observed variables) and structural models to examine the relationship between latent constructs (unobserved variables). SEM is used to assess the model's fit by evaluating its value based on scale value, convergent value, discriminant value, and unidimensionality.
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CHAPTER 3 SUMMARY
In this chapter, the author has analyzed the research method and the basis for choosing the research method. In this study, a mixed research method was applied, combining qualitative and quantitative research. The implementation steps and methods applied in collecting and processing data are also presented in this chapter, in which the qualitative research method is the method of in-depth interviews with experts with qualifications and experience in the field of internal control and garment. The results of the discovery of factors belonging to the components of internal control affecting the factors of financial performance. For quantitative research, the data processing process is carried out through SPSS data processing software. The exploratory factor analysis (EFA) method is used in this study to extract factors, then conduct confirmatory factor analysis to assess the suitability of the model, then conduct structural model testing and multi-group structure analysis.
The selected research method and the designed research sequence as well as the selected data processing method in this chapter will be an important basis for carrying out the practical research steps to achieve the research results that will be presented in chapters 4, 5 and 6.
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CHAPTER 4.
STATE OF INTERNAL CONTROL,
FINANCIAL PERFORMANCE IN VIETNAMESE GARMENT ENTERPRISES
4.1. Overview of Vietnamese garment enterprises
4.1.1. History of formation and development of the Textile and Garment industry in Vietnam
The Vietnamese textile industry has a long history dating back to the 12th century, when traditional craft villages were established in Hung Yen, Ha Tay, Nam Dinh, and Thai Binh. The important milestone marking the official establishment of the Vietnamese textile industry was in 1897 with the establishment of a textile factory in Nam Dinh. Thus, the Vietnamese textile industry has developed from handicraft villages to larger textile and garment manufacturing enterprises.
If in the past, the Vietnamese textile industry was only concentrated in Nam Dinh and some provinces with traditional textile villages, from 1987 to 1990, the Vietnamese textile industry spread to all provinces and cities across the country from North to South, forming textile factories with modern machinery and technology from Europe, the Soviet Union and China. The scale of factories and enterprises became larger when the country was completely liberated. However, during this period, textile products not only served domestic consumption needs, but a few also served exports to the Soviet Union and Eastern European markets with simple products such as: protective clothing, pillow covers, etc.
If 1990-1992 was a difficult period for the Vietnamese textile and garment industry when Vietnam's textile and garment export turnover was significantly affected by the collapse of the Eastern European bloc, then in 1995 there was a strong breakthrough in exports when the industry's export turnover reached an impressive figure of 765.5 million USD. Such a strong development momentum was due to the establishment of the Vietnam Textile and Garment Corporation and the promulgation of the Law on Foreign Investment in Vietnam, which created the industry to develop in both breadth and depth.
January 11, 2007 marked an important turning point for the Vietnamese Textile and Garment Industry when Vietnam became the 150th official member of the WTO. From here, quotas were eliminated, creating conditions for the industry to develop and integrate with the world economy. The Vietnamese Textile and Garment Industry has only grown strongly in recent years, but as one of Vietnam's main export industries, it has solved many problems.
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It creates jobs for many workers and is a major foreign currency earner for Vietnam. In the period 2007 - 2009, Vietnam was considered one of the 10 countries with the largest export turnover of textiles in the world.
As of 2013, the Vietnamese Textile and Garment industry had about 6,000 enterprises with a workforce of about 2.5 million people, accounting for 25% of the workforce in industrial economic zones. Most of them are private sector enterprises, accounting for about 84%, and are mainly concentrated in the Southeast region, about 60%, and the Red River Delta, about 30%. Of the total number of enterprises in the industry, up to 70% are garment enterprises with the CMT sewing method being the main method, accounting for 85%. Vietnam's textile and garment products have reached 180 countries and territories with an export turnover of 17.9 billion USD. The period of 2008 - 2013 was a successful period for Vietnam's textile and garment exports when Vietnam was considered one of the countries with the fastest growth rate in textile and garment exports in the world. However, although the export turnover was very large, the added value of the industry was not much.
45%
40%
35%
30%
25%
20%
15%
10%
32.081%
22.674%
17.951%
41.235%
23.447%
23.
