작성일자: 2013.4.1

작성자: 하노이 무역관 Ms Tran Thi Thanh Mai(tmtran29@gmail.com), Ms Ngo Thu Trang(trangngothu@gmail.com)

 

 

1. DEMAND TREND

 

□ Outlook on Vietnam textile and garment industry

 

 ○ In the age of industrialization and modernization, textile is one of the key sectors of Vietnam industry. This industry has seen fast and sustainable growth over the past years, playing an imperative role in the nation's socio-economic development. Also, it is considered as the leading sector with high potential of development.

 

 ○ Up till now, Vietnam Textile and Garment Industry have about 4,000 enterprises with more than 2.5 million labors, of which the direct labors are 1.3 million. Among them, state-owned enterprises make up just 0.5% of Vietnam's businesses; however, 75% are joint stock or limited companies. Production activity of Vietnam textile focuses on two key economic areas: the Northern Delta and the Sothern Delta. Over 80% of production capacity is located in the Southern Economic Area, primarily in Dong Nai, Binh Duong, Long An and Ho Chi Minh City. Some of the major production enterprises are Hanoi Textile Corporation, Viet Tien Textile Corporation, Hoa Tho Joint-Stock Textile Company Hung Yen Joint – Stock Textile Company, etc.

 

 ○ Export

  - At the present, in term of garment and textile export Vietnam was ranked 10th position, which is considered as a breakthrough in production capacity. Those countries, which import Vietnam’s textiles with the greatest quantity, include the US, EU and Japan. Among them, the US market accounts for 50% of Vietnam’s export textile products, which demonstrates consumption demand for textile of the US is very great

  - Export revenue exceeded US$ 11 billion in 2010, up 24% against 2009, US$ 15.8 billion in 2011, accounting for 16.5% of the country's total export revenue and up to 38% against 2010. Despite the adverse impact of recent global economic downturn, export turn-over in the first 6 months of 2012 was estimated to attain nearly US$ 7.6billion, increased by 7.6% in comparison with same period of 2011. According to Vietnam National Textile and Garment Group(Vinatex), the textile sector plans to maintain a growth rate of nearly 10 - 12% and attains US$ 18.5-19 billion in 2013. Vietnam also expects to pocket US$ 8.5 billion from shipments to the US market(up 11%); around US$ 2.4 billion from Japan(up 18%); US$ 1.5 billion from the Republic of Korea(up 15%); US$ 2.4 billion from the EU and US$ 4.2 billion from other markets by the end of 2013.

  - Strong point of Vietnam’s textiles recently is Vietnam accession of WTO, which helps Vietnam get access to markets with its own strong development economies and exchange and learn experiences. Quota limitations and international trade barriers have been taken down. Business environment of Vietnam will be improved gradually as directions in line with international practices, creating confidences and attractions for foreign investors in the field of economy including textiles. There are more and more top of the world manufactures coming to Vietnam to invest production localities, which will create fresh production capacities for Vietnam, increase export capacity and shift economic mechanism. Besides, foreign investment increase will help Vietnam more in -depth participate in the world chain of production division, open more export opportunities and Vietnam enterprises will have tighter links with business and markets of the world.

  - Vietnam has abundant labor sources with skilfull workmanship to make products with high quality. Vietnam is shifting directions from processing to in-depth production and production of materials for producing export goods.

 

 ○ Import

  - The demand of fiber cloth production has risen up to 100.000 tons/year recently while the domestic material resource is very limited so import turnover of Vietnam textile products has the upward trend too. Demand of cotton use in Vietnam is about 200.000 tons/year, but local material resource is only about 15.000 tons. Vietnam must import 185.000 tons of remained cotton from some countries in the world such as China and Taiwan.

  - In terms of ancillary materials for production, Vietnam mainly imports from Asia partners like India, Korea, Taiwan, Japan, Thailand, etc.; Western countries such as England, French, Belgium, etc. and many other partners from American as well.

  - Main production and export enterprises of Vietnam are also ones which import ancillary materials to service production activities. Complete textile products for local demands are mainly imported trade companies.

 

 ○ Strength and opportunity

  - Strength:

   · Plentiful competitively-priced labor - Vietnamese salaries are lower than those in China, giving the country a distinct cost advantage; and

   · Supportive government policies, including incentives to attract foreign direct investment.

   · The Vietnamese industry has shown capacity to react quickly and flexibly to new orders.

