Vietnamese Garments Industry

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Global Networks 11, 3 (2011) 355–79. ISSN 1470–2266. © 2011 The Author(s)

Journal compilation © 2011 Blackwell Publishing Ltd & Global Networks Partnership 355

Meeting the challenge of China: the Vietnamese

garment industry in the post MFA era

KENTA GOTO,* KAORU NATSUDA† AND JOHN THOBURN‡

* Faculty of Economics, Kansai University, Japan

[email protected]

†College of International Management,

Ritsumeikan Asia Pacific University, Japan

[email protected]‡School of International Development,

University of East Anglia, UK

[email protected]

(corresponding author)

Abstract Although China has diversified into sophisticated, higher value-added

exports, it is still a formidable competitor in global markets for basic labour-intensive

products. It is the world’s largest exporting country of textiles and garments, the

archetypical driver of industrial growth both in developed countries in the past and inmost newly industrializing countries more recently. When the export restrictions

under the Multi-Fibre Arrangement (MFA) ended at the start of 2005, it was

predicted that China would greatly increase its market shares at the expense of most

competitors, except perhaps India. Vietnam has proved to be an effective competitor

in the garment industry in markets where China is dominant. In this article, we

investigate how key export-oriented garment suppliers of Vietnam have been coping

with competitive challenges in the post MFA era at a time when global buyers have

been reorganizing their international production networks. We emphasize the

influence of different global value chains on upgrading since Vietnamese suppliers

switched to the US market after the implementation of the US Bilateral Trade

Agreement in 2001. We note the uneven performance of Vietnamese garment

suppliers, with some lagging behind others in upgrading and competitiveness, and

their different responses to Vietnam’s growing labour shortages. We base the article

mainly on interviews conducted over the 2001–2008 period with garment companies

and global buyers in Vietnam, Hong Kong and China.

Keywords GARMENT INDUSTRY, TEXTILES, GLOBAL VALUE CHAINS, MULTI-FIBRE

ARRANGEMENT, CHINA, VIETNAM



Kenta Goto, Kaoru Natsuda and John Thoburn

356 © 2011 The Author(s)

In this article, we investigate how Vietnamese export-oriented garment suppliers are

coping with challenges from international integration. Garments are Vietnam’s largest

manufactured export item, and the abolition of the Multi-Fibre Arrangement (MFA)

has increased international competition, especially from China. Although China has

diversified into more sophisticated, higher value-added exports (Lall and Albaladejo2004), it is still a formidable competitor in global markets for basic labour-intensive

products. It is the world’s largest exporter of textiles and garments (WTO 2009).

From 1974, the MFA’s elaborate quota system strictly controlled international

trade in textiles and garments. Under this, the largest garment markets in the world,

including the USA and EU, restricted their imports to protect their domestic suppliers.

They tightly specified the restrictions on volume by product category and export

origin. In 1994, during the Uruguay round of the GATT negotiations, an Agreement

on Textiles and Clothing (ATC) gradually abolished the MFA quota system over a

ten-year transition period that would last until 31 December 2004. Thus, after 2005,

trade in textiles and garments was to be integrated into normal WTO rules (Yamagata

2007).

The abolition of the MFA1

provided competitive suppliers with opportunities to

expand their exports further. At the same time, it also meant that less competitive

exporters would face threats because supplies from more competitive sources could

now substitute previous exports ‘guaranteed’ under the quota system. The predictions

were that China would triple its share of the US garment market and increase its share

in the EU by more than half, with other producers’ shares falling, except for India’s

(Nordås 2004). The easiest way for a country like Vietnam to counter such threats

was to reduce costs. As the garment industry is very labour intensive, much of this

would translate into lowering wages when productivity levels remained stable.

However, reducing costs has its drawbacks and to realize sustainable development of

the industry, it is important to raise productivity continuously.

In this article, we look at what kinds of qualitative changes the abolition of the

MFA has brought to the Vietnamese garment industry, what strategies key suppliers

in the industry have applied in response to such changes, and what this implies for its

development trajectory. We shall analyse the industry in terms of the positioning of

Vietnam’s major garment suppliers within international production and distribution

networks. We use the global value chain (GVC) framework to illustrate how indi-vidual firm level strategies have resulted in process, product, or functional upgrading.

We combine an overview of the Vietnamese garment industry with a longitudinal

study of ten large garment producers, mostly state-owned or formerly state-owned,

interviewed in 2001 and again in 2007.

The 2001 survey included 59 garment companies, of which 23 were export

oriented. Of these 23, seventeen were state-owned enterprises (SOEs) and six private

firms. As a comprehensive list of garment suppliers was unavailable at the time of

interview (and still is, as far as we know), we drew the companies from a publication,

Vietnam Textile – Garment Industry – the Present and Future, which the state holdingcompany Vinatex (Vietnam National Textile and Garment Group) produced in 1997.

This book included a list of garment (and textile) companies that were operating at the



Meeting the challenge of China

© 2011 The Author(s) 357

time of publication, which in 2001 seemed exhaustive. We selected the companies

from this list and gave priority to large export-oriented garment producers, which

tended to be SOEs. We contacted almost all the large SOEs on the list (which were

under the Vinatex umbrella), but only 23 agreed to in-depth interviews. To be

representative, we included smaller ones too, which were entirely domestic oriented.For the smaller ones we used a more or less randomized sampling (systematic random

sampling method). Getting appointments for these firms was more difficult, but we

interviewed 36, which were located in Hanoi, Hai Phong, Nam Dinh, Tay Nguyen,

Dong Nai, Bing Duong, and Ho Chi Minh City.

Data for 2007 include interviews with ten garment suppliers, predominantly SOEs

or former SOEs selected from the 23 companies interviewed in 2001. A purely ran-

domized sample would be difficult to implement for these types of companies, and we

cannot reveal more details for reasons of preserving anonymity. Note that ten com-

panies is a large sample in relation to the number of companies operating under

Vinatex. In the early 2000s, Vinatex had 42 member textile and garment companies,

including all the centrally run textile and garment SOEs. At that time, Vinatex

accounted for between 30 and 40 per cent (the amount varied according to different

sources) of Vietnam’s garment and textile exports (Nadvi and Thoburn 2004b: 114).

In addition, our chosen companies would be unlikely to face the same difficulties

gaining state help to contact global buyers that Thomsen (2007) documented for some

private companies in Vietnam. Interviews in 2008 with other company and key

informants provide an additional perspective. It proved impossible systematically to

interview the same companies at the time of the 2008 interviews, though we did visit

some of them again.

In the next section, we briefly discuss global value chains in relation to entry

barriers and upgrading before going on to present an overview of the Vietnamese

garment industry. In the core of the article, the fourth section, we detail the

longitudinal study of ten large Vietnamese garment producers.

