Investors prepare for changes linked in Vietnam garment industry

The race is on for Vietnam’s clothing makers to find the right suppliers as its own textile mills only produce a fifth of the country’s needs today. With the Trans-Pacific Partnership (TPP) agreement being negotiated Vietnam is seeing a wave of investment from foreign textile and garment manufacturers keen to cash in on the tax benefits of the upcoming TPP.

The agreement being negotiated by 12 countries, including the US, promises major 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 Hanoi all bear the label “Made in Vietnam” but more than half the material used to make them comes from China as sourcing locally is tough and expensive.

Even some zippers, or some special raw materials (are) very, very difficult to find. Sometimes they 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.

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.

In Vietnam, businesses that do not have the capital to invest are suck waiting for large domestic or international producers to build up it’s local fabric supply.

According to Dang Phoung Dung from the Vietnam Textile & Apparel Association, the value added of products is low due to which their role in this global supply chain is also low. At this position, they almost don’t have much impact on the supply chain unless the world needs their (labour) inputs.

Though the TPP’s promise of massive tax savings could pay for Vietnam’s rising labour costs but the questions here is how long will this advantage last.