  - Opportunity

   · Main opportunity will be provided by the expected export-based recovery of the local garment sector that kicked in from 2011, which boosts demand for textile inputs; and

   · Industry restructuring over the next two years that should result in attracting new investment and boosting productivity.

   · Development of ‘non-traditional’ markets for Vietnamese clothing products holds out promise: the industry is looking at the Middle East and Russia as important new opportunities in this regard; and

   · Greater product differentiation and specialization may boost margins – for example in functional work-wear, home furnishings, and other niche markets.

 

 ○ Long term plan

  - The Vietnam Textile and Garment Association(VITAS) notes the strategy for Vietnam Textile and Garment Industry development for 2015-2020 is: (i) production growth from 12-14% a year, (ii) export growth at 15% a year, (iii) providing employment to 2.75 million people in 2015 and 3.0 million people in 2020, and (iv) export revenue attaining US $18 billion dollars in 2015 and US $25 billion dollars in 2020.

 

     Source: VITAS

 

  - In short, the future of the Vietnamese textile industry looks superlative owing to the continuous efforts made by textile companies to upgrade their equipment to enhance their competitiveness. Also, the textile and garment sector highly supported by the government by establishing series of incentives to attract and encourage the kind of FDI which is most likely to drive the country's future development.

 

□ Polyester fiber demand

 

 ○ Polyester fiber is the main material for textile and garment industry which is one of the biggest industries in Vietnam. However, since there are few Vietnam spinning companies specialize in producing polyester, the domestic demand only meets approximately 10% of total, therefore Vietnam textile and garment industry is mainly imported from foreign countries. Every year, Vietnamese textile and spinning companies need about the total volume of 1.5million tons of polyester to meet their production demand. However, the total polyester supply of the domestic companies can just satisfy around 10% of the total demand. Therefore, every year, Vietnam has to import a large volume of polyester fiber, specifically 179,000 tons with the value of 6 billion USD for the first 10 months of 2009. Because of such a huge demand for polyester fiber, Vietnam government imposed import tax of “0%” on polyester fiber for the last 10 years to support Vietnamese companies to have a competitive price when exporting garment products to the foreign market. It was not until January 01, 2010 the Minister of Finance decided to raise the import tax on polyester fiber to 1% that is applied for some countries.

 

 ○ Major exporters

  - According to the latest statistics recorded by Trade and Industry Information Centre-Ministry of Industry and Trade, there is a dramatic increasing volume of polyester fibers from 2011 to 2012. During the first 10, polyester fiber importation of Vietnam reached the volume 281.2 thousand tons, with the total value of US$ 510.9 million, increased 10.3% in volume and decreased 6.4% in value compared with those of the same period in 2011.

 

    Source: Statistics recorded by Trade and Industry Information Centre-Ministry of Industry and Trade, updated November 2012(http://www.tinthuongmai.vn/gpmaster.gp-media.tin-thuong-mai-viet-nam.gplist.126.gpopen.34948.gpside.1.asmx)

 

  - Despite the overall increasing trend of the total polyester importation volume, some countries have downtrend in exporting polyester to Vietnam market. The polyester exportation volume from Australia, for example, decreased by more than 40% in both quantity and value. This fact is explained by some manufacturers in Vietnam that they are switching to use polyester fibers imported from Japan, Korea, Thailand, and Taiwan rather than using Chinese one despite its cheaper price. Chinese polyester fiber quality is not good enough to meet the customers’ requirements, since Vietnamese consumers are now demanding better quality products of padding, pillow, jacket, and blankets…Also, in early 2011, Singapore polyester trading company gathered a large volume of polyester fibers from different suppliers and offered Vietnamese buyers very attractive prices. However, the polyester fibers was not produced in Singapore, it was just traded into Singapore and exported to Vietnam market by some trading companies. That is the reason why the importing volume of polyester fiber from Singapore increased amazingly high for the first 10 months of 2011, reaching 260.9% by volume and 1,051.3% by value.

  - From the above table, it can be clearly seen that Taiwan still maintains the dominant role of 41.5% of the total market share in exporting polyester fibers to Vietnam market. Taiwan has entered Vietnam polyester fiber market for more than 10 years. Particularly there are many Taiwan companies in the industry zones in the south of Vietnam; they often import polyester fiber from Taiwan for their own production. In addition, these Taiwan companies also sell a part of their polyester fibers directly to Vietnam buyers with a competitive price. Therefore, customers in the South of Vietnam have got used to using Taiwan polyester fiber very well. The next largest suppliers are Thailand and Korea, with 20.9% and 15% respectively. The market share by Volume during the first 10 months of 2011 is illustrated in the below pie chart.

