“A stable Government and a progressive economy supplemented by a highly literate skilled labour force make a small country like Vietnam very powerful in manufacturing and exports,” says John Dulip Kumar, Divisional Manager, Li & Fung Vietnam, who also manages Indonesia. Continuing with a successful stint in Indonesia, John looks into sourcing soft line apparel across menswear, womenswear and childrenswear for woven and knit from Vietnam for renowned PVH brands Tommy Hilfiger and Calvin Klein. John’s passion about exploring the opportunities available in Vietnam could be seen from the enthusiasm with which he speaks about his vision for the company as well as the growing market of Vietnam. Emphasising that he prefers value addition over basic products, John mentions, “We cannot be competing at certain low price points in Vietnam; so there should be value addition and that is going to be the focus of my division of Li & Fung in Vietnam.” While talking to the team of Apparel Resources, John spoke, at length, about the strong emergence of Vietnam post-no-TPP, relevance of FTA for Vietnam, rise of local companies, denim market and the future plans of Li & Fung.
AR: What makes Li & Fung focus on Vietnam?
John: As you may be aware, effective July 1, 2017, Li & Fung and PVH are engaging in a joint venture agreement with regard to the sourcing of Tommy Hilfiger and Calvin Klein. While sourcing will be managed by PVH, Li & Fung will provide value-added services in line with the direction for the current 3-year plan. My moving from L&F Indonesia to L&F Vietnam was to reinforce the future both organisations see in the tremendous opportunity that exists in sourcing here. Vietnam is today an important part of our futuristic plan, in fact as a South East Asia hub from where we can manage Indonesia, Cambodia, Thailand and Philippines. Vietnam is the new buzzword, as it has today emerged as a strong global player in export and manufacturing. Managing both Indonesia and Vietnam, I can confidently say that at present, the momentum is with Vietnam. Firstly, Vietnam is a stable Government, and unlike in a democracy, governance is simple and decision making is relatively quicker. They are also constantly and aggressively trying to reach the world market to understand where Vietnam can plug in and add value. Also, Vietnam is a highly literate market (95% of its population is literate) and with literacy comes some basic skills and a better way of doing things. There is no better time to be in Vietnam than now.
AR: What are your views on Vietnam’s strong re-emergence this year despite a sluggish and dull 2016?
John: It’s been pretty good. The total exports out of Vietnam for the first two months this year has been 15% more when compared to the same period last year. Everybody was coming to Vietnam not because of TPP, but because what Vietnam has to offer in textiles and manufacturing for the export market. TPP was just an added fillip – supplementing what was already happening in Vietnam. TPP not happening does not matter much; the larger part is what Vietnam has to offer as a country. People are continuing to invest and that is what matters. Hong Kong-based Tal group is continuing to invest in Vietnam with a multi-million dollar project and that is despite no TPP. Vietnam has the kind of skill set that can serve both the American and European market. TPP would have cannibalised a lot of capacity which would have made lot of businesses lean towards US, whereas currently there is a healthy mix of US and Europe. One should remember that there is still limited capacity available (with just over 90 million people) in Vietnam unlike countries like India, Bangladesh and Indonesia and if supply fails to match demand, it can be counterproductive for the country. Alternatively, FTA is far more realistic with Europe. Since FTA, when it is phased in across various categories is fabric forward, Vietnam continues to attract investments in raw materials.
The Vietnamese Government is also engaged in a bilateral conversation with the US. So even though TPP is not happening, the Vietnamese Government is still pushing for bilateral trade with US which is in line with what President Trump says – who does not believe in multi-lateral trade.
The bottom line is that growth of Vietnam is now unstoppable – A global export powerhouse is in the making!
AR: A lot of buyers prefer working with foreign investors but now what we have heard is that local companies are also growing stronger. So, is the divide getting narrower now?
John: There is definitely a positive change in this trend. Lot of local investments are joint stock holders which is run by the Government, and normally with Government-run joint stock companies (JSC), the willingness to stay dynamic to the global changes is hardly seen. FDI companies have a different culture of manufacturing and now with more and more JSCs moving towards becoming private, they have the freedom and flexibility to change and be relevant to what the global market is expecting them to – A head-start the overseas companies always had. So, the trend is changing but foreign companies still hold an edge because they have been there and done that before. The good part is that lot of local indigenous companies are now changing according to what the world is expecting them to. In the next 5-10 years, more of locally developed factories will begin to open out to global demands.
