While Vietnamese garment exports could benefit from tax-exemptions, they will have to ensure they meet TPP rules of origin on materials to truly benefit. Developing a strong textiles industry is becoming an ever-more urgent task for Vietnam.
80% of this company’s textiles and materials are imported from China. However, importing raw materials from China or non-TPP members will violate the TPP rules of origin once the agreement takes effect. Being aware of this, many Vietnamese enterprises have long been looking for ways to source materials themselves.
"The most asked question is whether Vietnamese enterprises can develop a textile industry. The answer is yes but it’s not an easy task because a textile industry requires a lot of capital, skills, technology and issues related to environmental protection", said Phan Minh Chinh, Director, Giao Thuy Pro Sports JSC.
Investment spent on a worker in a textile factory is 5 to 10 times higher than in a garment factory. Meanwhile, profitability from textiles is not high. Therefore, although developing a textile industry has been discussed in Vietnam for many years, hardly any firms have bothered to develop integrated supply chains.
"When there is no free trade agreements, Vietnamese goods will have to compete with many cheap products and can’t benefit from any inbuilt advantages. So profitability will be low", said Le Tien Truong, General Director, Vietnam National Textile & Garment Group.
While domestic enterprises are facing difficulties investing in textiles, many textile businesses from China, Hong Kong, South Korea are moving to Vietnam. In the last 2 years, investment into the textile industry in Vietnam has reached over 2 billion USD yearly, equalling the total investment of the previous 10 years. These foreign businesses are now doing well supplying domestic enterprises.
With the upcoming TPP agreement and other free trade agreements, textile industry profitability in Vietnam could soon significantly rise. In order to cope with fierce competition from foreign investors, domestic enterprises will have to consider strategies to become more profitable.
