Vietnam’s leather and footwear sector is set to benefit from the implementation of the country’s free trade agreement with the EU this year – but could boost exports and grow its market share even further if it focuses on driving lean efficiency and digital connectivity, one industry association has said.
Exports of Vietnam’s footwear and bags increased to US$18.1bn last year from $16.2bn in 2016, according to the Vietnam Leather, Footwear, and Handbag Association (LEFASO). The footwear sector operates around 939 enterprises and is the third largest producer and second largest exporter to the world. Its main markets are the US (accounting for 35.9%), followed by the EU (30.6%), China (6.4%), Japan (6.3%), and South Korea (2.8%).
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Having free trade agreements with most major markets like Japan, South Korea, ASEAN, and the Customs Union of Russia, Diep Thanh Kiet, Lefaso’s deputy chairman believes there are opportunities for the industry to continue developing.
“We have a golden demographic ratio with 66.9% of the population being of working age, providing an abundant supply of cheap and skilled workers,” he said at a recent two-day Vietnam Footwear Summit in Ho Chi Minh City. “Vietnam can supply materials for the footwear industry and become a destination for large producers. The country has succeeded in producing and exporting high-value products. This is a big opportunity for the industry. If we continue to promote the export of high-value products, the industry will develop strongly.”
The Vietnam-European Union (EU) free trade agreement is expected to be signed off this year, offering Vietnam’s footwear products a big competitive advantage over China, Lefaso feels. It is also a part of the Comprehensive and Progressive Pacific Partnership (CPTPP), which Vietnam is widely expected to yield comprehensive gains from.
Kiet did, however, note a number of challenges Vietnam’s footwear sector faces, such as increasing labour costs, automation, protectionism and competition from other countries. Between 2010 to 2017, the country’s minimum wage has increased 3.02 times, while GDP per capita only increased by 2.04 times.
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By GlobalDataBut in the long term, Kiet believes the industry needs to adjust its strategy in order not to lose orders to Cambodia, Myanmar, Bangladesh, and Ethiopia. This will mean the application of automation and Industry 4.0 technologies in order to help raise productivity, Kiet says. While delegates suggested the proper use of automation could eliminate redundant workers and make factories much more efficient and profitable.
The industry’s development plans are targeting more sustainable development, a restructuring of production to add value to products, an improvement in designs and a focus on medium- and high-quality products for the domestic and export markets.