Global value chains, entry barriers and upgrading

Analysis of GVCs looks at the process of selling a product from the supply of raw

materials to its final distribution and marketing (see Gereffi and Memedovic 2004;

Palpacuer et al. 2005). A GVC, however, is more than a set of input–output relations

spread over a number of countries. Economic agents at certain stages of the chain

control the entry and distribution of activities over the chain; in other words, they

exercise governance and they can earn rents (surplus profits – see below). Garments

are buyer-driven GVCs, where barriers to entry – and rents – are concentrated at the

retail end. In clothing GVCs, a number of buyers without factories of their own

generally organize production.

The needs of global buyers generate barriers to entry, in the sense that they

include requirements about production volume capabilities, product quality and the

services (including compliance with international social and environmentalstandards) that some suppliers are able to offer and others not. These barriers are





over and above those necessary simply to enter the industry to produce for the

domestic market, which are low in the case of garment production, based on low

capital costs and low wage labour. Access to particular markets, such as available

trade preferences, for firms from the country in question also influence buyers’

sourcing patterns. Lead times that suppliers can offer are also an importantdeterminant of a buyer’s sourcing. The requirements of different buyers, particu-

larly from different markets, may differ, with some buyers requiring more in the way

of services their suppliers can perform. There is also evidence that buyers’

requirements have been tightening, focusing on a smaller number of supplier

countries and on a smaller number of suppliers within each country (Nadvi and

Thoburn 2004a: 260–1).

Barriers to entry generate economic rents, in the sense of profits arising from the

scarcity that the barriers create, insulating the producer from competition, although

most rents in garments occur at the retail end and are associated with control of

brands and market outlets (Kaplinsky 2005: 62). However, though increased buyer

requirements generate barriers to new entrants to the chain, they do not always

increase rents for existing producers who upgrade to meet them: the upgrading may

be necessary simply to maintain a foothold in the chain.

The concept of upgrading is a central part of GVC analysis. Upgrading is a form

of innovation that generates rent if it occurs ahead of that of rivals (Kaplinsky 2005:

63). There is a wide consensus in the GVC literature that one can most usefully

categorize upgrading within a GVC into three broad areas – product upgrading,

process upgrading and functional upgrading (see for instance Gereffi and Memodovic

2004; Kaplinsky 2005; Kaplinsky and Morris 2001; Palpacuer et al. 2005).

• Product upgrading involves producing new products or improving the design or

specification of existing ones;

• process upgrading involves reducing costs or shortening lead times; and

• functional upgrading involves successfully taking on new functions, such as

design, labelling or materials sourcing.

Some writers have introduced additional categories. For example, Palpacuer et al.

(2005: 412) write of ‘volume-based upgrading’ where costs can be lowered if ordersare large enough to generate economies of scale. We think this is best included under

process upgrading, although in some circumstances it can be useful to separate it out.

Producers sometimes are able to learn from buyers about how to upgrade (Schmitz

and Knorringa 2000).

Overview of Vietnam and its export oriented garment industry

Vietnam has been growing fast since the implementation of the Doi Moi economic

reform policy in 1986. Its economic growth has been particularly strong since it

started establishing trade relations with Western economies in the 1990s, when theeconomy had the fastest export growth rate in the world. While growth slowed





somewhat after the Asian financial crisis in 1997, overall it remained robust (Thoburn

2007, 2009). Until the late 1980s, Vietnam’s textile and garment (T&G) exports were

predominantly to the former Soviet bloc, but this trade declined precipitously after the

collapse of the USSR. Vietnam’s entry into export garment production for Western

and Japanese markets has required access to GVCs.The tendency to source from established East Asian foreign investors within

GVCs – the well-known ‘triangular manufacturing system’ (Appelbaum 2008;

Gereffi 1999) – is breaking down to some extent as more and more buyers establish

local offices in major producing countries and become more expert in assessing

local companies. Foreign-owned production remains important, however, although

its importance varies considerably from country to country. In the extreme case of

Cambodia, for example, almost all production is in the hands of foreign-invested

enterprises, mainly from Korea, Taiwan and Hong Kong (Natsuda et al. 2010). In

Vietnam, in 2008 foreign firms accounted for 32 per cent of textile and 45 per cent

of garment output, compared with 26 per cent and 25 per cent respectively in 2000

(figures from www.gso.gov.vn). In Vietnam’s main competitor, China, in 2008

foreign invested companies produced 42 per cent of garment gross output and 23

per cent of textile gross output.2

The share of foreign companies in both Vietnam’s

and China’s exports would probably be higher than the production share in the case

of garments, and lower (for direct exports) in the case of textiles. Unlike China,

Vietnam’s (direct) exports of textiles are minimal, and its T&G export expansion

has focused almost exclusively on garments.3

In Vietnam, foreign garment

companies are almost wholly export oriented (for further details see Thoburn 2010:

10–11).

In both Vietnam and China, state-owned or semi state-owned producing enterprises

have been important in maintaining a local presence. In 2008, Vietnam’s state owned

enterprises still produced 27 per cent of the country’s textile output and 10 per cent of

its garment output. This was despite those proportions being considerably lower than in

2000, when the shares were 51 per cent for textiles and 32 per cent for garments, for

SOEs have been (semi-)privatized and the private sector has grown. On average,

garment manufacturing SOEs in Vietnam have been better equipped in terms of capital

and access to foreign markets compared with private suppliers, and have been playing

important roles in the export oriented industry (Goto 2003). The state holding companyVinatex was generating between 30 and 40 per cent of Vietnam’s T&G exports in the

early 2000s (Nadvi and Thoburn 2004b: 114). In China, in the late 1990s, SOEs

produced 36 per cent of textile gross output, though only 7 per cent of its garment

output (UNCTAD 2002: 152).4

By 2008, however, the privatization of SOEs had

brought that figure down to 3 per cent and 1 per cent respectively.5

The private sector

accounted for 50 per cent of textile and 41 per cent of garment output.

In Vietnam, textile and garment SOEs undertook major economic reform in the

1990s, raising output per worker considerably (Nadvi and Thoburn 2004b). In China

too, the state-owned textile and garment sector was at the forefront of economicreform in the 1990s (Eberhardt and Thoburn 2007). ‘Household’ firms primarily

catered for the domestic garment market in Vietnam in the past. They accounted for





15 per cent of garment output in 2007 (the latest figure available) and are predomin-

antly micro enterprises, often under informal subcontracting arrangements for larger

private firms (Goto 2005). Vietnamese SOEs have also entered the domestic retail

market with brands of their own. The ‘private economic sector’ accounted for 30 per

cent of apparel output in Vietnam in 2007 (the latest available figure), up from 17 per cent in 2000. However, some segments of the private sector find it difficult to enter

export markets since they lack necessary state support in connecting with buyers

(Thomsen 2007).

The importance of the garment industry in exports

Figure 1 summarizes the main export items of Vietnam based on the HS2002 trade

classification. Unlike neighbouring Cambodia, for example, where the overwhelming

bulk of export earnings come from garments (Natsuda et al. 2010), Vietnam has a

more diversified export portfolio. Garments were only 14 per cent of total exports in2008,

6but they are still the second largest export item, after crude oil, and the largest

manufacturing export.