 

                        Source: Statistics recorded by Trade and Industry Information Centre-Ministry of

                                      Industry and Trade, updated November 2012

 

 ○ Major domestic producers

  - So far, there are not many polyester fiber-producing companies in Vietnam. Some of the biggest companies are: Thien Quang JSC(www.thienquang.vn), Hop Thanh Co., Ltd, Hung Nghiep Formosa Com JSC, and Truong Thanh Co Ltd, which can produce about 50,000 tons of polyester fiber on average. Most of these above companies focus on manufacturing polyester fibers from plastic bottle, PET, or the regenerated polyester; the two main kinds of polyester produced by Vietnamese companies are:

   · The 7D×64MM silicon polyester and 7D×64MM non-silicon polyester

   · The loose 3 dimensions polyester.

  - As the interview with Mr. Thang, the director of Ba Sinh trading company, polyester fiber made in Vietnam are mainly exported to European countries to use as padding materials for producing car chairs, or for making low quality requirement product. For producing pillow, padding, mattress, blanket, jacket and so on, most of the Vietnamese producers have to import high quality polyester from Taiwan, Thailand, and Korea.

  - Among the major producer, Dinh Vu is the largest scale company that produces polyester fiber from petroleum materials.

  - DINH VU STAPLE FIBER FACTORY

 

 

   · Polyester is a synthetic fiber derived from coal, air, water, and petroleum. Dinh Vu is the first and the largest plant in Vietnam in the field of polyester fiber manufacturing from the main raw materials: PTA and MEG – products of the petroleum industry with modern and advanced technology.

   · This plant is built in Dinh Vu industrial zone, Hai Phong with the capacity of 500 tons of fiber per day. It was invested with US$ 324.85 million by Petrochemical and Textile Fiber(PVTex). This is one of the key projects of petroleum industry in the development plan of Vietnam chemicals industry up to 2010.

 

 

   · Polyester fiber has many positive properties meeting almost all requirements for textile fabrics; they are produced by modern technology of Neumag(Germany)

   · High mechanical stability

   · High thermal stability; test in hot atmosphere of 180℃ where shrinkage is about 4±2%

   · No reduction of durability in wet atmosphere, high hygroscopicity therefore protecting fiber from shrinkage, crease and wrinkle

   · Polyester fiber of Dinh Vu factory has low index, round cross cut, semi-dull color – specification of polyester fiber which is used as feed for textile and garment industry. Polyester fiber can be mixed with cotton(create TC or CVC), viscose(create TR) to produce high quality garment.

   · Specification and qualitative properties of Polyester staple fiber:

 

 

   · Dinh Vu plant came into operation in 2011 and with modern technological stated above, the products of the Dinh Vu polyester fiber plant can adapt the international quality standards and replace currently imported fiber products to meet all customer requirements. The capacity of the plant can meet from 30 - 40% of the fiber needs of the domestic market.

   · According to information gathered from Ms. Tu, Chief Administrator of Vietnam Cotton & Spinning Association – VCOS, beside PVTex Dinh Vu – the very first plant producing polyester fiber from petroleum materials, there are still some FDI companies that can produce polyester fiber in Vietnam like Hualon, Formosa, Century Synthetic Fiber Corporation(CSF).

 

 ○ Re-generated polyester

  - Recently, not only in Vietnam but many other countries in the world, recycled PET is used widely in many different fields. For example, fiber products, film, all kinds of bottles or molding products, etc. Among them, recycled PET material used for fiber production in textile and garment industry takes the largest portion which demands for 1.2-1.5 million tons of polyester fiber to produce cotton sheets, fibers, nonwoven fabrics, blankets, pillows, cushions, etc.

  - Recycled PET is favorably used because of less impact on consumer health, lower price and help protecting the environment. Especially, while Vietnam textile industry is in trouble because cotton acreages are narrowed, polyester fiber production technology from waste PET bottles have opened up a new prospect.

