Vietnam's Textile And Clothing Investment Fever Has Dropped Sharply, Which Link Has Gone Wrong?

In recent years, despite the rapid growth of Vietnam's economy, the overall capacity of Vietnam is still limited at this stage. Vietnam has always been a key area for the transfer of international textile and garment production capacity. However, at present, some enterprises can not even get a factory in Vietnam, and Vietnam's production line is full load. Some companies shout: investing in Vietnam is not just once and for all. It is understood that many enterprises are considering stopping the expansion in Vietnam, or even re moving from here.

Then, what problems do textile and garment enterprises invest in Vietnam? What will happen in the future layout of production capacity?

Infrastructure is still lagging behind

Uncertainties increase

In recent years, in pursuit of cheaper production costs, Nike, an American sporting goods giant, has expanded its production scale in Vietnam. However, according to media reports recently, the Vietnamese market is unable to meet Nike's needs as the global environment becomes more complex. Earlier, a number of overseas companies, including Nike, moved the production line to Vietnam in order to avoid risks. But for now, Vietnam's infrastructure is still lagging behind, unable to meet the rapid expansion of production capacity. The relevant person in charge of Nike said that the port was blocked and the water and electricity supply was overburdened. Many enterprises need to occupy the imported and exported goods in advance, and the transportation efficiency is also greatly reduced due to traffic congestion.

What worries us most is that the United States recently launched a trade probe into Vietnam, increasing the possibility of imposing tariffs on Vietnam. This uncertainty has disrupted many enterprises' plans to transfer capacity to Vietnam. The official said that in the next 3 years, most overseas textile manufacturers may not continue to increase factories or expand in Vietnam.

In this regard, Nike also intends to give up investment in Vietnam and invest in other Southeast Asian countries such as Indonesia or Kampuchea. It is estimated that the company is expected to invest $80 million to build about 120 production lines in Indonesia and Kampuchea to reduce its dependence on the Vietnamese market.

It is worth mentioning that from last December to the end of February this year, Nike's total revenue amounted to $9 billion 600 million, an increase of 7% over the same period last year. But its business revenue in North America increased by only 7% over the same period last year, and it still remains the Chinese market. At the same time, Nike's revenue in China rose by 24% to 1 billion 588 million yuan, or 10 billion 600 million yuan, which is the first time that Nike has broken 100 million yuan in China.

That is to say, during the time when Nike transferred the production line, its performance in the Chinese market is still better. Therefore, Nike even intends to transfer its capacity to China and continue to expand its capacity layout in China, because the Chinese market is too important for Nike.

Manpower costs rise too fast

Land rents rose significantly

Statistics show that the average monthly salary of Vietnamese workers is at least 300 dollars. With the increase of local workers' wage increase, there is no cheap wage in Vietnam.

A Chinese company responsible for producing children's clothing told reporters that at present, the proportion of the enterprise's production in Vietnam has been very large. If we want to build a new factory or expand the production line, it will cause certain business pressure, because there is no cheap labor force in Vietnam now. The new entrants will move to Vietnam, and the original enterprises will expand their factories. Now the two forces are all trying to rush to work, which will only aggravate the pressure of competition, and the imbalance between supply and demand of local labor force. At present, Vietnam's investment has overheated.

It is understood that the Vietnamese labor law stipulates that enterprises stationed must develop trapezoidal salaries, based on the minimum wage level announced by the government, and the first level salary level is the minimum wage plus 7%. From the second level, each additional level increases by 5%, and so on. Over the past 10 years, the Vietnamese government has raised the minimum wage by 10% per cent per year. When the minimum wage rises, the ladder salary will be kept up. "It means that all employees are paid 15%, which is a terrible expenditure." Not only that, but the potential cost is also a big trap. For example, every year the enterprise pays the union membership fee based on 2% of the total wages of the labor union. The annual minimum wage plus the ladder salary, the total salary scale continues to expand, and the union membership fee goes up, which does not include the local social security cost.

With the acceleration of foreign investment and construction in Vietnam, Vietnam is not only labor costs, land and factory rent are rising rapidly. A person who went to Vietnam to invest in Vietnam two years ago said that the price of the first tier cities in Vietnam was not much different from that of the first tier cities in China, so the company chose a relatively remote industrial park in Vietnam. "When we arrived in 2017, the factory rent was $2.2 per square meter, and the rent has risen to $2.8, and it has gone up very fast." Even so, most industrial parks are in full load operation. "Vietnam has begun to show signs of labor shortage." The responsible person said that many new factories in the site selection, the main consideration is the recruitment problem. People can be recruited by advertising before, but as the number of factories increases, the difficulty of recruitment is also rising. Enterprises will have to go to remote areas to recruit, and the situation of wage rise will continue.

Production base is broken down into zero.

Fraudulent labels influence big

Some experts in the industry have suggested that Vietnam may become a foreign trade and also lose its foreign trade. Although the export economy has been developing rapidly through the export oriented mode, Vietnam's foreign exchange reserves are only 70 billion dollars. Vietnam's debt share of GDP has reached 63% in 2018, approaching the 65% upper limit stipulated by the country's laws. Vietnam's high debt problem has become the biggest obstacle to the sustainable development of its economy, and its economic pressure is weak.

In order to avoid risks, instead of putting eggs in the same basket, some textile and garment enterprises began to suspend the expansion plan of factories in Vietnam, converting production into whole and transferring to other Southeast Asian countries, hoping to build more production bases and deal with the changing international trade situation more flexibly.

For example, the Taiwan supplier of Lulu lemon, a well-known yoga clothing company, currently has 50% of its capacity in Vietnam, and its business structure is not flexible enough. To cope with the changing global political and economic trends, they are actively diversify their risks and are considering setting up factories in India or Mexico.

Adidas and Puma's footwear foundry company Baocheng also increased investment in the Indonesia plant. In 2018, Baocheng produced 326 million pairs of shoes, 46% of which were produced in Vietnam. In the first quarter of 2019, Vietnam's production capacity dropped to 43%, while the proportion of Indonesia's production increased from 41% last year to 41%.

Baocheng related business executives said Vietnam's land prices are also rising, and there is no downward trend. In the long run, they think there is little room for development in Vietnam.

It is worth mentioning that Sino US trade friction has exacerbated the transfer of textile and garment production capacity to Vietnam. Meanwhile, there has also been a continuous accumulation of trade frauds. For example, some enterprises did not make corresponding investments to actually transfer production, but rather directly labeled the source of goods as Vietnam to avoid trade restrictions. Vietnam's Ministry of trade and industry is responsible for this: "fraudulent label labeling will seriously undermine the reputation and competitiveness of goods produced in Vietnam."