Figure 1: Major export items of Vietnam in 2008

Note: Numbers do not add up to 100 per cent due to rounding, and similarly for total of HS 62and 61.

Source: UN Commodity Trade Statistics Database (UNcomtrade).

8%6%

6%20%

47%6%

7%

14%

Others

Mineral fuels, oils, distillation products, etc. (HS2002; 27)

Footwear (HS2002; 64)

Fish & crustacean, mollusc & other aquatic invertebrate (HS2002; 03)

Electrical machinery and equipment and parts (HS2002; 85)

Apparel and clothing (Woven fabric, HS2002; 62)

Apparel and clothing (Knitted fabric, HS2002; 61) }





Figure 2 depicts the trends of garment exports between 1997 and 2008 in terms of

value and share. The figure shows that exports have, apart from 1998, increased

rapidly, while the share of garments in total exports has remained more or less the

same.

Figure 2: Garment exports from Vietnam

Note: Export data are based on SITC Rev.3 84 (Clothing and accessories).


Changes in value chain orientation

Vietnam’s orientation towards Western markets dates from its bilateral trade

agreement with the European Union in 1992, which gave it MFA export quotas into

the EU market effective from 1993, as well as GSP (Generalized System of

Preferences) access to the EU. This gives Vietnam a ‘discount’ on the normal MFN

tariff into the EU, although it is subject to rules of origin requirements, which

Vietnamese exporters often cannot meet when they import their fabric. However,

unlike its garment exporting rivals Cambodia and Bangladesh, Vietnam is not

classed as a ‘least developed country’ and so does not qualify for zero import duty

access under the EU’s ‘Everything but Arms’ (EBA) programme, but then neither

does China.

While Vietnam also enjoyed normal trade access to Japan in the 1990s, the US

market was effectively closed. Before 1994, there was a US embargo on imports

from Vietnam, and subsequently a prohibitive set of tariffs on Vietnam as a non-

member of the World Trade Organization. Under the US–Vietnam Bilateral Trade

Agreement (USBTA) signed in 2000, Vietnam was at last given ‘normal trade

relations’ access to the USA, although Vietnam did not join the WTO until 2007(Thoburn 2009).

1384 13021622

1821 1867

2633

3465

4250

4681

5579

7400

8724

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

M i l l i o n U S

D o l l a r s

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

S h a r e

o f t o t a

l e x p o r t s

Exports in million US$Share of garment





Figure 3: Major export markets for Vietnamese garments

Note: Others include all countries ranked outside the top 20 major importers.


Figure 3 tracks changes in the export destinations of Vietnamese garments. In1997, the three major destinations – Japan, Korea/Taiwan and the EU – were each

responsible for roughly a quarter of Vietnamese garment exports, with Japan the

largest foreign market up until 2001. Following the implementation of the USBTA in

2001, exports expanded rapidly to the USA, which became Vietnam’s largest market

for garments in 2002. Vietnam’s exports to the EU have been increasing as well, but

Japan remains Vietnam’s second largest country market for garments, with sales

roughly double those to Germany and the UK, the largest customers in the EU-27.

Between 2000 and 2004, Japan’s clothing imports from Vietnam stagnated in terms of

dollars, and increased only marginally in terms of yen, while sales to the USA

boomed. Between 2004 and 2009, however, Japan’s clothing imports from Vietnam

increased 84 per cent in dollar terms and 40 per cent in yen terms.7

Asian importers

besides Japan, particularly Korea and Taiwan, remained major export destinations

until 2002, but since then exports to those countries have dropped in terms of share,

particularly for Korea. The falls to Korea and Taiwan represent the possibility that,

prior to 2001, some exports to those countries were subsequently rerouted to the USA,

which no longer was necessary after the USBTA.8

Table 1 indicates Vietnam’s position in major markets in relation to China as of

2008. China’s dominant position is clear, but the table also shows Vietnam’s strong

position in the world, US and Japanese markets. In all cases, including the EU-27,Vietnam’s market share has increased since 2004.

26.3 25.4 30.8

17.813.2 12.7

9.2 9.0

1.8 2.4

2.5

38.7

57.1 56.2 60.5 59.0

29.035.9

32.9

20.9

15.1 17.419.2

18.5

22.3

18.618.4

10.4

6.4 4.92.7

4.317.7 15.3

12.28.2 8.8 8.4 9.2

20.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1997 1999 2001 2002 2003 2005 2007 2008

Japan US EU Tai wan and Korea Others





Table 1: China and Vietnam in the world garment economy, 2008

World

Exports

US

Imports

EU-27

Imports

Japan

Imports

US$ billion 361.9 82.5 177.8 25.9

Market share of China (%) 33.2 34.6 22.7 84.2

Rank of China 1 1 2 1

Market share of Vietnam (%) 2.5 7.1 1.1 3.5

Rank of Vietnam 7 2 10 3

Sources and notes: Export data from WTO (2009), Eurostat for EU-27 market share and rank of

China in EU, and Comtrade for ranks and shares in Japan and USA. Note that EU-27 countries

are the largest suppliers of clothing to the EU market; otherwise, China would be the largest

supplier with a market share of 42.6 per cent (and Vietnam’s would be 2.1 per cent).

Vietnam world rank assumes Hong Kong as 2, which includes Hong Kong’s re-exports;

otherwise Vietnam would be number 6.

Trade distortions that have continued since the end of the MFA have greatly affected

Vietnam’s positioning within different value chains, operating not only as they apply

to Vietnam directly, but also, and equally importantly, indirectly via their impacts on

China.

After the end of the MFA, Vietnam was still subject to MFA-style quotas into the

US market as a non-member of the WTO. After Vietnam’s WTO accession in January2007, to check for dumping, the USA started a Vietnam Textile and Apparel Import

Monitoring Program. The Bush administration took the view that the large Viet-

namese state-owned textile and apparel sector was distorting trade and harming US

domestic producers (Ellis 2007). In the event, the USA failed to identify sufficient

‘dumping’ by the Vietnamese to invoke sanctions, and announced that the programme

would not be continued beyond January 2009.9

Nevertheless, the monitoring programme had important short run effects. When

interviewed in August 2007, Vietnamese suppliers and international buyers saw the

programme as a major risk because of the uncertainties related to possible futureexport restrictions to the USA. The Vietnamese government’s reaction was to intro-

duce a system of export licensing to restrict export growth to 30 per cent after WTO

entry in 2007, which would avoid provoking the US government. To facilitate this, it

placed much of export production in the hands of a small number of large SOEs/ex-

SOEs over which control could easily be imposed (interviews February 2008).