  - According to Mr. Le Manh Thuy, deputy director of Hop Thanh Company(Thai Binh), with the capacity of 27,800 tons/year, the price to produce polyester fiber from recycled PET help lower the price up to US$ 0.09/㎏((not including the cost of loading and unloading, transportation, parking). It is easy to see that, producing polyester fiber from PET not only bring about economic efficiency but also the social one: Vietnam garment industry has the certain source of fiber material, thus contributing to reduce production costs, increase the competitiveness of Vietnamese textile and garment in the region and around the world, earn more foreign currency for the country. Additionally, it has also created permanent jobs for 850 to 1,000 employees with the income of US$ 60-100/person/month, which solves the unemployment problem locally. (2009 statistic)

  - However, though many big projects in PET and bottle recycling have been initiated in Vietnam for the recent years, polyester fiber from recycled PET is still not popular in Vietnam for these following reasons:

   · Utilizing bottles, plastic waste and PET to recycle is still very limited and primitively underdeveloped. There are only a few large-scale PET recycling factories that have a large capacity and need a high tech recycling system; most of the PET recycling enterprises are the small and medium size ones or family businesses. This modest status of PET recycling can be attributed to the difficulty of gathering enough volume of used bottles, PET and plastic wastes, which makes PET recycling on a large scale pretty unpractical.

   · The low output of PET recycling, and small number of big bottle recycling factories make the demand for the whole PET recycling system fairly small, particularly if the system requires high investment and long-term manufacturing plan.

   · The low technology in recycling PET that makes the local producers only can manufacture the simple PET recycling machines that meeting about 15% of the demand of plastic recycling enterprises in Vietnam; the rest is satisfied by the imported products.

  - Currently, Thailand, Chinese and Taiwan are the three leading suppliers that export plastic mixing and crushing machines to Vietnam. These suppliers entered Vietnam’s market several years ago and already succeeded in establishing partnership with a distributing agent to promote their machines to the end-users. One of the most popular brand names of plastic recycling machines in Vietnam market is Nanrong, manufactured by Nan Rong Mechanical Co., Ltd, a Thailand company.

  - Below is the import statistics of the item with HS code 847982 - Mixing, kneading, crushing, grinding, screening, sifting, homogenizing, emulsifying, or stirring machines – from the major exporters for 3 year period from 2006- 2008.

 

                     Unit: Thousand USD

             Source: http://www.trademap.org/Country_SelProductCountry_TS.aspx

 

  - A striking thing to notice from the above table is that there was a dramatically increase in the value of item with HS code 847982 through the years. In the meanwhile, China experienced a pretty stable growth in the export value of machines in group of 847982 HS Code at 12 million, 14.8 million and 16.8 million in 2008, 2009 and 2010 respectively.

  - According to information gathered from Ms. Tu, Chief Administrator of Vietnam Cotton & Spinning Association - VCOSA, beside Hop Thanh Co., Ltd which produces polyester fiber directly from PET bottle are trading companies or integrated PET resin for fiber production line only. On the other hand, there may be some new plants established and put into operation in this field, however, VCOSA still have no detailed statistic.

  - HOP THANH CO., LTD

 

 

   · Hop Thanh Co., Ltd was founded in 2002 and is one of the first polyester fiber production plants in Vietnam with an area of about 50,000㎡. Along with 4 advanced, modern production lines and a team of 1200 employees, qualified experts and professional skilled engineers, each year the plant can produce 35,000 tons of high quality polyester fiber for the production of blankets, pillows, stuffed animals, nonwoven fabrics, and furniture, etc. As an inevitable law of the market, the success of the Hop Thanh stimulated other businesses to invest in this area to create a competitive environment. In this high competitive environment, the company has decided to switch to a new direction is that producing polyester fiber from wasted plastic bottles.

 

 

   · By the end of 2002, Hop Thanh carried on the plan to build the first cotton fiber production plant in Vietnam with an initial area of 50,000㎡. The plant was constructed with the capital of US$ 25 million for production lines, factories and ancillary works. Until 2004, the plant was put in to operation. Currently, with 4 modern production lines and the capacity of nearly 50,000 tons/year, Hop Thanh can provide about 2.000 to 2.500 tons of high quality polyester fiber for domestic as well as foreign markets. Until now, Hop Thanh’s products are exported to the US and many other European countries such as Germany, Spain, Italy, Poland, Austria, the United Kingdom, etc. The company is currently produces many kinds of polyester fiber like 3-dimensional hollow fibers(silicone oil and non-silicone oil), primary hollow fiber(silicone oil and non-silicone oil), coloring fiber(black, brown, green... oil and non-silicone oil), and compact fiber(oil and none- silicone oil).

