Coats Global Services in Vietnam will provide practical solutions to build efficiencies across the supply chain

Coats Global Services in Vietnam will provide practical solutions to build efficiencies across the supply chain

Foreign direct investment is flowing into Vietnam in anticipation of the Trans-Pacific Partnership (TPP) trade deal, which is expected to open up huge opportunities for the country's textile and garment industry.

Japanese conglomerate Itochu Corporation is the latest company looking to boost its business in Vietnam, with investments in new spinning, knitting, dyeing and finishing projects over the next two years - "particularly sporting goods production."

The plans were revealed during a meeting with Vinatex, the state-run Vietnam National Textile and Garment Group, at the beginning of this month.

Earlier in the year Itochu acquired a 3% stake in Vinatex through a subsidiary company, Itochu Textile Prominent (Asia) Ltd, and now expects exports from Vietnam to reach US$400m in 2015. It is also "looking forward to cooperate more strongly with Vinatex to invest some new projects," the group says.

For its part, Itochu has been working to strengthen its production base for textile products in Asia and positions Vietnam as one of its "most important operation bases because the country has attracted a lot of attention as the next major manufacturing locale after China."

It says the reinforced partnership with Vinatex is expected to generate a wide range of synergies, with the group’s strong textile production base supporting its plans to grow sales in Europe, the US and Asia, including Japan and China.

Vinatex, the largest textile company in Vietnam, with 83 subsidiaries and affiliates, and around 120,000 workers, is also expanding its operations from the upstream to midstream processes and the area of garment materials, establishing a value chain within the Vietnamese textile industry.

Trade deals
According to Vietnam’s Foreign Investment Agency, part of the Ministry of Planning and Investment, Vietnam stands to benefit as one of the ten members of the new ASEAN Economic Community (AEC) trade bloc set to launch by the end of this year, opening up a market of over 600m customers.

The country is also on track to sign 10 free trade agreements in 2015 – including one with the European Union (EU), the Eurasian Economic Union (Russia, Belarus and Kazakhstan), and the Republic of Korea.

Then of course there is the multilateral TPP trade pact, led by the US and being negotiated between 12 Pacific Rim countries accounting for 40% of global GDP.

While a timeframe on this potential agreement is still unclear, it has the potential to reshape the industry, as it involves the US – the single largest consumer of apparel globally – and Vietnam, the third largest emerging market apparel supplier after China and Bangladesh.

While the textile Rules of Origin (ROO) requirements are currently under discussion, the TPP’s expected yarn forward rule would require all steps of a garment’s manufacture – including yarn and fabric – to be carried in the TPP region to gain duty-free access to the US.

And it would seem the foundations for the development of the country’s textile industry are being laid with a wave of foreign investment ahead of the TPP and other free trade deals - which between them would give investors duty-free entry to major economies like the United States, Japan, Canada and South Korea.

According to the Foreign Investment Agency total foreign direct investment (FDI) in Vietnam in the first half of the year jumped 9.6% to reach US$6.3bn.

Investors piling in
As well as Itochu’s interest in the country, other investors have been piling into Vietnam.

Far Eastern New Century Corp, one of Tawian's leading textile conglomerates, in June revealed it is planning to invest TWD10bn (US$323m) to set up an integrated production site for yarn, fabrics, dyeing and apparel in Vietnam. The company says the Southeast Asian country will become its third production base after Taiwan and China, citing the TPP as the reason behind the move.

Hong Kong based manufacturing giant Crystal Group also sees Vietnam as its "new star", with expansion projects under way that the company hopes will increase sweater production seven-fold over the next four years, and T-shirt production three-fold.

Crystal Group is also teaming up with Pacific Textiles Holdings to set up a fabric mill in Vietnam – which is expected to be the largest vertical textile and garment operation in the country. The so-called Pacific Crystal Textiles joint venture in Hai Duong province near Hanoi boasts an investment capital in excess of $500m over eight to ten years, 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.

Similarly, South Korean yarn producer Hyosung has increased capacity in Vietnam to meet increasing demand for its Creora elastane, but also to take advantage of the expected benefits of the proposed TPP.

While industrial thread major Coats Plc has built on its 25-year presence in Vietnam to launch its new services business in the country to help brands and manufacturers improve the productivity of their operations.

And after 40 years in Costa Rica, Hanesbrands last year said it would move the production of its men's boxers to Vietnam to take advantage of lower costs and be closer to fabric suppliers in China.

Most recent figures from Vinatex suggest the value of Vietnam's textile and garment exports reached US$12.18bn in the first six months of this year, a rise of 10.3% on the same period a year ago.

The US is the largest customer, accounting for 42% of the total with imports up 11% to $5.18bn, followed by the European Union, whose imports rose 8.2% to $1.45bn. Vietnamese textile and garment exports to Japan and South Korea reached $1.3bn and $948m, respectively, against the January to June period last year.