New difficulties for Vietnam’s textiles and garments

08:26' 13/07/2007 (GMT+7)

VietNamNet Bridge - WTO membership has brought about many advantages for the textile-garment industry of Vietnam. However, new difficulties have emerged. Textile-garment products are the key export items of Vietnam. The textile-garment industry has posted an average annual growth rate of 20%. Without barriers, growth rate would be 30% per year and the target of US$10-12 billion of export turnover by 2010 is feasible. However, the growth rate of this industry since the abolition of quotas is low compared to other countries, because of lack of labour and low FOB ratio (under FOB production modality, all input materials are purchased by Vietnamese firms). FOB: the play field for foreign businesses It has only been a short period of time since quotas were done away with but the growth rate of the textile-garment sector (20-30%) is a good number, though low compared with China (80%) and Indonesia (48%), because Vietnam still has time to increase the growth rate. However, the textile-garment industry of Vietnam will have difficulty reaching its desired target in the coming time as most of the enterprises are doing CMT contracts (CMT refers to a production modality where Vietnamese firms are provided with all input materials from foreign buyers). The FOB ratio is very low, around 20-30%, of the total volume of textile-garment products for export. Input materials are the key to solving the FOB problem. Vietnam currently imports up to 80% of input materials and this is the reason for the failure of Vietnamese firms compared to foreign-invested ones in the FOB playing field. It is hoped that with many new projects developing on-the-spot material sources, domestic firms will take initiative in raising the FOB ratio. It is forecast that this year, local firms that shift to signing FOB contracts will increase by 5-10%. Pham Xuan Hong, General Director of the Saigon Garment No3 Company, said that local textile-garment companies could exist only when they produce FOB items. Though their export revenue will increase, the profit of local companies still performing CMT contracts will be low. Textile-garment products no longer attractive to workers “It is easier to invest in modern equipment than to seek skilled labourers.” That is the common opinion of textile-garment firms and a fact of this industry at present. Textile-garment companies have been facing difficulties in seeking labour, especially since the lunar New Year (Tet). In HCM City, the monthly average salary has increased to VND1.5 million (US$90) but textile-garment companies can’t easily recruit workers. American partners have recently asked the Saigon Garment No 2 Company to increase its export output from 80,000 female suits to 100,000-200,000 suits/month but the company current can’t meet the demand because of labour shortage. Nguyen Huu Toan, the company’s Deputy General Director, said that his firm now lacked around 2,000 workers to fill up 40 production lines at its No 1 factory in Cu Chi District, HCM City. Currently, only 15 production lines are in operation. In the central province of Quang Ngai, there are seven garment factories but four of them have stopped operating and the main reason is labour shortage. Nearly 3,000 workers are working in the remaining three factories, with a monthly wage of VND800,000 ($50). Apart from difficulties in purchasing materials and high transport costs to big cities, garment firms here can’t find skilled labourers. Those companies are recruiting workers in a very easy manner but they are still unable to recruit enough workers since the source of labour in the area seems to be exhausted. A local firm has recently advertised it was recruiting 1,000 garment workers for its factory in Tinh Phong Industrial Zone but it recruited just several dozen workers. Van Huu Thanh, Director of the Dung Quat Garment Factory, said that his company now needed an additional 500 workers and he had had to visit mountainous communes to recruit workers but couldn’t. The Vietnamese textile and garment industry has had many advantages since accessing the World Trade Organisation. The biggest difficulties of this sector currently are not orders but the workforce and the ability to increase FOB ratio. (Source: Viet Nam Net)