   · Here are some of their products:

 

 

   · Also, Ms. Tu said that beside Hop Thanh Co., Ltd which produces polyester fiber directly from PET bottle are trading companies or integrated PET resin for fiber production line only. On the other hand, there may be some new plants established and put into operation in this field, however, VCOSA still have no detailed statistic.

   · Mr. Dinh Son Tung – Domestic Marketing Executive of Hop Thanh company let us know that, his company import the fiber producing system directly and here is the technology that this company is using to produce polyester fiber from recycled PET bottles.

 

 ○ Producing technology and process of Hop Thanh Co., Ltd

  - Raw material preliminary treatment

 

Raw material preliminary treatment

 

  - Stage 1: Handle dirt and nylon out of the bottle, put initial raw materials into to the machine to verify separate bottles. After that, the materials will be moved to big stirring machine(diameter = 2.3m) and then putting them into a hot water tank(80-1000℃). The engine will rotate in 10 minutes to remove all the dirt, nylon and impurities will be perfectly handling, the removed one will be processed in industrial incinerator. This industrial incinerator is set up in a convenient place to handle the waste. The removed impurities will be burnt in 500-1200℃ in about 10 to 15 minutes to eliminate the entire bars which are easy to decompose and ensure the environmental factors.

   · Put the stirring box into the second tank to cool and clean. After the materials are cleaned, they will be put on the conveyor belt to the next stage.

  - Stage 2: Bottle classification

   ·After being cleaned, PET bottles are put on conveyor belt to verify in term of color and material to meet the producing need.

  - Stage 3: Crush materials in stage 1 with 3.5㎝x3.5㎝ hold sieve

   · At this stage, PET bottle are crushing into small pieces with the 3.5㎝x3.5㎝ size. After that, they fall in a cleaning trough to wipe out impurities, remaining nylon or lids will be classified totally.

  - Stage 4: Plastic pieces are put into a tank with NaOH and 90℃ water then stirred in 15 minutes. Impurities sticking on these plastic pieces will be rubbed and cleaned afterward.

  - Stage 5: Plastic pieces after being rubbed and cleaned will be passed to a cleaning trough system with inverse water. Plastic pieces at the last trough will be put in squeezing machine and dried in blowing machine. After that, they are moved to another system to remove all the plastic impurities.

  - Stage 6: Remove all the remaining impurities and the preliminary treatment is completed.

  - Polyester fiber produce

  - Stage 1: Polyester reeling

 

Polyester fiber produce

 

   · The materials from the above stage will be moved to vacuum dryer to reduce water content in the material to 0.001%. After that these material will be compressed and heated at 250-280℃, in addition, colors will be added to adjust color. The mixture from compress machine is passed to filter sector to purify all the grits and impurities. When passing to silk reeling sector, the melting materials will be liquefied at 300℃. According to the requirement, quality and specification of the fiber, they will be distributed and puff with small flows through tubes that have 360-2592 holes.

   · The flows are ensured by the wind creating sector and this sector will cool hot damasks. As the design, there will be 20 circular wind creating sets with the capacity of 19.500tons/year

   · After cooled, the damasks are made into bundles with the diameter from 5-10mm by stretch machine and poured with anti-clot oil, this can help reducing friction in the next stage.

   · At this stage, there will be raw damasks and they are put into box, 400㎏ each.

  - Stage 2: Polyester processing

 

 

  - Technology illustration

   · Semi-finished products from stage 1 are passed to stage 2 through a concentrated bundle stand. Before being processed, there will be workers in charge of linking and cutting the top and fiber to make sure the uniformity and continuity of the input. Fibers will be put continuously into 4 stretch machines, cotton sheets are spread alternating with hot oil pouring troughs and tract cotton, increase the temperature to create the certain expansion of the damask sheets. Through the 4 machines, damask sheets are divided equally in terms of the thickness, width and stretch force, after that they will flow into the winding machine to create certain force oriented vertically in two-dimensional or three-dimensional spiral state.

   · From the winding machine, cotton fiber sheets are passed to tension force sector and cut into given length and then dried at 4 different temperature ranges: from 140 to 180℃, 12 meters long, in 20-40 minutes; shaped in soft state and cooled in drying conveyor roller.

   · In the future, with the favorable conditions, investor will continue to invest in sheet compression system or fiber braiding system in order to provide cotton sheet and synthetic fibers for the textile industry.

 

 

2. IMPORT TREND

 

 ○ Although, Vietnam has a fast-growing textile & garment industry and a large exporter, this is mainly attributed the development in down-stream sector which requires simple technical level and limited investment. Vietnam is rather an outsourcing market(account for approximately 80% of the country’s total export value) and still lacks many crucial factors to maintain an independent and sustainable textile & garment industry.

