In order to promote the development of the upstream of the industrial chain and achieve the ambitious goal of covering the entire industrial chain with production, the Vietnamese textile industry has always hoped to reduce the import of raw and auxiliary materials. Recently, in an interview with the media, Du Shenghai, Deputy Minister of Industry and Trade of Vietnam, once again made it clear that the textile industry should reduce its dependence on imported raw materials. To this end, the Vietnamese government will encourage domestic and foreign companies to invest in cotton, yarn, fabrics and other industries to form an active supply textile industry chain.
As the second largest supplier of imported clothing to the United States, Vietnam’s textile industry has to rely on imports for most of its raw and auxiliary materials due to a lack of local productivity. Such an industrial structure can easily affect the stability of downstream production and make it difficult for Vietnam to Become one of the textile powerhouses. So, can the idea of localizing raw and auxiliary materials in Vietnam’s textile industry be realized in the short term? Judging from the current situation, what favorable conditions will promote the productivity improvement of Vietnam’s upstream textile industry, and what factors will limit its development?
The upstream production of the industry is becoming increasingly weak
As early as two years ago, when formulating the industry development plan, the Vietnam Textile and Apparel Association (Vitas) proposed that by 2020, Vietnam would like to be among the top three global apparel exporters. Today, the supply of local raw and auxiliary materials in Vietnam’s textile industry can still only meet 48% of demand. As the export of clothing end products increases, the gap in the upstream products of Vietnam’s textile industry continues to increase. According to the Vietnam Textile Association, the import volume of raw and auxiliary materials for the country’s textile industry in the first half of this year was US$5.9 billion, a year-on-year increase of 23.3%. In order to achieve the export target of US$13 billion to US$13.5 billion in the second half of the year, its import volume of raw materials and auxiliary materials is expected to continue to increase.
Shortcomings such as backward technology, low labor productivity, and the ability to only process and produce have caused the limitations of Vietnam’s textile industry. At present, 90% of Vietnamese fabric products need to be imported, and the textile fabrics produced by domestic enterprises can only meet 20% of the local market demand; in addition, domestic textile printing and dyeing factories can only meet 10% to 15% of the printing and dyeing demand, and the self-sufficiency rate of textile machinery and equipment About 20%. At the same time, Vietnam’s garment supporting industry is small in scale, with a small number of enterprises and scattered distribution. In order to improve the competitiveness of the industry, the Vietnam National Textile Association encourages member companies, as well as foreign direct investment enterprises (FDI), to increase investment in the production of fabrics and fabric fibers to create a complete supply chain.
Multiple free trade agreements attract foreign investment
In order to solve the problem of weak production supporting capabilities in the upstream of the industrial chain, on the one hand, the Vietnamese government has made clear its attitude of encouraging investment in the textile and apparel field; on the other hand, with the Trans-Pacific Partnership Free Trade Agreement (TPP), Vietnam- With the continuous advancement of the European Union Free Trade Agreement (FTA), the investment attraction of Vietnam’s textile industry has been enhanced, and foreign-invested enterprises have also turned more attention to Vietnam due to cost pressure considerations.
In June this year, South Korea’s Donil Group began construction of its first textile factory in Vietnam. The investment in the first phase of the project is US$52 million and is expected to be put into operation in mid-2015. By then, it will provide hundreds of job opportunities, produce 9,000 tons of fiber annually, and the products will be sold to the Asian market. Coincidentally, Japan’s YAGI company has also started manufacturing operations in Vietnam since this spring. Through the loan of various equipment and the signing of special production line contracts, two production lines were opened in Haiphong City and Ho Chi Minh City. Tamurako Co., Ltd., another Japanese-owned company, already has 8 fabric bases and 20 sewing bases in Vietnam. While expanding its sewing bases, the company has also recently increased the production of synthetic fibers, cotton and various composite materials.
Textile companies from Japan, South Korea and other countries continue to increase investment in Vietnam, which has undoubtedly promoted the output of Vietnamese textile fabrics and raw materials at a macro level. But can the country’s production capacity of raw and auxiliary materials be fundamentally improved and promoted? The answers to questions such as the technological upgrading of local companies still need to be worked out.
Lack of support for local high-tech
A report from Vietnam’s Saigon Daily pointed out that in the past two years, although foreign direct investment companies have favored investing in labor-intensive industries, these foreign-funded companies have not made any commitment to technology transfer, nor have they carried out large-scale development in the industry. Provide support in the project. In fact, in the field of textiles, the production input of these enterprises with advanced technology is still mainly processing. Most of their products are supplied to the export market, and the core technology has not been shared with local Vietnamese textile enterprises.
In the global supply chain of the textile industry, including cotton cultivation, spinning, weaving, dyeing, garment processing and sales, Vietnam only does the best in garment processing. Due to backward production technology, there are not many Vietnamese textile companies that can undertake complex orders. Compared with neighboring countries and regions, the proportion of high-tech applications in Vietnam has grown slowly. In the textile industry, its proportion of high-tech applications is even lower than in Ethiopia.
To this end, Deputy Minister Du Sheng Hai of the Ministry of Industry and Commerce of Vietnam said that the most reliable way to promote the industry to improve the self-sufficiency rate of raw materials is to strengthen domestic investment. Only by improving the technical strength of local industries can we fundamentally solve the industry development dilemma. However, industry experts point out that at present, factors such as the lack of loan incentive mechanisms still restrict the development of enterprises. This is also the main reason why manufacturers in the textile industry have not actively carried out technological innovation for many years.
Financing problem systemAbout business development
In Vietnam, corporate financing is still a “long-standing problem”. Survey results recently released by the General Bureau of Statistics of Vietnam show that among companies that are unable to apply for loans, 23% believe that the loan application procedures are too complicated and take too long; 14.4% of companies do not have property mortgages; 7.8% cannot meet the requirements. Own asset standards required by banks; 6.4% of companies are unwilling to apply for bank loans because they have to pay fees other than interest. Many stringent loan qualification reviews have resulted in 50% of companies currently being unwilling to apply for bank loans to expand production and operation scale. For textile and clothing companies, they can only continue to accept OEM orders that do not require large investments.
In addition to the high review threshold, high financing costs also reduce the competitiveness of Vietnamese textile companies to a certain extent. Although Vietnamese export companies enjoy a preferential one-year loan interest rate of 8% to 10%, their borrowing costs are 1.4 to 2 times that of other countries in the region. The one-year loan interest rates for export companies in Malaysia and Thailand are 4.9%, 6.6% and 6.9% respectively. This is a huge disadvantage when local Vietnamese companies compete with foreign companies in the domestic market. This is because the annual interest rates paid by direct investment companies in Vietnam from the United States, Japan, South Korea and Thailand are only 1.5% to 4.7%.
The new market environment and industry development path force the Vietnamese textile industry to improve local production capabilities. However, from technical support to financing problems, the localization path that the industry wants to implement still requires the support of the government and industry, as well as the industrial chain. Determination of coordinated development of upstream and downstream.