32
93
9%
17.068%
9.4 %
35,000
30,000
25,000
20,000
15,000
10,000
10.795%
7.4
%
5,000
5% 4.078%
0% -
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Textile and garment export turnover Textile and garment export turnover growth rate
Figure 4.1. Textile and garment export turnover chart from 2005 to 2017
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Source: Vietnam Textile and Apparel Association's annual summary report
From 2005 to 2019, the Vietnamese textile and garment industry achieved an average export growth rate of 17.48% per year. Despite fierce competition from countries in the region and downward fluctuations in the world textile and garment market, 2017 was still considered a successful year for the Vietnamese textile and garment industry when the industry's export turnover reached more than 31 billion USD (mainly export turnover).
98 Garment export turnover was 26.038 billion USD), an increase of 10.23% compared to 2016. Not stopping there, in 2018, the industry's export turnover continued to increase and reached over 36 billion USD, an increase of 16.01% compared to 2017. In general, the export turnover of Vietnam's garment industry increased year after year compared to the previous year and accounted for a relatively large proportion compared to the total export turnover of the whole country (Table 4.1). According to experts, when the incentives of free trade agreements officially come into effect, it will be an opportunity for the industry to develop and expand the market. Table 4.1: Export turnover of Vietnam's garment industry in the country's total export turnover from 2014 to 2019 Unit: million USD | ||||||||
Target | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||
KNXK nationwide | 150.1 | 162.4 | 176.63 | 214 | 243.7 | 264.2 | ||
KNXK garment manufacturing | 20,101 | 22,808 | 23,824 | 26,038 | 30.5 | 32.9 | ||
Proportion | 13.39% | 14.04% | 13.48% | 12.16% | 12.52% | 12.45% | ||
Source: General Statistics Office, Vietnam Textile and Apparel Association over the years The main export markets of Vietnam's textile and garment products are the US, Europe and Japan. Of which, the export turnover of Vietnam's textile and garment is mainly contributed by the US market, followed by the EU and Japan. Table 4.2. Textile and garment exports from Vietnam to markets in 2015 - 2019 Unit: thousand USD | ||||||||
Market | 2015 | 2016 | 2017 | 2018 | 2019 | Comparison 2018/2017 | Comparison 2019/2018 | Proportion 2019 |
America | 11,200 | 11,659 | 12,490 | 13,958 | 15,200 | 11.75 | 8.90 | 38.97 |
Europe | 3,408 | 3,596 | 3,885 | 4.304 | 4,400 | 10.79 | 2.23 | 11.28 |
Japan | 2,918 | 3,036 | 3,286 | 4.008 | 4,200 | 21.97 | 4.79 | 10.77 |
Korea | 2,430 | 2,662 | 3,075 | 3,830 | 4,000 | 24.55 | 4.44 | 10.26 |
ASEAN | 1,119 | 1,305 | 1,506 | 1,949 | 2,100 | 29.42 | 7.75 | 5.38 |
China | 2,224 | 2,669 | 3.361 | 3,970 | 4,250 | 18.12 | 7.05 | 10.90 |
Other | 3,722 | 3,196 | 3,556 | 4,245 | 4,850 | 19.38 | 14.25 | 12.44 |
Total | 27,021 | 28,123 | 31,159 | 36,264 | 39,000 | 16.38 | 7.54 | 100.00 |
Source: Vietnam Customs over the years | ||||||||
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99 4.1.2. Characteristics of the Vietnamese garment industry's operations affecting internal control - The link between the garment industry, the textile industry and supporting industries is not yet tight because the quality of textile products is not good, the designs are poor, the colors and sizes are not uniform, not keeping up with the tastes of domestic and foreign consumers and the prices are high, making it difficult to compete with textile products from China, Korea, etc. Therefore, the domestic rate of Vietnamese garment products is still low. The trade balance of textiles in Vietnam is still not balanced because in some years the amount of imported textiles is larger than the amount of exported textiles. This has made the input factors of the garment industry largely dependent on the garment supporting industries of more developed countries such as Korea, China, etc., affecting the awareness of managers of Vietnamese garment enterprises in designing and operating control procedures to control the supply well. - The production method of garment enterprises is mainly pure garment processing. Therefore, garment enterprises are strongly influenced by both input and output from foreign suppliers and consumers. So the only way for enterprises is to proactively control and manage the production stage well. To do so, managers must have a clear production plan and control well the costs that make up the product price, mainly direct labor costs, and focus on controlling product quality and social responsibility to meet the requirements of customers in large markets such as the US, EU, ... and compete with major competitors such as China, India, ... Besides, due to limited financial capacity, many Vietnamese garment enterprises have not been able to directly access large retailers, but mainly enterprises still carry out garment processing through intermediaries, so enterprises have to face both business risks and payment risks. This has forced businesses to pay attention to building policies and procedures to evaluate customers and payment methods to minimize risks for the business. - Labor characteristics: Table 4.3. Labor and labor structure in Vietnamese garment enterprises | |||