The US restrictions also led in 2007 to some Vietnamese suppliers adopting a

strategy of reducing export shares to the USA and, in turn, increasing exports to other

major markets, particularly the EU and Japan. Several key exporters emphasized this

as their new strategy, and the most competitive and productive suppliers were even

claiming to be starting to ‘select’ buyers by rejecting some of the new incoming

orders from the USA.10





This new strategy implied some shift in the balance of power between suppliers

and buyers within a chain that is fundamentally buyer driven. The increased market

power of Vietnamese producers depended largely on global buyers’ views of the risks

of sourcing from China, its main rival. Following initial surges in 2005 to both EU

and US markets, after the lifting of MFA quota restrictions from China, the EUrestricted important categories of apparel imports from China until the end of 2007,

and the USA until the end of 2008. Company B (refer forward to Table 3), for

instance, noted a sharp fall in orders in early 2005, after China was freed of MFA

restrictions, and then a rise in export orders when restrictions were reimposed on

China in late 2005. Other companies noticed falls in prices for export orders during

the 2005 China surge. In 2008, despite the beginning of declining US market demand

resulting from the sub-prime crisis, there was a strong sense among companies inter-

viewed that buyers were shifting purchases away from China towards Vietnam, and

that Vietnamese suppliers could be more selective.

Indeed, Vietnam was increasingly becoming the ‘one’ in buyers’ China plus one

sourcing policies. Buyers – and not only US buyers – sought to reduce the risks of

over-dependence on Chinese supplies, while China was not only restricted in the USA

but was facing rising domestic costs in its main producing areas in the south (HKTDC

2007; SCMP 2008). This was despite Vietnam having only a limited supply of textiles

from its own SOEs (and from Korean and Taiwanese inward investors); in fact,

Vietnam’s physical proximity to China has helped Vietnam’s garment industry base

its exports on imported Chinese fabrics.

We should note, however, that not all Vietnamese suppliers were able to be

selective about orders. The more competitive suppliers, whose demand was

typically larger than their supply capacity, mainly adopted the new strategy. Less

competitive suppliers have become more dependent on the growing export

businesses to US markets in conditions where they were unable to negotiate terms or

reject orders.

Differences of market positions according to export destinations

In the world garment industry, buyers determine product specification through the

demands and conditions of the markets they serve. Important for the purpose of this

article, however, are the differences in the types of garments that Vietnamese

suppliers produce for different export destinations.11

Figure 4 attempts to classify

Vietnamese products with respect to the level of value-added and production volume

per order for the Japanese, US and EU markets respectively. Note that this classifi-

cation is in relative terms based on perspectives of Vietnamese suppliers and some

international buyers who cater for multiple export destinations. Later, we discuss this

in terms of import unit values into Vietnam’s three main markets.

Most Vietnamese garments produced for Japan, Vietnam’s largest single country

market after the USA, are on the higher value-added end, with relatively complex

design and product specification compared with the EU and USA. The size for Japanese orders is typically small, and with wide variations in size and colour.





Figure 4: Market segment classification for Vietnamese garments

Source: Based on interviews conducted in 2007.

While cost pressures are increasing from Japanese market oriented value chains,

buyers still regard quality as extremely important. Those who coordinate production

and distribution for this market see Vietnamese suppliers’ key sources of competitive-

ness as their capacity to produce products with complex specifications subject to

stringent quality requirements. This, according to them, is what differentiates Vietnam

from other exporters such as India and China, which they perceive as better suited for

market segments in the relatively cheaper ‘volume zone’ categories. According to

Japanese buyers, however, China’s garment industry is much wider in scope and thus

able to produce ‘everything’, including items that range from low value-added, price

competitive products to high value-added men’s and women’s suits. They are there-

fore also able to supply similar items to those where Vietnam has competitiveness.

However, Vietnam has comparative advantages in catering for smaller and morecomplex ‘niche market’ orders, relative to China.

By contrast, garments for the US market are mostly supplied to segments in the

lower price range, where competition in prices is extremely fierce. Reducing costs

becomes most important, and is done by producing garments with very simple design

specifications allowing suppliers to minimize operational losses. Most orders for the

US market are also large in terms of quantity, which allows Vietnamese suppliers to

gain productivity from being on the same learning curve for a longer period, helping

to achieve the economies of scale that Palpacuer et al. (2005: 412) call volume-based

upgrading. The EU market is between the Japanese and US markets in terms of boththe levels of value-added and order quantity.

Such differences based on market destinations have important implications for the

Quantity per Order

High

Japanese Market

EU Market

US Market

Value Added

Low

LargeSmall





Vietnamese garment industry since they define its expectations from buyers and its

key international competitors. To a certain extent, they also define the main areas in

which competitiveness will be built up over time.

Japanese trading companies or brand apparel firms normally coordinate value

chains that cater for Japanese markets. To minimize the business risks of retailersrejecting products that fail to meet their precise specifications, Japanese buyers are

strongly committed to raising the technical capacity of Vietnamese suppliers. The

most common method of achieving this is to dispatch their technical staff to suppliers

on a relatively long-term basis, at the buyers’ expense. Another is to train Vietnamese

production line managers at Japanese garment manufacturing firms in Japan. Through

such arrangements, they transfer relatively advanced knowledge and technology,

particularly on configurations of production lines and management methods, to Viet-

namese suppliers. As such, arrangements are costly to Japanese buyers and are de

facto context specific investments; they also tend to prefer to establish a long-term

relationship with selected suppliers. Value chains oriented towards Japanese markets

are thus typical ‘quasi-hierarchical’ in terms of their governance structure (Humphrey

and Schmitz 2000). The transfer of knowledge and technology through such interfirm

relationships has helped to increase the productivity of Vietnamese suppliers (Goto

2003).

Garments for the US and EU markets, on the other hand, are coordinated in value

chains typically governed by traders from Hong Kong, Taiwan and Korea, who

function as agents for American and European retailers and apparel firms. Transfers

of technology through production arrangements are much more limited compared

with production arrangements by Japanese buyers, primarily because the level of

quality required is lower. As price competitiveness is exceedingly important for the

majority of exports to these markets, orders are placed competitively, which may

result in less stable business relationships with value chain coordinators compared

with Japanese market oriented value chains.

The possibility of different development trajectories according to value chain

orientation

Differences in export destinations and value chain orientation can play out in terms of

potential upgrading. For some types of upgrading, particularly of processes and

products, technology transfers through the linkages with production and distribution

networks that international buyers coordinate are important (Schmitz and Knorringa

2000). Functional upgrading, however, is about shifting towards more knowledge and

skill intensive functions in the value chain, which is more difficult and requires more

time (Giuliani et al. 2005; Goto 2007; Humphrey and Schmitz 2000).

There is a danger for Vietnam that competitive pressures may compel firms to

compete by cutting production costs. This could lead to a ‘race to the bottom’, in

which firms lower costs at the expense of social conditions, particularly labour

standards (Kaplinsky and Morris 2001: 31). In this context, firms connected to valuechains that Japanese buyers coordinate have a better chance of process and product





upgrading through the transfer of new and advanced technology. Exports to the US

market, by contrast, compete primarily on costs, so technological transfers from

buyers to Vietnamese suppliers are much more limited. In exporting to the USA,

Vietnamese firms may end up competing directly on costs with garment exporting

countries such as Bangladesh and India, where wages are lower. When this happens,adding new technological content would become important.

