HANOI: Vietnam is seeing a wave of investment from foreign textile and garment manufacturers keen to cash in on the tax benefits of the upcoming Trans-Pacific Partnership (TPP).
The agreement being negotiated by 12 countries, including the US, promises radical tax cuts for Vietnam’s garment exports, but only if they use fabric made locally or in other TPP countries, which excludes China.
For the emerging country’s thousands of small and medium-sized garment makers, however, the benefits are less certain.
The 25 million garments produced every year at the Ho Guom Garment factory in northern Vietnam all bear the label “Made in Vietnam” but more than half the material used to make them comes from China.
Sourcing locally is tough and expensive.
“Even some zippers, or some special raw materials (are) very, very difficult to find. Sometimes we have to contact Ho Chi Minh City, Danang, even China or Taiwan to get samples, so it takes a very long time,” said the factory’s vice-general director, Phi Ngoc Trinh.
A garment worker at Ho Guom Garment factory in northern Vietnam. (Photo: Tan Qiuyi)
The race is on for Vietnam’s clothing makers to find the right suppliers; its own textile mills only produce a fifth of the country’s needs today.
For years, Vietnam has focused on the far less capital intensive part of the global garment business: cutting and sewing the final product for export.
“The value added of our products is low, our role in this global supply chain is also low. At this position, we almost don’t have much impact on the supply chain unless the world needs our (labour) inputs,” said Dang Phoung Dung from the Vietnam Textile & Apparel Association.
Like other labour intensive industries across the country, the garment sector thrives on one of Vietnam’s key competitive advantages – a young population of 90 million people offering a ready pool of low-cost labour.
There are questions how long will this advantage last, though the TPP’s promise of massive tax savings could pay for Vietnam’s rising labour costs.
But businesses that do not have the capital to invest are stuck waiting for large domestic or international producers to build up Vietnam’s local fabric supply.