Vietnam has largely been a production market for Li & Fung where the orders have been placed from Li & Fung Hong Kong, China and India whereas the model that I run in Indonesia is a completely indigenous direct sourcing model where we work directly with New York and Amsterdam in deciding who our vendors are and also plan sourcing strategies and manage all product development and manufacturing and shipping process indigenously in Indonesia. Now we will be developing a similar business model in Vietnam where it is not only receiving production from other offices and managing it here but also generating the business as a complete end-to-end solution from product development to shipment. One thing that we are trying to do is to develop Vietnamese factories, which other offices do not have access to. My offices in India, Hong Kong or Shanghai have access to Indian, Chinese, Taiwanese or Korean factories and if we want to get into Vietnamese factories then we will have to be here. As we are talking to them, their mindset is changing, which reflects positivity and optimism. Also, Vietnam has a great skill in outerwear. It is not a commodity product and so you do not jump from one vendor to another just for few cents. Therefore, it matches the skill level and also the culture and ethos with which we want to build the business with the vendor. However, Vietnam, as a country, has the capability to do any product.
AR: Is denim the next big thing in Vietnam?
John: I have no qualms in saying that skill is enormous in this country and the efficiency of manufacturing is high. Denim as a product category is looking up from an investment point of view for fabric. Also because of local market, the domestic consumption of denim is significantly high. This also creates a base for manufacturing for export market. However, I am bit apprehensive about the wet processing facilities that are required as a part of the export market. If you are a manufacturer and want to export to some better global brands like PVH, then requirements are extremely stringent for effluent treatment and discharge. So in that context, Vietnam still has some road to cover. There are very few players in Vietnam today who can meet those standards.
AR: What are some of the major challenges that Vietnam needs to combat in this race to being the leader?
John: Vietnam needs to aggressively continue to invest in infrastructure. A lot of investment is happening already in infrastructure in the country but this needs to be fast paced and sustainable. Not much investment has gone into rail traffic.
Secondly, supply is limited. Since literacy is high, finding labour, especially for industries like apparel manufacturing, is a challenge. Besides, the younger generation is not so keen on coming into apparel manufacturing.
In order to retain available labour and continue to attract labour, the vendors will need to invest into people. This is something that we at L&F are serious about – that corporate social responsibility isn’t just an event at our vendor partners but that which is to be a lifestyle. The best in class vendors we work with follow this and the results are there to see. This is a need and no more a luxury.
Another challenge is the lack of availability of raw materials unlike India, but the good thing is that investment is happening. It is not exciting for the cotton market because Vietnam, as yet, does not have the kind of resources that India and China have. However, investments are happening in manufacturing of synthetic fabrics, denim and knit fabrics. Vendors are now getting more vertical so that they can do their own fabrics within the country which shortens the lead time. Therefore, 5 years from now, it will be quite interesting. Free trade, business deals, Government supported trade tariffs, incentives, tax rebates and holidays should make the investment climate extremely interesting.
Product development is another area of concern. There are only a handful of vendors who can support this aspect but that which is such an important part of growing the business.
Also, Vietnam should be careful that it does not bite more than what it can chew. Being vulnerable, Vietnam is today lured by several brands and markets. Vietnam should not outprice itself with a demand-supply gap and instead must look at a long-term sustainable plan. Being a manufacturing-driven country, it’s a great opportunity for Vietnam but the country needs to be cautiously optimistic given the headwinds of the global market behaviour.
AR: What is the target Li & Fung has set for next 3 years in Vietnam?
John: Tommy Hilfiger and Calvin Klein, the PVH brands that I am managing, are focusing on having the teams closer to the product. Gone are the days when you can sit in the global office and remote manage things. We, at Li & Fung, believe in Speed, Innovation and Digitalisation – 3 key elements of our 3-year plan, which is also in alignment with what the brands want to do. To make this happen, you need to be where the product is, so that efficiency wastage and unproductive non-value added waiting time are eliminated. I would like to mention here that when I was in Indonesia, I brought LEAN concept in merchandising whereas normally the LEAN concept is used mainly for manufacturing. People were taken aback at my initiative but I was confident of achieving success. LEAN is all about eliminating waste. I realized there was plenty of duplication of work as there was so much of checking, re-checking and cross-checking which eventually was leading to inefficient use of time. The emphasis was on understanding priorities based on customer demand and to “Do it right the first time”. Proper implementation of LEAN in Merchandising finally resulted in people leaving office on time, despite the business increasing by 50% and a reduction in head-count. My objective is to achieve the same in Vietnam too.
