Textile, apparel and footwear exports from Vietnam are experiencing rapid growth

Textile, apparel and footwear exports from Vietnam are experiencing rapid growth

Trade and political tensions between China and the US have moved many companies to consider sourcing in other areas in Southeast Asia, and especially Vietnam. While challenges abound, it is possible to build good relationships with factories, as Alexander Twibill, director of marketing for HQTS Group, explains.

One of the fastest-growing export economies in Southeast Asia, Vietnam has an economically robust, politically stable, and rapidly growing manufacturing sector – and has been on the sourcing radar for more than 20 years.

With a long coastline boasting 14 major ports, there are ample logistics areas central to Vietnamese exports, as well as for products coming out of Laos and Cambodia. Even so, development is primarily centred around Hanoi and Ho Chi Minh City with lesser development in the central region capital of Hue and the port of Da Nang.

Its proximity to China has encouraged many Chinese factories (including Taiwan) to develop manufacturing in the country. For nearly 20 years, these companies have been capitalising on the advantages of a younger and lower-wage workforce – roughly 50% lower labour costs compared to China.

Preferential trade policies also contribute to growing trade. As a member of ASEAN (the Association of Southeast Asian Nations), Vietnam benefits from economic investments that facilitate trade and shipping. As a member of the World Trade Organization (WTO) since 2007, it is bound by trade dispute regulations, thereby adding a level of confidence and stability. Vietnam has created vital economic links through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), bilateral negotiations with the US, and the EVFTA, which has been described as the most ambitious free trade deal ever with the European Union.

The pace of transitioning production to Vietnam has sped up this year due to the US-China trade war and is a significant factor in moving buyers to explore Vietnam as a potential country for sourcing products. Trade and political tensions between China and the US, underscored by a substantial increase in tariffs on Chinese goods, have moved many companies to consider other areas in Southeast Asia, and especially Vietnam.

Top 6 importers of Vietnam goods

What products can I find?

Vietnam is a top exporter in the ASEAN region for many industries and is working to become a global manufacturing powerhouse.

Vietnam's top 10 exports accounted for about three-quarters of the overall value of its global shipments. Electrical machinery and equipment are among the fastest-growing product categories – with textile, apparel and footwear exports also experiencing rapid growth.

Vietnam's top 10 exports

Product categoryRevenue in US$bn% of total exports
Equipment$117.20bn40.4%
Footwear$22.70bn7.8%
Machinery & computers$15.90bn5.5%
Apparel & acccessories$15.90bn5.5%
Knit clothing & accessories$14.80bn5.1%
Furniture, bedding, lighting, signs, prefab buildings$9.80bn3.4%
Optical, technical, medical devices$6.20bn2.2%
Seafood$5.60bn1.9%
Coffee, tea, spices$4.40bn1.5%
Leather & animal products$4.20bn1.5%

How to find suppliers

Resources abound for finding suppliers in Vietnam, including many trusted third-party lists. Some of the more well-known and respected trade directories include:

Trade directoriesIndustry networks
www.alibaba.com/vnVietnam Textile and Apparel Association - www.vietnamtextile.org.vn
www.vietaz.comVietnam Footwear Leather and Handbag Association - www.lefaso.org.vn
en.vietnamexport.comAssociation of Seafood Exporters - www.seafood.vasep.com.vn
www.vietnamesemade.comVietnam Steel Association - www.vsa.com.vn
www.globalsources.comVietnam Electronics - www.veia.org.vn

Researching social networking groups on Facebook and LinkedIn, trade journals, and trade shows is another good option for finding suppliers.

Other trusted resources include the Vietnamese Chamber of Commerce and Industry and AmCham Vietnam.

AmCham is the American Chamber of Commerce in Vietnam and operates in Hanoi and Ho Chi Minh City. It maintains a database of American manufacturers and businesses in Vietnam. Americans and those who represent American companies can access Vietnamese suppliers through their database found here.

The challenges

The challenges of sourcing in Vietnam are typical to those faced in any developing country. Companies who have spent time sourcing product in China will be very familiar with managing the issues of sourcing in Vietnam.

Inexperienced suppliers
Many of Vietnam's suppliers are at the very early stages of development in production processes, management techniques, regulatory certification and compliance, and quality systems and management. Since many suppliers also tend to be small to mid-sized companies, resources are often unavailable for upping their game.

Lacking experience in the international market has also created language barriers. Most suppliers' staff are limited in English-speaking abilities, resulting in an overdependence on translators.

Ethics
Like many developing countries, ethics continues to be a problem in Vietnam – from outright fraud and bribery to corruption and a lack of transparency. These are thorny issues that often require a solid understanding of local business practices to overcome.

Labour issues
Worker loyalty is often low, with workers moving between factories in search of better money or working conditions. They are usually unwilling to discuss their job dissatisfaction with outsiders, preferring to leave or even engage in strike action. This creates problems with transparency when performing supplier audits and evaluations.

Supply chain
Many traders work from home offices, and many factories are small, lacking the supply chain resources and capabilities of more developed countries such as China.

Unavailability of advanced machinery and technical staff to operate more complicated systems also impedes growth and contributes to a failure to meet global standards of quality. Inability to meet production timelines often leads to over-reliance on subcontracting, which further degrades quality and transparency in production.

The lack of a robust source of local resources requires factories to source a high percentage of materials and components from other countries – especially China – which results in a more complex supply chain leading to longer lead times, supply uncertainty and quality degradation.

Overcoming the challenges

Approaching the market with eyes wide open is the first step to successful sourcing in Vietnam. Preparation, research, understanding the issues, and planning are the keys to establishing quality long-term suppliers. Many opt to work with a local third-party providers for sourcing and quality control. This can be an excellent way to save money and ensure local support of your interests. Some companies specialise in one or the other, while others provide both. Before selecting a partner, do careful research. The level of local experience and technical ability varies significantly among providers.

Some tips:

  • Find a company that has experience in your supply chain requirements.
  • Be sure the provider is accredited and certified for the services offered.
  • Find a provider with substantial insight and long experience in the local business environment.

What you need

The trend is moving towards working with providers that can assist in locating and assessing suppliers and providing full-service supply chain and quality control services. A full-service provider can help to ensure you get the products you expect, on time, and that meet your quality expectations.

Some of the more critical services should include:

  • Sourcing and supply chain support, translation services, factory visits, and project management.
  • Production monitoring to ensure quality systems are in place and followed.
  • Evaluating and recommending suppliers based on your product requirements.
  • Compliance audits to ensure compliance with regulatory, social and product.
  • The full range of quality control services including inspections and testing.

A provider can save you money and time, as well as ensure the protection of your brand.

Summary

Companies looking to expand their sourcing footprint into a stable and hungry manufacturing environment should consider Vietnam as a vital supply opportunity to explore. While challenges abound, it is possible to build good relationships with factories that meet your requirements.

Partnering with a third-party provider can help you save time and money, as well as ensure the quality of your products. If you are new to Vietnam, this is especially important, because the opportunities outweigh the challenges only if you are adequately prepared to meet them head-on.

About the author: Alexander Twibill is director of marketing for HQTS Group Ltd, one of Asia's oldest and largest quality control and supply chain providers. With more than 1500 employees in 20 countries,the company provides a full range of services to meet quality control and supply chain needs, and has long experience in the Vietnam manufacturing sector supported by local professional and technical staff.