Product analysis

Some 54 per cent of Vietnam’s garment exports were woven fabric based garments

(such as shirts, trousers and jackets) and the rest knitted garments (sweaters, polo

shirts and dresses). However, this proportion differs considerably between Vietnam’s

main markets. Less than half of Vietnam’s exports to the USA in 2008 were woven,

but for Japan, Vietnam’s largest single country market outside the USA, the figure

was nearly 70 per cent. Similarly, for the EU-27, nearly three-quarters of Vietnam’sgarment exports were woven.

12

In the USA, the years from 2004 to 2009 saw a substantial rise in the shares of

knits (HS 61) to the US market in relation to wovens (HS 62): the share of wovens in

imports from Vietnam fell from 57 per cent in 2004 to 42 per cent in 2009. Between

2004 and 2009, total garment exports in current dollar terms rose 1.95 times, while

knits increased 2.6 fold and wovens 1.45 fold. Vietnam rose to be the number two

supplier of knits to the USA after China, and went up from sixth to fourth most

important supplier for wovens. Vietnam’s performance, while impressive, is less

remarkable than that of China. Between 2004 and 2009, China increased its share of US imports of knits from 13 per cent to 34 per cent, compared with Vietnam’s 3 per

cent to 9 per cent; and, for wovens, China increased its share from 19 per cent to 42

per cent, compared with Vietnam’s 4 per cent to 7 per cent. By contrast, the share of

wovens in EU imports in 2009 is only slightly down from the 2004 (pre-MFA

removal) figure of 77 per cent. Nonetheless, over the same period, China’s share of

wovens among its exports to the EU decreased from 63 per cent to 55 per cent

(figures from Eurostat).

In an Appendix (not published here but available on request to the corresponding

author), we conduct analysis of market shares and export unit values for the top six

HS (2002) 4-digit imports into each of Vietnam’s three main markets. The top six

products in each market account for nearly two-thirds of each market’s imports of

apparel from Vietnam (though only three products are in the top six in all three

markets). Table 2 provides support for our earlier contention that the Japanese market

is for higher value products than the USA, for the three 4-digit HS products, which

are in the top six apparel imports of all three of Vietnam’s major markets. In addition,

for two of the three products, the EU-27 occupies an intermediate position in terms of

unit values.

Evidence of process upgrading is best sought in the US data, from which one can

calculate unit values per item (as well as per kilo).13 In all six cases, Vietnam’s marketshare in the USA increased over the period 2004–9. In terms of unit values based on





the numbers of items, Vietnam’s UVs fell for five of its top six 4-digit products.14

For

all but one (HS 6203, men and boys suit, trousers, jackets), however, Vietnam has

experienced unit values falling by much less than in the case of China, suggesting that

Vietnamese products have been better able to maintain their value at a time when

Chinese export appears to have been driving down apparel prices in most cases.

Table 2: Import unit values for Vietnam in its major markets, 2009 ($ per 100 kilos)

HS 2002 4-digit main imports from Vietnam USA Japan EU-27

6110 (jerseys and cardigans) 1863 2137 1457

6204 (W/G suits, skirts) 1611 3450 1708

6203 (M/B suits, trousers) 1472 2350 1706

Sources and notes: Calculated from Comtrade for USA and Japan, and Eurostat for EU.

See Appendix for more details. HS categories are those in the top six apparel 4-digit imports

from Vietnam in all three major markets.

EU-27 unit values converted to US$ at average 2009 exchange rate of €1 = £1.39 (Exchange

rate from http://france.usembassy.gov/irs-euro.html).

W/G is women’s and girls’, M/B is men’s and boys’.

Vietnamese garment suppliers – did upgrading happen?

In this section we presents a longitudinal case study over the period 2001 to 2007 of

ten large domestic garment companies, average size more than 6600 workers, mostly

in (or recently in) the state sector. We attempt to analyse whether these key garment

suppliers were able to upgrade in the post MFA era, with special reference to the

changing domestic economic environment. Our focus on domestic companies reflects

the fact that foreign-invested firms, in contrast, have the opportunity to upgrade with

help from their parent companies. This focus also reflects the fact that SOEs and

former SOEs are likely to receive state help in establishing buyer contacts, help that is

unavailable to parts of the private sector (Thomsen 2007).

The situation of garment suppliers in 2007 in comparison with 2001

In Table 3, we provide a summary overview of the firms interviewed in 2001 and

2007. We interviewed ten firms in both years, of which five were located in Hanoi

and five in Ho Chi Minh City. While most of the firms have expanded in terms of

output since 2001, three suppliers (A, G and J) experienced almost no change, and for

one (E) output actually decreased. In terms of export ratio, most of the firms were

already primarily focusing on the export market in 2001, and this had not changed in

2007. It was very common to see suppliers like D and G that produce garments solely

for the export market. F was the only one that reduced its export share (and thus

increased production for the domestic garment market), but the shares had fallen

slightly from 90 per cent in 2001 to 88 per cent in 2007.





Table 3: Outline of key suppliers (in comparison to the situation in 2001)

Supplier

Change

in

Outputs

Share

of

Exports

Share

of

CMT

Number

of

Workers

Average

Wages

Labour

Shortage

Expanding

and/or

Relocation

AAbout

the same

About

the same－－－＋

Major

Problem

Thai Nguyen,

Bac Ninh

B ＋ About

the same－＋＋＋

Major

Problem

Hai Phong,

Thai Binh,

Quang Binh

C ＋ No

Change－＋ n.a.

Major

ProblemVinh Phuc

D n.a. No

Change＋－＋ Problematic

Nam Dinh,

Thai Binh

E －＋－－＋ Major

Problem

Nam Dinh,

Ha Nam

F ＋＋－－＋＋＋ Not a

Problem

Ben Tre,

Vinh Long,

Tien Giang,

Ninh Thuan,Binh Thuan

GAbout

the same＋－＋＋

Major

Problem

Long An,

Dong Thap

H ＋ No

Change－＋＋＋ Problematic

An Giang,

Tien Giang,

Da Lat, Gia Lai,

Binh Duong

I ＋ Aboutthe same

NoChange

＋＋ Not aProblem

Long An, Laos,Cambodia

JAbout

the same

No

Changen.a.

No

Change＋ Problematic

Currently

planning

Notes: ＋＋ means that the annual increase since 2001 was more than 10%, ＋ is an annual

increase less than 10%. Likewise,－－ means an average annual decrease of 10% or more, and

‘－’ is a decrease less than 10% a year.

On labour shortages, answers are categorized into either ‘Major Problem’, ‘Problematic’, or

‘Not a Problem’.n.a. means that data was not available at the time of interview.

Source: From interviews in 2001 and 2007.





