Vietnam garment industry strengthens from low labor cost

An Expert's View about Business Environment in Vietnam

Posted on: 5 Nov 2012

Amid the faltering global economy, the garment industry in Vietnam remains performing strongly and is expected to grow further over the next few years.

Exports from the country have been steadily improving for the most part of the past decade. Since becoming a member of the WTO in 2007, however, shipments have seen dramatic increases annually, save for 2009 when it was minimally affected by the financial crisis.

The sector's solid development is attributed to the growing number of OEM customers that are moving away their outsourcing activities from China to more economical locations in Southeast and South Asia such as Vietnam. Lower labor cost is the driving force behind this approach among buyers because salaries provided by the domestic garment industry are 30 to 40 percent lower compared with those in China. Additionally, expenditure for manpower in that country has been expanding considerably in recent years as manufacturers encounter more difficulty in recruiting experienced workers who demand higher wages.

Export data from the General Statistics Office of Vietnam reveals that the sector has registered average annual growth of 18.5 percent since 2007. As of 2010, annual shipments have reached $11.3 billion, which is 27 percent greater than the previous year.




This handembroidered girl's dress from Babeeni is made of pure cotton.

Although the industry is facing a bright outlook for exports, it is nonetheless confronting a number of obstacles.

The most crucial of these challenges is the sector's heavy reliance on imported textiles since Vietnam's fabric industry is not well-equipped to satisfy burgeoning domestic demand. The majority of garment suppliers source raw materials from mainland China, Taiwan, Japan, South Korea, Thailand and the US. As a result, local enterprises absorb significant losses everytime prices of unprocessed inputs in the world market fluctuate.

One such occurrence was in 2011, when raw cotton harvested from the US averaged $1.49 per pound, a 77 percent surge compared with the same period in 2010. Because of this, production costs shot up by at least 20 percent, further trimming profit margins which were low to begin with.

Rising expenditure on manpower is another hurdle confronting suppliers. Since 2008, the national government has been increasing the minimum wage annually to diminish disparities in salaries of people employed by locally owned and foreign-invested companies. The latter are directed to tweak compensation higher by 13 to 15 percent, while domestic enterprises are required to inflate them by 20 to 38 percent.




Quotes vary mainly according to the type of materials used. In general, models that employ fabrics with higher yarn counts are more expensive. The complexity of construction and design, and accessories used also determine prices.

Models with simple designs are low-end. Examples include men’s T-shirts with small prints. They are usually made of pure or blended cotton weighing between 100 and 120gsm.

Midrange models adopt 100 percent cotton, or 65:35 or 50:50 cotton-polyester.

High-end garments typically employ cotton blended with spandex, linen or ramie.

Some upscale items may be decorated with applique, ruffles, rhinestones and intricate embroidery. Sportswear such as golf shirts and racing apparel that employ moisture-wicking fabrics are priced higher.


Supplier survey


The majority of surveyed suppliers expect prices of garments to increase over the next 12 months. Sixty-five percent of respondents see quotes surging. The rest plan to keep prices at current levels to sustain viability and generate more orders.

The adjustments are driven by rising material and labor costs.

Of those planning to raise quotes, one-half will shift prices upward by 6 to 10 percent. About two-fifths will implement increments of 5 percent at most. Nearly one-tenth will set quotes 11 to 15 percent higher.

Exports will see an upturn in the year ahead, according to the majority of makers. More than three-fourths expect sales to grow by as much as 10 percent amid strong demand in the US, the EU and Japan. About one out of three suppliers forecast revenue to accelerate between 11 and 20 percent. Approximately one-tenth predict shipments to stay flat.


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Posted: 05 November 2012

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