by Deepak Mohindra
27-August-2019 | 4 mins read
The Vietnam garment manufacturing industry is at a very significant juncture of its evolution. Having surpassed its closed competitor Bangladesh this year, the industry is on a high. But many probing questions remain, raising some critical concerns on this phenomenal growth.
During our team’s recent visit to Vietnam, a factor that came out very strongly was the positivity that every company was feeling. As predicted, business is being diverted from China, and Vietnam has been able to catch a fair share of that business.
Of course, the FTAs that Vietnam has entered into are a big thrust and cover a huge global market. Investments from China, Japan, Korea and Taiwan are also flowing in, adding to the vastness of the industry in Vietnam.
Yet, industry experts are worried. “Where is the workforce?” ask many of them. During the meetings that we had with a few manufacturers, some of them honestly admitted that given the business environment, they certainly want to add capacity, but they cannot expand because there is no workforce available.
Unlike Bangladesh, or even for that matter India, the population in Vietnam is not that big, and people there are not really interested to leave their villages and families to work in factories.
Also, many alternate industries are developing and workers prefer to align themselves with less stressful jobs. After all, the garment industry is about minutes, about meeting deadlines that are reducing by the day and constantly providing new products to the manufacturer. The work environment in a garment factory does not actually appeal to the educated workforce.
As already emphasised in the last edition, factories are now being built in the central provinces of Vietnam to attract workforce, still at home and unwilling to move to bigger cities. But this is easier said than done.
Another concern that is plaguing the industry is the rising demand for product development and design inputs, which has never been the strength of the country. They work essentially on a CM model where factories have only to worry about the quality and delivery aspect of the supply chain.
With competition moving down to the last ‘cent’, no buyer is willing to pay even a cent more for just CM. However, if a company can offer a full package programme from design development to shipment, buyers are willing to pay for the creativity and effort.
While a number of bigger exporters have made the shift, engaging in product development and smart sourcing to offer the buyer collections, middle-level and small exporters are struggling to survive in a very competitive CM market.
The fear is that the FTA with Europe will fast-track the FOB market, as European buyers prefer to work with companies that can offer uniqueness and fresh ideas; local companies will therefore lose out to foreign-invested companies that have a history of FOB exports.
The fear is not unfound. If the advantage of the additional business that is coming in goes to foreign management-owned factories…, does Vietnam really gain? The process of retrospect has begun and considering that Vietnamese are intelligent people, I hope to see the shift happening soon.
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