Pacific Crystal Textiles is setting up a new complex near Hanoi, that will employ 30,000 workers

Pacific Crystal Textiles is setting up a new complex near Hanoi, that will employ 30,000 workers

A long-standing investment between two Hong Kong based companies - Crystal Group and Pacific Textiles Holdings - to set up a new fabric mill in Vietnam is nearing completion. Add in Crystal Group's new garment manufacturing facilities, and the site is expected to be the largest vertical textile and garment operation in the country.

The so-called Pacific Crystal Textiles joint venture boasts an investment capital in excess of $500m over eight to ten years and is due to begin production at the end of this year or early 2015, Crystal Group CEO Andrew Lo has confirmed to just-style.

The new complex in Lai Vu Industrial Zone in Hai Duong province near Hanoi, will employ around 30,000 local workers and carry out everything from knitting to dyeing, cutting, sewing and finishing products, as well as bringing in suppliers of buttons and threads onto the 500 acre site.

As the majority investor, Pacific Textiles is already a leader in the production of circular knitted fabrics for end-uses such as clothing, sportswear, swimwear and innerwear, with customers including Calvin Klein, Maidenform, Triumph, VF Intimates and Victoria's Secret. The company will produce knitted fabric at the new site for the domestic and international textile and garment industry, with a planned output of 360m metres a year.

For Crystal Group, which has a 25% stake in the venture, the new facility is near to its existing Regent Garment Factory, which opened in 2006. It is building two new factories on the site to increase its production capacity for garments like T-shirts and polo shirts, adding to a global production network that shipped 300m garments in 2013 - a hike of 30% year-on-year.

"The project should be operational at either the end of this year or early next," Lo says, adding that building a strong local supply chain is key to supporting the company's future growth and flexibility.

"The more chunks of the supply chain you can put in-house, the more competitive you can be," he explains. Increasingly working to a 4-6 week production schedule, he points out that time lost in bringing in fabrics and other components leads to higher costs and longer lead-times.

The group has already put value-added processes like printing, embroidery and washing into many of its facilities to enhance their efficiency and competitiveness, and the Pacific Crystal Textiles venture marks the next logical step in this process.

Lo is keen to stress that the investment in Vietnam is due to the country's existing and medium-term potential rather than the expected benefits of the proposed Trans-Pacific Partnership (TPP) trade treaty with countries including Canada, the US and Japan - although he concedes Vietnam's potential to have duty-free to the US is of great interest to many customers.

While not the cheapest, "Vietnam for us is cheaper than China; it is closer to our supply chain and it is also close to Japan and relatively close to the US west coast so, logistically, speed and flexibility is quite good. It also has the capability to do the medium to better end of the market."

With customers including Marks & Spencer, Levi Strauss and Gap Inc, Crystal Group ships 33% of its products to the EU/UK, 39% to the US, and 28% to Japan.

Not surprisingly, duty preferences are a key consideration in the company's sourcing and investment decisions. Indeed, Lo estimates 60% of the company's production for Japan is duty-free, and more than half for Europe, adding that this will be "even more important going forward, especially for the mass production of core items."

Vietnam already ships duty-free to Japan, both as a member of the Association of Southeast Asian Nations (ASEAN) and an Economic Partnership Agreement (EPA) between the two countries. But when it comes to the TPP, "the issue is whether [Vietnam] will get it, and if they get it, when."

Instead of building its business based on this "what if", Lo says: "Our stance is to put in a lot of planning to prepare for these trade deals, but we won't invest until they happen. As the TPP is probably a few years away, right now all our plans are for what if it does not come. The only thing we are investing in for TPP is extra land where we can expand our capacity - but land cost as a percentage of the total cost is very small."

Another issue that has raised its head since the joint venture was given the go-ahead by the Vietnamese authorities back in 2011 has been the recent anti-China protests in Vietnam, which forced many foreign-owned garment and footwear plants to temporarily halt production.

Lo says he is confident that China and Vietnam "will resolve their differences."

Likewise, while Pacific Textiles says the recent China-Vietnam tensions "have posed concerns on our future strategies and expansion plan," it has also pledged to "further exploit various investment opportunities in lower cost production bases like Vietnam or other South-East Asian countries."

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