 

 ○ In fact, the upstream sector of Vietnam’s textile & garment industry has a low record of growth rate, the country still cannot self- supply necessary input materials as well as machineries and equipment and has to rely largely on import. As the value of machineries and equipment especially those used in upstream sector is quite expensive, Vietnam’s importers may either import brand new production line or second-hand one depending on each firms’ scale and financial status.

 

HS Code: 844400 – Machines for extruding, drawing, texturing or cutting man-made textile materials

           Source: Trademap

 

  ○ It is worth noting that the chart above only summarized the import trend of products coded 844400 and may include different machines other than what KOTMI requests.

 

 ○ Generally, when it comes to machineries especially high-tech ones, Vietnam normally experiences trade deficit and it is the same situation to textile & garment machineries. It is estimated that 90% of Vietnam’s machineries and equipment is imported from foreign countries. Specifically, as for machineries coded 844400, Vietnam’s imports represent 0.96% of world imports and ranked 14th in the world imports, which clearly reflect the country’s great reliance on foreign manufacturers. Vietnam’s remarkable imported value of machineries used in textile & garment industry is driven by two main factors:

  - Fast growing textile & garment industry: as analyzed above, Vietnam is one of the largest exporters in textile & garment industry; such industry has made a consider contribution to Vietnam’s GDP and still has a lot of room for further growth. As a result, an escalating demand for machineries & equipment to improve domestic productivity and maintain the country’s position in world’s ranking is quite understandable.

  - Lacking mechanical engineering: due to backward technology, a short of high quality human resources & investment, domestic manufacturing industry is quite underdeveloped and still in its infancy. Hence, the country has no choice but to depend on import; the fact that Vietnam set the import tariff of most of machineries used in textile & garment industry(including machineries coded 844400) as 0% is the most convincing evidence.

 

 ○ The fluctuation of Vietnam’s imported value over years clearly reflects the country’s economic development. A rocket in 2007(45.62%) is caused by Vietnam’s entrance to WTO in 2006, which lead the country to loosen its trade barriers causing a promising chance for foreign exporter to penetrate into local market. Slumps in 2008(-2.63%), 2009(-23.25%) and 2011(-46.41%) are probably caused by the world economic recession during these years. Considering Vietnam’s economy’s increasing integration and its great reliance on foreign manufacturers, it is understandable why its import trend is considerably driven by the world’s economic situation. If it is the case, it is expected that there would probably no significant change in imported value in 2013 since both the world’s economy and Vietnam’s are yet to fully recover.

 

 

3. COMPETITION TREND

 

□ Foreign Manufacturers

 

HS Code: 844400 – Machines for extruding, drawing, texturing or cutting man-made textile materials

    Source: Trademap & KOTRA Hanoi’s Research

 

 ○ It is worth noting that the chart above only summarized the import trend of products coded 844400 and may include different machines other than what KOTMI requests.

 

 ○ The table above include 5 largest exporters from 2007-2011 of Vietnam, making up for nearly 80% of the country’s market size. Generally, most of the largest exporters of Vietnam are also the largest exporters of this product line in the world; only several world’s big names are absent in the list of top exporters of Vietnam such as Italy, India, etc. In order to understand more clearly about Korea’s current and potential position in Vietnam’s market, let’s examine each of its competitors as follows:

 

 ○ China & Chinese Taipei

 

            Source: International Textile Manufacturers Federation(ITMF) – November, 2012

 

  - China is the formidable competitor of Korea; the country is the second largest exporter of this product line in the world and currently the leading exporter of Vietnam; accounting for more than a quarter of the market size. Although, the export value of China in 2011 fall incredibly compared to the same figure in 2010(nearly 73%), compared with other competitors’ export value in 2011, the figure still managed to rank 2nd(only behind Germany). Moreover, it can be clearly seen that, such fall just went with the downward trend of Vietnam’s total imported value in 2011. The annual growth rate between 2007 and 2011 of China is also very impressive: 54.95%. These results can be attributed to the fact that Chinese products have low price and acceptable quality. Chinese products are suitable for current development stage of Vietnam’s textile & garment industry when small-scaled firms still cover the majority of domestic textile & garment industry.

