Introduction

• Vietnam is a Southeast Asian country, with more than 96 million inhabitants (July 2017), being world’s 14th most populous country. Bordering the Gulf of Tonkin, Gulf of Thailand, and the South China Sea, as well as China, Laos, and Cambodia, Vietnam lies in a lucrative geographical location from trade perspectives.

• Country’s 61.79% of the population belongs to the age group of 15-54 years, making the median age of the country 30.5 years. Also, with 34.9% urbanization, 94.5% literacy (age 15 and over can read and write), and a stable political system, Vietnam is has become an attractive investment destination.

Apparel Manufacturing Industry in Vietnam

Vietnam is an emerging giant in the global textile and

apparel industry. Vietnam’s garment sector has seen

speedy and sustainable development over the last few

years which have played a crucial role in the country’s

socio-economic development.

• There are around 6000 textile and garment manufacturing firms operating in Vietnam, 84% of which are privately owned, 15% FDI, and remaining 1% are state-owned. This industry employs around 2.5 million people in the country on an average wage of $239 per month. Garment manufacturing accounts for 70% of the total businesses in this sector in Vietnam with CMT (Cut, Make, Trim) being the main method (85%) of export. The apparel exports account for 11.5% ($24.61 Bn) of the country’s total exports (2016).

Labor Laws in Vietnam

• Vietnam passed its new labor code in 2012 with the aim of improving the labor market and industrial relations in the country. It includes many developments related to labor contracts, working hours, labor outsourcing laws, internal labor rule, working conditions and foreign employees.

• As per Vietnam’s labor laws, normal working hours should not exceed 10 hours in one day and 48 hours in one week. Employees are not allowed to work more than 50% of the official working hours in a day, 30 hours in a month, or 200 hours in a year, as overtime.

• Foreign investors are allowed to recruit only foreign citizens to work in Vietnam, through prior approval in writing from the competent state authority. The trade union law in Vietnam also assures the employee the right to freedom of association.

• Vietnam held the 4th position in the top garment exporters in 2016, globally. The top three apparel exporters were China, the EU, and Bangladesh, who all together accounted for 69.1% of world garment exports. Vietnam’s export value has increased by 5% from its 2015 status.

World Ranking Among the Top Garment Exporting Countries

Challenges faced by the Vietnam Garment Industry

• Vietnam enjoys global attention in apparel sector due to its low labor and rent costs and favorable policies like the Vietnam's Foreign Investment Law, but the industry faces many challenges.

• Most of the manufacturers in Vietnam do not own their brands, they produce for foreign brands as outsourcing partners, which makes it vulnerable to global fluctuations.

• Most of garment manufacturing factories in Vietnam are OEM/ODM enterprises catering to foreign brands. Since big brands give priority to already established manufacturers, this industry is tough to for new entrants, especially for the small-scale enterprises.

• Moreover, Vietnam’s garment industry is highly dependent on imports for its Machinery equipment, raw materials, and accessories, which not only decreases its profit margins but also keeps it in harms reach against foreign cost fluctuations.

Vietnamese Apparel Industry’s Growth Prospects

• Vietnamese apparel industry is attracting a lot of global attention lately. It is partly due to the various free trade agreements it has signed and partly due to the lower cost advantage it can offer to the buyers. Since the labor cost advantages with China and India are diminishing, Vietnam is gaining the business they are losing.

• To overcome the high cost of raw material (as 90% of it is imported), the government has already started investing heavily in the development of support industries in Vietnam.

• In the 2006-15 period, Vietnam was the second biggest investor in the development of shuttleless looms and the biggest investor in ring spindles and open-end rotors, amongst the ASEAN countries. The country has also shown a marked expansion in its knitting sector.

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