Year | Total number of employees | Including female workers | |
Quantity | Rate (%) | ||
2015 | 1,426,250 | 1,147,377 | 80.45 |
2016 | 1,424,292 | 1,138,173 | 79.91 |
2017 | 1,466,062 | 1,165,631 | 79.51 |
2018 | 1,560,302 | 1,236,849 | 79.27 |
2019 | 1,582,445 | 1,254,141 | 79.25 |
Source: General Statistics Office and author's calculations | |||
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Every year, garment enterprises create jobs for more than 1.4 million people. This shows that the demand for labor of garment enterprises is relatively high, mainly female workers, accounting for nearly 80% of the total workforce. Due to the characteristics of the garment industry requiring dexterity and meticulousness, the majority of workers in enterprises are women with low professional qualifications, leading to low average income. Meanwhile, workers work in an environment of work pressure and frequent overtime, leading to the mentality of workers considering this a temporary job. Therefore, the garment industry has to face labor fluctuations and frequent strikes. In addition to the internal difficulties in the enterprise regarding human resources, the enterprise also has to face external difficulties, which are requirements from customers requiring enterprises to have social responsibility towards employees such as working conditions, working hours, working environment, salary and benefits, etc. Therefore, to solve both internal and external difficulties, managers must have a plan to build and implement human resources policies that comply with the law and meet customer standards.
- Low business efficiency: Although Vietnam's textile and garment export turnover has been increasing in recent years, because Vietnamese garment enterprises mainly participate in simple garment processing, the added value brought to Vietnam is insignificant, leading to low business efficiency. As a result, the average income per capita of workers tends to increase from more than 5 million VND in 2015 to more than 7 million VND in 2018 and 2019, but it is not high and the contributions to the budget are not much due to the very low profit margin. To solve this problem, garment enterprises must have a communication plan and market analysis to develop their businesses in the direction of going deeper into the global textile and garment value chain by performing more difficult stages to create greater added value.
Table 4.4. Business performance of the garment industry from 2015 - 2019
Unit: Million VND
Target
2015 | 2016 | 2017 | 2018 | 2019 | |
average income head | 5.47 | 6.14 | 6.70 | 7.23 | 7.44 |
Contribute to the bank books ( Taxes, fees and payables ) | 6,137,400,000 | 5,825,223,700 | 6,481,928,100 | 9,073,903,000 | 2,229,722,870 |
Source: General Statistics Office and author's calculations
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- Characteristics of business size :
Table 4.5. Classification of Vietnamese garment enterprises by labor size
Year
Total number of enterprises | Divide by labor size | ||||||||
Less than 300 people | From 300 to under 500 people | From 500 to less than 1000 people | From 1000 people or more | ||||||
Quantity | Proportion | Quantity | Proportion | Quantity | Proportion | Quantity | Proportion | ||
2015 | 5,998 | 4,768 | 79.49 | 287 | 4.78 | 356 | 5.94 | 587 | 9.79 |
2016 | 6,461 | 5,170 | 80.02 | 299 | 4.63 | 395 | 6.11 | 597 | 9.24 |
2017 | 6,871 | 5,580 | 81.21 | 292 | 4.25 | 398 | 5.79 | 601 | 8.75 |
2018 | 7,693 | 6,711 | 87.24 | 296 | 3.85 | 336 | 4.37 | 350 | 4.55 |
2019 | 8,775 | 7,797 | 88.85 | 296 | 3.37 | 329 | 3.75 | 353 | 4.02 |
Source: General Statistics Office and author's calculations
The increasing scale of garment enterprises proves that the garment industry is on the rise. By the end of 2019, the number of Vietnamese garment enterprises was 8,775, mainly small and medium-sized enterprises accounting for 88.85%. Meanwhile, the number of large-sized enterprises accounted for only 11.15%. Table 4.5 shows that over the past four years, the number of garment enterprises has continuously increased, however, the growth rate in the number of small and medium-sized enterprises is higher than the growth rate in the number of large-sized enterprises. This has created strong competition within Vietnamese garment enterprises. Most of the established garment enterprises are small and medium-sized with limited financial capacity, making it difficult to access modern management and control systems in the world. Therefore, they are not qualified to carry out complex stages in the chain but can only carry out simple processing stages. That is why many managers have not considered building and designing internal controls with all components according to COSO.