  - As for Chinese Taipei, regardless of only ranking only 17th in the world’s export of product line coded 844400, Chinese Taipei managed to ranked 2nd in Vietnam’s market with nearly 20% of the market size. In fact, Chinese Taipei ranked 5th as the largest exporters of Vietnam in general and enjoy great trade surplus with Vietnam in textile & garment industry; thus, it is no surprise that this region has such high rank. The main reason lying behind this might be attributed to the fact that Chinese Taipei is among top countries & regions with highest FDI in Vietnam, which would probably give priority to its goods. Also, low price is another possible convincing reason.

 

 ○ Japan & Germany

 

           Source: International Textile Manufacturers Federation(ITMF) – November, 2012

 

  - Same as Chinese Taipei, Japan’s goods have advantage in Vietnam as the country is the largest FDI investor; the country is also the largest ODA donor in Vietnam. Besides, Vietnamese government, firms and consumers generally hold a very positive perception towards Japanese goods thanks to its high quality especially those high-technological products.

  - Regarding products coded 844400, Japan rank 4th in the world as an exporter and holds nearly 11% of the total market size in Vietnam with remarkable annual growth rate of around 70%/year from 2007-2011. It is worth noting that, unlike its competitors(except for Germany), the imported value of Japan in 2011 did not fall but increase considerably by more than 50% compared with 2010’s figure.

  

Source: International Textile Manufacturers Federation(ITMF) – November, 2012

 

  - Although Germany’s market share in Vietnam’s market only ranks 5th; in world’s exports, the country is the largest exporter of products coded 844400. Also, of all top 5 exporters in the table, Germany is the one with the most impressive annual growth rate: 145.76 %, doubling the rate of such formidable competitors as Japan and China. Along with Japan, Germany is an exception to a fall in imported value in 2011, in contrast, the imported value from Germany rose by nearly 54%.

  - A rise in imported value from Germany can be explained by the following factors:

   · Localization Strategy: currently, Vietnam’s government is aiming to increase the percentage of localization in textile & garment industry. Thus, modernizing machineries & equipment to self-supply several raw materials such as synthetic staple & fiber, reducing reliance on imports in the long-term is positively encouraged. As a result, machineries & equipment from countries with advanced technology like Germany and Japan would get increasingly favored.

   · Growth Strategy: Vietnam’s shift in industrial growth strategy – from quantity to a combination of quantity and quality – has created a strategic advantage to exporters with high quality products like Germany and Japan

  - One drawback of Germany’s machineries is high price; a machine made in Germany may cost twice as much as a Chinese or Taiwanese one. Specifically, a weaving machine made in Germany costs around US$ 80,000 while a Chinese one only costs US$ 34-40,000; a production line made in Germany may cost up to millions of US$. Therefore, only large-scaled firms would manage to install German machineries & production lines.

 

 ○ Republic of Korea

  - Korea ranked 6th in the world exports and ranked 3rd in Vietnam’s imported value with 13.21% of market share. From 2009 – 2011, Korea is the only country that enjoyed stable imported values over years; however, the country is also the only one among top 5 that experienced a negative annual growth rate(-3.79%) from 2007 – 2011.

  - Korea has two strategic advantages in Vietnam’s market:

   · The country is currently the 3rd largest FDI investors in Vietnam with long-term trade partnership.

   · Korea’s products fall in the medium range in terms of both quality and price. Specifically, Korean products are known with better quality than Chinese ones and with lower price than those made in EU or US. Hence, Korean products tend to be a safe choice for Vietnamese firms and consumers.

  - These advantages would pave the way for Korean exporter to penetrate into and expand their distribution system in Vietnam market as long as they come up with appropriate methods to improve their brand awareness and address their products’ advantageous features.

 

□ Domestic Manufacturers

 

 ○ As analyzed before, most of machineries and equipment used in textile & garment industry in Vietnam is imported. As for regenerated polyester staple production line that KOTMI requests, Mr. Tung from Hop Thanh company has confirmed that Vietnam has not been able to manufactured it domestically yet and his company has to import the whole line from China.

