Creating conditions to promote textile and garment exports

Wednesday, 2017-04-05 10:02:10
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A line at the Tra Ly Fibre Joint Stock Company
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NDO – This year, the Vietnamese textile and garment industry set a target of 6.5%-7% growth, compared to 2016, and gaining an export turnover of over US$30 billion.

However, it seems that a lack of synchronous and long-term development strategy, proactive investment, technological innovation, enhancement of management and preparation of raw and auxiliary materials of enterprises, will impact the competitiveness of the country’s textile and garment industry, particularly in the context of deep and strong international economic integration.

Training quality human resource

The export turnover of the Vietnamese textile and garment industry reached US$28.3 billion in 2016, much lower than the target of US$31 billion. In the last months of last year, enterprises lacked orders as their partners moved contracts to countries with a lower cost than Vietnam. One may observe that though the Vietnamese textile and garment sector’s strength has been the first stage (yarn) and last stage (tailoring), it has not paid much attention to weaving and dyeing, thus failing to create added value or improve the competitive element of products.

General Director of Nam Dinh Textile and Garment Joint Stock Company (Vinatex Nam Dinh), Nguyen Van Mieng, said that Nam Dinh province’s textile industry has had a long tradition and used to hold leading position in the country in terms of products’ quality. However, obsolete equipment and technology caused energy-consuming production and poor quality of products. Meanwhile, Nam Dinh Garment Company did not operate effectively and lost the market. On the other hand, textile and garment makers in the province were conservative and did not want to change, creating stagnation and low-efficiency in production and business for a long time.

With the above issues as a backdrop, Vinatex Nam Dinh has restructured its parts, focusing on relocating its dyeing plant to Hoa Xa Industry Zone, as well as investing in modern equipment to improve the product quality.

Since its technological update in March 2016, the fibre plant has had only 45,000 spindles compared to its earlier number of 78,000. Meanwhile, the number of workers has decreased to 450 while the product output has increased to 630 tonners per month. In terms of garment industry, thanks to the renewal, the total output is recorded at 300,000 products per month.

Also, according to General Director Mieng, Vinatex Nam Dinh still encounters numerous difficulties. For instance, the waste-water treatment station of the fibre plant was forced to stop operating for more than a year due to poor quality, quitting of skillful workers and loss of partners.

Currently, the textile and garment industry employs around three million workers in nearly 8,000 enterprises, significantly contributing to transferring economic structure from agriculture to industry. However, there have not been enough training facilities that are essential for the textile and garment sector such as human resources for order management as well as for those relevant in fields like weaving, fibre and dyeing.

Despite its contribution to the country’s socio-economic development, the textile and garment industry outsources significantly. This is likely to lead to problems in terms of improving the industry’s competitiveness in the global supply chain in the near future. Regarding this issue, Head of the Hanoi Textile and Garment Industry University, Hoang Xuan Hiep, affirmed that in the short-term, the university will train engineers and management officials at senior, medium and grassroots levels in this field. This is a solution to help enterprises maintain competitive advantage in producing high quality products, improve workers’ productivity and gradually increase the localisation proportion. In the long-term, the university would continue to train high-level human resource for textile and garment industry such as factory directors and order managers, significantly contributing to helping enterprises add value to the production method.

Developing a supporting industry

The textile and garment industry has been one of the largest export earners in Vietnam; however, 80%-85% of materials have been imported, including fabric, leather, sewing thread, button and metal buckle. The industry’s export turnover reached over US$28.3 billion, but nearly US$15 billion was spent to import materials for production. Thus, the value margin that the industry gained was very small.

Specifically, the volume of domestic fibres can meet the demand of production in the country and exports; however, fabric and cotton can meet only 20%-30% and 3%-5% of the production demand, respectively. According to a director of a big fibre plant in the north region, its fibre commodities have been exported to two major markets of China and the Republic of Korea.

Notably, there have been mechanisms to eliminate the ‘knot’ as Vietnam exported fibre but imported fabric to serve production activities. It is imperative to find solutions to solve this problem as well as accomplish investment policies to develop weaving and dyeing factories in the future.

Tran Van Dinh, an official from Tra Ly Fibre Joint Stock Company in Thai Binh province, said that the company now has 71,000 spindles (annually producing around 14,000 tonnes of fibre), earning over VND660 billion in 2016. The company has to import 100% of materials, so it is forced to export its products to reinvest. If its products are sold in the domestic market, it will have to exchange foreign currency to import materials for production.

Although there have been several factories manufacturing materials for the textile and garment sector, the production in the country is still heavily reliant on imported material resource. Therefore, the important issue is to help enterprises take the initiative or guide them to reduce their dependence on imported materials as well as benefit from tariff preferences while fully meeting the rules of origin as Vietnam joins the free trade agreements with foreign countries such as EU, Japan and the RoK, in the near future.

Regarding this problem, General Director of the Vietnam National Textile and Garment Group (Vinatex), Le Tien Truong, emphasized that the rules of origin under the EU – Vietnam Free Trade Agreements (EVFTA) are based on the ‘fabric forward’ rule. If the garment enterprises do not take the initiative in developing fabric sources in Vietnam or the EU, they will be not be in a position to utilize opportunities. Instead, they will also face numerous challenges and risks as their customers transfer orders to enterprises that can be proactive in sewing and fabric sources.

In addition, if the enterprises cannot manufacture fabrics on their own to meet the rules of origin of the EU, enterprises will be entitled to tax reduction and forced to reduce costs of outsourcing, causing low profits and even loss.

In order to survive and develop, the Vietnamese textile and garment sector must device mechanisms to promote the supporting industry. In particular, it is essential to establish industrial clusters for manufacturing materials, ensure requirements for wastewater treatment in dyeing and kinds of environmental-related materials such as plating in manufacturing metal buttons. The relevant agencies also need to set out preferential policies related to land tax, VAT, income and tax exemption and reduction and capital for enterprises investing in industrial complexes for materials.

In addition, a fund for credit incentives and support should be launched for enterprises operating the mode of FOB (free on board) for orders with localization rate of 50% and over as well as those who are experimentally producing spare parts and materials and equipment in the production line of auxiliary products.