Vietnam apparel manufacturing is growing. In recent years, Vietnam has emerged as one of the world’s leading textiles exporting countries. In fact, in 2020, textile and garment products were among the country’s major commodities based on their export turnover.
Vietnam’s Apparel Manufacturing
One of the competitive advantages that the Vietnam manufacturing industry has is low labor costs. Due to this competitive advantage, the manufacturing industry has become one of the country’s leading sectors for foreign direct investment.
As a result, Vietnam’s export of apparel products depends on the production of local private-owned subcontractors and foreign-owned companies. At the same time, the growing domestic demand for apparel products is met by local production as well as imports.
Apparel manufacturing in Vietnam is very dependent on imports of raw materials for clothing production such as cotton, yarn, fiber, textiles, and garments. This happens because, in recent years, domestic supply has not been able to meet the demand.
For example, because of decreasing domestic cotton production, Vietnam has become a net importer of cotton, with the U.S. as its largest supplier in the past years.
The country’s dependence on raw materials imports poses significant risks for its apparel manufacturing industry. The situation becomes worse as domestic demand must be met, one way or another.
Responding to these situations, the Vietnamese government has since been prioritizing the domestic raw material supply development so that it can meet the demand.
Impact of the COVID-19 on the Vietnamese Apparel Industry
The impact of the COVID-19 pandemic can be felt across sectors in Vietnam. Among the hardest-hit sectors is the apparel manufacturing sector. In 2020, many producers in the country experienced a raw material shortage.
In addition to that, a few main import markets of garments and textiles faced a crash in demand. This, in turn, lead to order cancellations, which resulted in revenue loss among major Vietnamese textile firms. In 2020, garment and textile exports from Vietnam recorded the first negative growth in 25 years.
However, despite the current situation of the industry in Vietnam, there are promising signs of recovery. In 2020, the country signed two important trade agreements: the Regional Comprehensive Economic Partnership (RCEP) and the European Union – Vietnam Free Trade Agreement (EVFTA).
These agreements are expected to provide more opportunities for the apparel manufacturing sector in the coming years.
Growth Factors of Vietnam Apparel Manufacturing
The advance of technology and increased market access are major growth factors for the Vietnamese garment and textile industry.
The advance of technology leads to increased productivity and better quality, while free trade agreements like the RCEP and EVFTA minimize the impact of growing trade protectionism and provide access to new markets for Vietnamese products.
As mentioned earlier, Vietnam also has a competitive advantage in the form of low labor costs. This is one of the reasons the manufacturing shifts from China to Vietnam. These are the growth factors of the apparel manufacturing sector in Vietnam.Vietnam apparel manufacturing has shown promising signs of recovery. The low labor cost and the opportunities the RCEP and EVTP are expected to bring will lead to higher exports and a more developed supply chain, which in turn increases the competitiveness of Vietnamese apparel products.