Most garments produced in value chains that international buyers coordinate are

under the contractual modality CMT (cut-make-and-trim). Under CMT, Vietnamese

suppliers only carry out the labour-intensive assembly functions, and these are of low

knowledge intensity; buyers supply Vietnamese firms most of the input materials,

such as fabrics and accessories, free of charge. Vietnamese suppliers produce gar-ments based on buyers’ specifications and export all products under buyers’ arrange-

ments in exchange for processing fees. Vietnamese producers carry no responsibility

for knowledge intensive functions such as product design, distribution arrangement

and marketing. Most of the business risks are concentrated in these knowledge

intensive functions, which is where the level of value-added is highest (Goto 2003,

2007; Nadvi and Thoburn 2004b).

The share of CMT arrangements had decreased for most suppliers apart from D

and I. Instead, such firms have increased their shares in the FOB (free-on-board) type

orders, in which Vietnamese suppliers procure fabrics and accessories on their own

financial account.15

However, such FOB can include a wide range of functions. Most

types of FOB in Vietnam involve arrangements whereby Vietnamese suppliers only

purchase input materials when the buyers instruct them to do so, which is, in essence,

the equivalent of CMT. There were also no suppliers using Vietnamese inputs, except

for some minor accessories including carton boxes, nametags and plastic bags.

However, we know that a number of state textile companies have integrated forwards

into garments using their own fabrics (Nadvi and Thoburn 2004b: 114).

In terms of numbers of workers, which has direct implications for changes in

operational scale and output, the outcome has been quite diverse with six suppliers

increasing, three decreasing, and one being roughly the same. On wages, however, all

suppliers reported an increase. In Table 4, we provide a summary of average wages

and compare those for the garment industry with the average for all manufacturing

based industries for 2000 to 2008. According to this, wages in all industries, including

the garment sector, have increased, particularly after 2006 with growing inflation. The

average wage level in the garment industry is lower than in the manufacturing sector

in general.

All suppliers in 2007, apart from F and I, faced labour shortages. Most of the

suppliers we interviewed had their factories in Hanoi or Ho Chi Minh City. The

factories of the few that did not were nevertheless located fairly near the city centres.Wage rates in the large city areas were increasing rapidly, thus making the

Vietnamese garment suppliers’ wages relatively unattractive. The labour turnover rate

was high and retaining or hiring workers was becoming increasingly difficult. Some

of the workers who left those firms went to garment suppliers that offered higher

wages, but many were moving to better-paid jobs outside the garment industry, often

in the more capital-intensive manufacturing sector, or in the service sector. By 2008,

these difficulties had intensified. This squeezed garment companies between

inflationary pressure on wages and other costs on the one hand, and the customers’

unwillingness to raise prices, on the other.All the companies interviewed in 2001 and 2007 had plans either to build

additional production capacity in rural areas, or to relocate all production facilities to





rural areas where labour was more abundant and cheaper. There is an important

difference, however, between companies that established plants based on the first

reason and the second. Suppliers that became more competitive and thus were able to

increase outputs, such as I and F, generally had no serious problems in either securing

workers or hiring new ones. However, the amount of land they had imposedrestrictions on attempts to expand operations, so they had to move outside the city

centre to build additional manufacturing capacities. The weaker ones, on the other

hand, had not only problems in retaining and hiring workers, but they were also

struggling just to keep their businesses running. The entry barriers had risen in terms

of buyer requirements, and such companies were finding it hard to maintain a

foothold.

Table 4: Wage comparisons, 2000–2008

(Average wage

VND1000 per month)

2000 2001 2002 2003 2004 2005 2006 2007 2008

Manufacturing average 0953 1001 1049 1161 1259 1390 1581 1832 2295

% annual increase -05.0 -04.8 -10.7 -08.4 -10.5 -13.7 -15.9 -25.2

Textiles 0866 0846 0887 0964 1064 1198 1408 1614 2300

% annual increase 0-2.3 -04.9 -08.7 -10.3 -12.6 -17.6 -14.6 -42.5

Apparel 0872 0846 0849 0995 1076 1143 1338 1522 1908

% annual increase 0-2.9 -00.4 -17.1 0-8.1 -06.2 -17.1 -13.7 -25.4

All activities

State sector 1025 1126 1274 1590 1671 2146 2617 3202 4054

% annual increase -09.9 -13.1 -24.8 -05.1 -28.4 -22.0 -22.3 -26.6

Non-state sector 0689 0750 0835 0956 1045 1215 1408 1802 2203

% annual increase -08.9 -11.2 -14.5 -09.3 -16.3 -15.9 -27.9 -22.3

Foreign sector 1655 1558 1637 1606 1641 1810 2003 2242 2886

% annual increase 0-5.9 -05.0 0-1.8 -02.1 -10.3 -10.6 -12.0 -28.7

With 100% foreign capital 1282 1295 1217 1343 1412 1572 1786 2016 2548

% annual increase -01.0 0-6.0 -10.4 0-5.1 -11.4 -13.6 -12.9 -26.4

Joint ventures 2533 2325 3090 2657 2742 3082 3287 3692 5294

% annual increase 0-8.2 -32.9 -14.0 0-3.2 -12.4 0-6.6 -12.4 -43.4

Source: GSO Enterprise Survey 2009 (http://www.gso.gov.vn/).

Note: Apparel wage data are for ‘Manufacture of wearing apparel; dressing and dyeing of fur’.

Calculated for total employee compensation divided by employment.

In addition, the opportunity cost of land was simply too high for such companies,

which thus decided to relocate everything from the city centres to rural areas. On the

land that would become available through relocation, most planned to establish hotels,





office buildings or shopping centres, with a clear strategic vision of moving out from

the garment industry.

Vinatex has been diversifying into real estate too, as also have some of the more

successful garment exporters we interviewed in 2008.16

Value chain orientation and upgrading at the factory level

Table 5 summarizes changes in export destinations for the firms interviewed in 2001

and 2007. Compared with 2001, most have increased exports to the USA quite dras-

tically with an annual increase in shares of 10 per cent or more, except for F and H.

By contrast, the export share to Japan has been decreasing, except for D and E.

Changes in the export share to the EU market are more mixed.

