Vietnamese garment export orders sees decline from foreign partners

Thanh Cong Garment, one of a few Vietnamese garment companies which owns a yarn – fabric – garment production line having strong demand from South Korea and the US, its key markets, sees contracts decrease from foreign partners considerably in the first six months of the year.

Regarding consumption, Thanh Cong has stable consumption outlets as its large shareholder – Eland Asia Holding Pte Ltd – is usually responsible for 60 percent of the company’s output. However, even with great advantages and support, Thanh Cong, like other enterprises in the industry, is still meeting difficulties.

The annual revenue from fabric accounts for 10 percent of net revenue, while yarn brings 30-40 percent and garment 50 percent of revenue.

Its revenue in the first six months of the year increased compared with the same period last year, but its post-tax profit dropped sharply by 42 percent from VND86 billion to VND50 billion. The company’s business efficiency also fell, with gross margin down.

An analyst commented that Vietnam’s advantage of cheap labor costs, an important factor attracting foreign partners, no longer works because other countries even offer cheaper costs. He doubts if Vietnam still has opportunities to become the ‘garment production base’ of the world.

Thanh Cong’s decline in business performance is attributed to a decline in exports. In the first half of the year, Thanh Cong’s export turnover fell by 12 percent in comparison with the same period last year.

In yarn production, Thanh Cong took a loss with the gross margin of minus 5 percent. The selling price has stayed unchanged for a long time, while input material prices have been increasing sharply since the first quarter of the year.

In garments, Thanh Cong’s key factory in Vinh Long province, continued taking a loss of $250,000-300,000 a month because revenue from the US, its major market, was modest, which could not cover the expenses.

Vietnamese companies are losing orders to the hands of Laos, Myanmar and Bangladeshi companies which can make products at lower prices thanks to preferential tariffs offered by some large markets. Vietnam may have the same preferences obtain by 2018 if the TPP is ratified.

Thanh Cong’s problems reflect the difficulties faced by the Vietnamese textile and garment industry.