 ○ Actually, local mechanical engineering has not developed to the point that it can self-supply machineries and equipment for production. Several typical reasons can be listed as lack of necessary fund, backward technology and shortage of high-quality human resources. Such reasons, in fact, might partly be a direct consequence of the local government’s orientation in mechanical engineering. Specifically, in Decision No. 186/2002/QD-TTg dated 26th, December, 2002 issued by the Prime Minister on Development Strategy of Vietnam’s Mechanical Industry until 2010, with a vision to 2020, it is clearly stated that there are 08 groups of mechanical product lines that would be given priority in development to meet the economy’s demand:

  - Completed Equipment(equipment used in projects with EPC contract)

  - Engines

  - Mechanics for Agriculture – Forestry – Fishing and Processing Industry

  - Tools

  - Ship building engineering

  - Construction engineering

  - Electrical engineering & electronic equipment

  - Automobile engineering & mechanics for transport

 

 ○ It can be seen that, mechanics for textile & garment industry is currently not the development priority of Vietnam’s mechanics engineering. Therefore, it can be well-understood while the country still cannot self-manufacture machineries and equipment used in textile & garment industry and has to rely considerably on imports. Therefore, in terms of competition, it seems that Korean exporters should pay more attention to other foreign rivals since Vietnam itself is not developed enough to compete against in this field.

 

 ○ In order to illustrate more clearly the current situation of Vietnam’s imports in mechanics for textile & garment industry, several table and graphs are shown as follows:

 

    Source: Trademap & KOTRA Hanoi’s Research

 

Imported value of machineries used in Textile & Garment Industry(2006 – 2011)

                       Unit: US$ thousand

 

 

 

 

             Source(Graph No.1 – No.5): International Textile Manufacturers Federation(ITMF) – November, 2012

 

□ Price and Distribution Channel

 

 ○ Machineries & equipment used in upstream sector tend to be much more expensive than those used in downstream sectors. Specifically, a machine used in upstream sector can cost up to millions of US$ compared to thousands for garment machinery.

 

 ○ As for a regenerated staple fiber plant from PET as what KOTMI requests, the researcher has asked Mr. Tung from Hop Thanh company which used the similar production line for the estimation of the company’s production line’s value. Mr. Thanh said that his company currently has four production lines and estimated that each of them cost around US$ 4 million. It is worth noting that the production line of Hop Thanh company is made in China, thus, a production line from more advanced countries and regions like Japan, EU or US would probably be much higher than that.

 

 ○ Regarding distribution channel, normally, there would be two typical channels depending on types and values of machines. For small machineries(normally used in downstream sector); end-users can either import directly from foreign manufacturers/distributors or buy from domestic distributors. For large and valuable machineries(normally used in upstream sector), end-users can either import directly from foreign manufactures/ distributors or issue a tender/ competitive offer to call for equipment suppliers and company with the lowest offered price would win the bid. In case of Hop Thanh company, Mr. Tung said that since the regenerated staple fiber production is a new technology in Vietnam, tendering would be possibly not very effective; hence, the company did market research and import directly from Chinese manufacturer.

 

 

4. EXPORT TREND

 

HS Code: 844400 – Machines for extruding, drawing, texturing or cutting man-made textile materials

 

 ○ It is worth noting that the chart above only summarized the import trend of products coded 844400 and may include different machines other than what KOTMI requests.

 

 ○ In fact, Vietnam can hardly manufacture high-tech machines like what KOTMI requests, let alone export. Therefore, the chart above hardly reflects the real exported value of regenerated staple fiber production line. Regardless, it managed to reflect a rather weak mechanic engineering of Vietnam. The country’s exported value of products coded 844400 is quite low with few importers.

 

       Source: Decision 36/2008/QD-TTg(March, 2008)

 

 ○ The table above summarizes targets of Vietnam’s Garment & Textile Industry which are clearly stated in Decision 36/2008/QD-TTg in March, 2008 on approving the Strategy on Development of Vietnam Textile & Garment Industry till 2015 with vision to 2020. It can be seen that, the government set target on percentage of localization, however, till this stage, Vietnam only aims to localize some input material such as polyester staple fiber, yarn, etc.; localization in terms of machineries and equipment has yet to be stated. Regarding technological solutions target stated in the Decision, Vietnam has just encouraged companies and institutes to accelerate technology transfer. Therefore, it is expected that in the future, at least until 2020, the country will still have to rely largely on imports for machineries & equipment used in textile & garment industry. Local mechanic engineering might have some improvements, yet, export is still a long-term vision.

 

 

5. IMPORT TARRIF

 

    Note: MFN: Most Favored Nations(Korea belongs to this group of nations)

CEPT: Common Effective Preferential Tariff(ASEAN 10 member countries)

AKFTA: ASEAN – Korea Free Trade Agreement

(*) Between two different preferred tariffs, the lower one would be applied

    Source: Book on Export – Import Tariff 2013(Ministry of Finance)