Companies F and H are interesting cases where changes in export destinations

were pursued as part of their enterprise strategies. Both firms were producing around

50 per cent of garments for the US markets prior to 2007, but following the announce-ment of the US antidumping monitoring programme, they reduced their export shares

to the USA rapidly and instead increased it for the EU and Japan. B adopted a similar

strategy, and those three are among the most competitive garment suppliers in

Vietnam with very stable increases in orders. All three firms became more selective in

what type of orders to accept, and in some instances they claimed to be rejecting new

orders particularly from the USA and shift production capacity for orders to the EU

and Japan. Most of the buyers for the US and EU markets are trading companies from

Hong Kong, Korea and Taiwan, while for the Japanese market they are predominantly

Japanese trading companies.In Table 6, we attempt to examine how much upgrading has happened in terms of

process, product and function for the suppliers interviewed since 2001. For process

upgrading, because consistent and comparable information and data on value,

particularly value-added, are unavailable, we compare output per worker in terms of

quantity.17 Roughly half the firms experienced upgrading in their processes, with

some increasing productivity levels by as much as between 30 and 50 per cent since

2001. Some firms, however, such as A, C, E and G, were unable to realize significant

productivity gains during the same period. Most of the suppliers who were successful

in process upgrading either had received (or were still receiving at the time of the

interview) technological assistance from Japanese buyers; some had even taken out a

long-term lease on very advanced machinery from such buyers in their production

line. This group of suppliers expanded their production capacity significantly and

hired more workers, whereas the unsuccessful ones had much more difficulty

retaining and hiring workers and, as a result, their production capacity shrank. These

would suggest that the degree of the suppliers’ success in process upgrading has

strong implications for their ability to cope with retaining and hiring workers, which

should be particularly critical in the context of rising wages and labour shortages.

Suppliers that were unsuccessful in process upgrading had high turnover rates,

resulting in lower average years of experience of their workers. They found it especiallydifficult to retain skilled workers, which had detrimental effects on labour productivity.





Table 5: Export orientation and buyers’ profiles

USA EU Japan**

Change*

Share

(%),2007

Change

Share

(%),2007

Change

Share

(%),2007

Buyer Profile

A ＋＋ 60 ＋＋ 35 －－ 5 Mostly Korean trading companies.

B ＋＋ 40 ＋ 40 －－ 20For the USA and EU: Trading companiesfrom Hong Kong, Taiwan and Korea. For

Japan: Japanese trading companies.

C ＋＋ 55 No

change20 －－ 7

For the USA and EU: Trading companiesfrom Hong Kong, Taiwan and Korea. For


D ＋＋ 50 － 20Almost

nochange

30(Japan,Canada,Taiwan)

90% of the buyers are trading companiesfrom Korea and Hong Kong. However,there are also some direct relationshipswith American and European whole-

salers, trading firms, and retailers.

E ＋＋ 40 － 20Almost

nochange

40For the USA and EU: Trading companiesfrom Hong Kong, Taiwan and Korea. For


F ＋ 30 Almostnochange

20 － 30 For the USA and EU: Trading companiesfrom Hong Kong and Korea. For Japan:Japanese trading companies.

G ＋＋ 60 － 20 －－ 10

Most are trading companies from HongKong, Korea, and Taiwan. Orders for oneof the largest US retailers, however, goes

directly through the retailer’s branchoffice in HCMC.

H ＋ 20 ＋ 50 －－ 30For the USA and EU: Trading companiesfrom Hong Kong, Taiwan and Korea. For


I ＋＋ 70 － A few －－ 23～26For the USA: Trading companies

from Hong Kong and Korea.

J ＋＋ 50 － 30 － A fewTrading Companies from Korea and

Hong Kong.

Notes: *＋＋ means that the annual increase since 2001 was more than 10 per cent, and＋ is an

annual increase less than 10 per cent. Likewise, －－ means an average annual decrease of 10

per cent or more, and－ is a decrease less than 10 per cent a year.

** Export share for supplier D includes shares for Canada and Taiwan.Source: Interviews during field work in 2007.





Table 6: Upgrading since 2001

Supplier Process

(productivity)Product Function

AAbout the

same No change

No changes of functions in the export

business. Tried to promote functions in

designing and branding through selling

original garments in the domestic market,

but have so far not been successful.

B ＋ No change

Exports: No significant change in functions.

Domestic: Actively strengthening functions

in design, marketing, and distribution for the

domestic market. Eight new brands will be

created specifically for the domestic market.

C No change No change

No significant changes in functions in the

export business. Some own designed

garment production for the domestic market.

D n.a.

Started

producing

higher value

added products

Refocusing from FOB to CMT, while trying

to upgrade skill contents of its workers

particularly in areas of designing and

planning.

EAbout the

same No change No changes in functions in the export

business, but some for the domestic market.

F ＋ No change

Exports: No change in functions.

Domestic: Actively strengthening functions

in design, marketing, and distribution for the

domestic market. Eight new brands will be

created specifically for the domestic market.

G No change No change No change in functions.

H ＋＋ No change

No change in the export business, but

actively for the domestic market particularly

in designing, planning and marketing.

I ＋ No change No change in functions in the export

business.

J ＋ No change No change in functions in the export

business.

Note:* ＋＋ means that the annual increase since 2001 was more than 10 per cent, and＋ is an

annual increase less than 10 per cent. Likewise,－－ means an average annual decrease of 10 per cent or more, and－ is a decrease less than 10 per cent a year.

Source: Interviews during field work in 2007.





Wage gaps were also significant among suppliers. Successful suppliers were able

to pay about two million Vietnamese Dong (VND) per month for skilled workers,

whereas unsuccessful ones were only paying about half that.18

Productivity increase

through process upgrading and retaining workers had cumulative and causal relation-

ships that were transmitted through wage levels – higher productivity suppliers wereable to attract more orders from buyers, so could offer higher wages and thus attract

better workers, while in the opposite case a vicious circle was set in motion.

Most of the suppliers interviewed did not experience significant upgrading in

either product or functions during 2001 and 2007, with the only exception of D which

switched from low value-added production to east European countries (even though

under FOB) to more value-added (even though CMT) orders to the USA and EU, and

Japan. Most of the suppliers were also primarily producing under CMT, or under an

FOB arrangement where functions were fundamentally the same as under CMT (see

Goto 2003, 2007 for more details).

Six suppliers from the ten firms interviewed in 2007 reported that they would put

more emphasis on developing products for the domestic market, whereas in 2001 they

had completely neglected the domestic market on the grounds that it was ‘too small’.

All six suppliers already had, or were in the process of creating, own designed and

branded garments specifically for the domestic garment market. This is, in a sense,

product and functional upgrading, even though not for an international market.

Institutions to support the efficient functioning of the Vietnamese domestic garment

market are still relatively underdeveloped, especially in areas such as domestic dis-

tribution systems, trade credit arrangements and the protection of intellectual property

rights (Goto 2005; McMillan and Woodruff 1999). Major cities such as Hanoi and Ho

Chi Minh City, however, have been booming with new brand apparel shops. The

smaller private Vietnamese enterprises that have successfully made the transformation

from garment suppliers to ‘apparel firms’ performing more knowledge intensive

functions, coordinate their production and distribution (Goto 2006). Concerning

designing, there are plans to establish a fashion centre in Ho Chi Minh City by 2012

with a view to enhancing the capacity of Vietnamese designers who might contribute

towards improving Vietnamese competitiveness in the global market (Barrett 2007).

The estimate of total consumption of textile and apparel products in the domestic

market in 2006 was US$ 1.8 billion, compared with exports then of about US$ 6 billion. The domestic market was expected to grow both in terms of per capita

purchasing power and population growth.19

Vinatex, the national garment and textile

group, has established an extensive domestic distribution system of supermarkets and

fashion shops.20

It had become more important by early 2009 when the world

recession caused export growth to slow and when major Vietnamese firms were

trying to maintain growth by expanding in the domestic market.

