Investment in Vietnamese Apparel Business

Garment manufacturing is a significant industry. It is mainly based on converting fiber into yarn and then yarn into fabric. These are dyed or printed, made into materials, and then turned into clothing, home furnishings, upholstery, and various industrial products.

Different types of fibers are used for yarn production. Cotton is an essential natural fiber, so it is treated deeply. Many variable processes are available with complete and color processing complexities in the spinning and fabric manufacturing stages to produce various products.

Vietnam and garment business:

The garment industry is one of Vietnam’s leading industries, with the second-largest export turnover in the country. In 2019, the export value of the industry contributed to 16 percent of the total GDP. Over the last five years, the textile industry has grown steadily at an average annual rate of 17 percent.

• Vietnam is one of the top garment-producing countries and textile exporters globally, which has emerged as an ideal alternative to China.
• The main factors for the industry’s growth are the increase in textile exports from multilateral free trade agreements and low labor costs.
• Despite the growing challenges posed by the COVID-19 pandemic, the industry is rapidly evolving to address its haunting growth, boosting optimistic prospects for recovery.

China vs. Vietnam:

Vietnam has a large textile industry, and the clothing factories in Vietnam produce quality goods similar to the factories in China. Textiles and fashion goods are the B 30B export industry per year in Vietnam and one of the fastest-growing industries in the country. Garment exports to Vietnam are growing at an average rate of 10% per annum. Vietnam is one of the important global exporters of clothing and products in the fashion industry.

The bag/luggage industry in Vietnam is growing at 3.5% per year, and there are many artists in the country who can design bags. Vietnam also produces luxury bags for companies like Prada.  Besides luxury bags, sportswear manufacturers such as Adidas also produce their activewear in the country.

Why should we invest in Vietnam for manufacturing apparel?

Here are some of the points to assess the business around Vietnam and make your informed decision.

• Comparative advantage in lower-level manufacturing goods:

This may be a combination of the number of engineering graduates and the general level of education of its people. According to the number of engineering graduates globally, Vietnam ranks 10th. On the other hand, Vietnam still lacks higher education standards because recent investments in the education system are slowly paying off.

According to the Hanoi Institute for Social Economic Development Studies, 40 to 60% of Vietnam’s workforce is unskilled. Therefore, although Vietnam could gradually send local engineers into manufacturing, the manufactured products would still not be highly complex.

• More competitive wage costs:

In an environment where labor costs are rising faster than labor productivity, a country becomes less competitive and can potentially shift its productive sector elsewhere. Vietnam has seen overall productivity gains in recent years, with labor costs rising almost double the rate.

The BDG published a study in 2015 that the Vietnamese could re-establish the productivity deficit if it devalued or reduced wages. As wage cuts are politically problematic, the BDG hopes that the local currency devaluation will accelerate in the coming years.

• Market entry barriers in the future:

When entering a new market state, the theory about the ideal times is that as a first investor, a company may have fewer market entry barriers due to lower investment cost, less competition, and abundant labor force availability. Having the first-mover advantage is a higher risk of failure because first-movers often make mistakes in the new business environment.

With the development of the new market, the barriers to market entry will be more significant. This is already the case with Vietnam because the country is no longer the first transport for investors. Currently, foreign investors are in a position to learn from each other. The market has become more transparent over the years. When considering market entry, apparel manufacturers question themselves about the current level of maturity of the Vietnamese market and whether the right time to invest is now or in a few years.

• Geographic position:

China is next door, and the already developed supply chain is another important reason to establish an overseas clothing manufacturing company in Vietnam. In addition, Vietnam’s position in the center of the Southeast Asia region is attractive in terms of supply chain completion and future sales. As Vietnam still cannot produce all yarn and fabrics, despite significant improvements in recent times.

Despite the rapid growth of textile manufacturing, Vietnam still relies on fabric and yarn imports from China and other countries. Thanks to its proximity, Vietnam can import essential products in a concise period while enjoying wage tax rates.

These are some of the facts that compel us to tell you to invest in a business in apparel manufacturing in Vietnam.