Conclusions and prospects

The Vietnamese garment industry has recorded remarkable growth since the early1990s. We have documented how it has proved itself able to withstand competition





from China since the end of the MFA in 2004 and increase its shares in its three major

markets. Vietnam has benefited from global buyers seeing it as the ‘plus one’ in

China plus one sourcing policies designed to reduce risk from overreliance on

Chinese supplies.

Since the end of the MFA in 2004, Vietnam has enormously expanded its salesto the USA. Its garment sales to Japan, its second largest country market, have

increased significantly too. In this article, we have contrasted the market

requirements of the USA with those of Japan and shown how Japanese buyers help

firms upgrade their production process in particular and their product quality in

general.

We organized the article around a central case study of ten major Vietnamese

garment-exporting companies, mostly in, or formerly in, the state sector. Such com-

panies are more easily able to connect with global buyers and traders than firms in

the private sector that lack state contacts. We distinguished between companies in

the sample that succeeded in raising their productivity and coped with Vietnam’s

recently growing labour shortages, and those that upgraded less successfully. We

are less certain that some Vietnamese firms’ moves away from CMT (export

processing) garment production towards the ‘fuller package’ FOB modality are

truly examples of functional upgrading, for buyers are often quite directive about

the companies’ materials sourcing.

An analysis of trade data, using unit value (UV) statistics at the HS 4-digit level,

confirms that there are indeed differences in product quality between US and Japan-

ese markets. These show the USA importing major product categories with lower

UVs than Japan, while European Union UVs are somewhere between the two. It is

more difficult, however, to generalize about the EU-27 because of the highly

heterogeneous nature of its individual member country markets. Increasing sales to

the USA offer a chance to gain large sales revenue and ‘volume based upgrading’

through longer periods for learning by doing and larger outputs, but sales to indi-

vidual large US buyers may be less secure than those to Japan (and EU countries).

Those to Japan, while more demanding in terms of product quality, offer firms more

opportunity to raise their productivity by upgrading their processes and learning

how to produce higher quality products.

Vietnam has been suffering from problems of success as its expansion of labour-intensive export production has generated labour shortages in its major

producing cities. Similar problems have affected China too, especially in its main

production bases, like the Pearl River Delta near Hong Kong, where firms have

been attempting to counter by shifting production towards the central coastal

regions in the hinterland of Shanghai. There are some indications that the weaker

garment producers in Vietnam may be quitting the industry prematurely because,

rather than upgrading, they are succumbing to the lure of urban property

development, though China also is likely to shift out of the lower value-added

segments of the garment industry. In 2009–10, a world recession was reducingworld demand for garments, although we cannot yet identify the longer-term

effects on producers.





Acknowledgements

We constructed this article from Goto’s earlier study, for which he undertook fieldwork in

Vietnam between 2001 and 2007 – ‘Enterprise strategies of Vietnamese garment manufacturing

companies in the post MFA era’ (‘Posuto MFA ni okeru Betonamu Housei Kigyo no Keiei

Senryaku’), in Shozo Sakata (ed.) The changing Vietnamese economy and its economic entities ( Henyo Suru Betonamu Keizai to Keizai Shutai), Research Report (Chosa Kenkyu Houkoku

Sho) 2007-IV-12, Institute for Developing Economies, Chiba, Japan. Natsuda and Thoburn,

using fieldwork material collected in Vietnam, Hong Kong and China in 2008, then developed

the study further. We are grateful to Ritsumeikan Asia Pacific University and the Japan Society

for the Promotion of Science for research finance. We also thank two anonymous referees for

very thorough comments.

Appendix

Analysis of Vietnam’s comparative trade performance in major markets, 2004 and 2009 isavailable on request to the corresponding author.

Notes

01. Strictly speaking, the MFA ended when the ATC replaced it in 1994. The ATC, in turn,

ended on 31 December 2004. However, everyone in the industry continues to refer to the

MFA, and so do we.

02. In the Chinese statistics, footwear is included in the garment figures. Data are from

www.stats.gov.cn/tjsj/ndsj/2009/.

03. We make this point because some Vietnamese statistical sources group textiles and gar-

ments together as a single industry.

04. The greater importance of SOEs in textile production in China and Vietnam in the recent

past reflects the high capital costs, particularly in spinning, which impeded private local

entry.

05. See www.stats.gov.cn/tjsj/ndsj/2009/. Note that some 15 per cent of total garment output is

not listed as coming under ‘private’, ‘state’ or ‘foreign’ ownership, and probably is

produced by collectives.

06. From http://comtrade.un.org/db, hereinafter ‘Comtrade’.

07. Dollar import data from Comtrade, yen import data from Japan Customs Online

(www.customs.go.jp). However, the Japan ‘clothing’ category (Japan code 80701) seems to

exclude virtually all knits (HS 61), albeit less important than wovens (HS 62). We indicate

both yen and dollars in the text because of large exchange rate changes between the two

currencies.

08. We are grateful to a referee for this point. Thomsen (2007: 765) notes that Vietnam’s gar-

ment exports to Korea in the early 2000s were often re-exported.

09. See www.just-style.com/article.aspx?id=101830 (accessed 28 March 2011).

10. We have been unable to go back to the buyers to ‘triangulate’ this among the buyers

concerned.

11. Market characteristics in the EU are different for each of the countries within the EU as

well (Palpacuer et al. 2005), but, based on interviews with Vietnamese suppliers, we treat

them as homogeneous – to provide a contrast with the Japanese and US markets.12. Figures from http://epp.eurostat.ec.europa.eu/, hereinafter ‘Eurostat’. Comtrade gives

export data for Vietnam up to 2008, and import data for its main markets up to 2009.





13. Vietnam up to 2008, and import data for its main markets up to 2009.

14. In one case, Vietnam’s unit values rose when China’s fell (HS6105)

15. FOB types of contractual arrangements are more common for exports to the USA and EU,

compared with exports to Japan

16. ‘Garment maker tries real estate on for size’, Vietnam News, 3 March 2008 (http://

vietnamnews.vnagency.com.vn/showarticle.php?num=04BUS030308 (accessed 29 July

2008).

17. All firms, apart from I, were mainly producing woven fabric garments, particularly men’s

shirts. The benchmark for comparison has been the number of long-sleeved, regular collar,

one-pocket shirts per worker. The numbers ranged between 7 and 24, whereas the Japanese

standard is usually somewhere between 28 and 32.

18. In August 2007, US$ 1 was roughly 16,000 VND.

19. See http://www.phongphucorp.com/webplus/viewer.asp?pgid=4&aid=163 (accessed 23

April 2009).

20. See http://vietnamnews.vnagency.com.vn/showarticle.php?num=01BUS140409 (dated 14

April 2009, accessed 23 April 2009).

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Documents

Vietnamese Garments Industry