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Big steps

Released at: 08:05, 24/09/2017

Big steps

Photo: Viet Tuan

FTAs present a host of opportunities for Vietnamese shoemakers to up their game and compete with their foreign counterparts.

by Khanh Chi & Nguyen Quynh

Following great expectations, Vietnamese parents can now buy children’s shoes produced by a Vietnamese shoemaker that bear images of Disney cartoon characters. The Biti’s collection of shoes for girls, stemming from a cooperative arrangement with Disney, is now officially available online at its website and e-commerce sites. The company is selling the products on e-commerce platforms initially and will then launch them in its network of nearly 100 outlets and more than 1,500 agents nationwide. The partnership with Disney represents a new strategic turning point for Biti’s, to bolster local consumer confidence in Vietnamese products amid a “storm” of foreign imports. 

Pushing the Vietnam brand

The deal is also a pioneering step for Biti’s when it comes to professional production and issues relating to international copyright protection. In terms of operating scale, the shoemaker is just an average brand in Vietnam’s footwear industry, with around 7,000 employees and producing some 20 million pairs annually. But Biti’s and other major manufacturers such as TBS Group and the Dong Hung Footwear Co., are trying very hard to successfully build Made-in Vietnam shoe brands.  

The latest report from the Vietnam Leather, Footwear and Handbag Association (Lefaso) for the first half of 2017 revealed that exports by Vietnamese enterprises have been positive compared to the same period last year, increasing 11 per cent. The export turnover of foreign-invested enterprises (FIEs), however, has also continued to rise, as has their market share, from 75 per cent in 2013 to 78 per cent in 2015 and now 81.5 per cent. These FIEs have continued to expand their existing plants’ capacities and built new factories in Vietnam in order to seize the opportunities from tax reductions in free trade agreements (FTAs). 

In that context, the TBS Group has been viewed as the potential Vietnamese shoemaker that is comparable to FIEs in terms of scale. Founded in 1992, in its 25 years TBS has become one of the largest manufacturing companies in Vietnam, as a significant processing partner for leading brands such as Skechers, Decathlon, and Wolverine in the shoe industry and Coach, Lancaster, and Tory Burch in the bag industry.

Not simply processing shoes and bags for international brands like most other Vietnamese companies or trying to expand its retail network nationwide for its own products, as Biti’s has done, TBS is now focusing on the Original Design Manufacturing (ODM) model, in which the company does design work and develops products for master brands. It now has four research and development (R&D) centers nationwide. “TBS aims to grow sustainably and be part of the domestic added value chain and then penetrate further into the global value chain,” said Mr. Nguyen Duc Thuan, Chairman of the TBS Group.

The group recorded revenue of $300 million from footwear last year, producing 28 million pairs, up 19 per cent against 2015. Revenue from bags was $170 million, from more than 13 million different types, up 13 per cent. Shoes and bags account for around 80 per cent of the group’s total revenue. Despite its large scale, however, TBS is yet to have an individual brand of its own. 

Shoes export turnover

Source: LEFASO, June 2017

Suitcase - bag export turnover

Source: LEFASO, June 2017

Pressure from China

Though local manufacturers have attempted to make successful Vietnamese shoe brands, consumers still favor foreign brands. According to Lefaso, imported footwear accounts for 60 per cent of all sales and most come from China. 

Pressure from Chinese investors has appeared at a time when leather businesses are struggling to expand production, capital, and market access. Figures show an increasing contribution by FIEs, demonstrating that processing is not an optimal solution for Vietnam’s leather and footwear industry. 

Many factories in Vietnam are performing outsourcing work for famous manufacturers like Nike, Skechers, Timberland, Adidas, Puma, Asics, and Reebok. But most contracts head to Chinese, South Korean and Taiwanese enterprises such as Pou Chen, Feng Tay, and Taekwang Vina. Vietnam only has TBG and Dong Hung making a mark. Issues in technological barriers, raw materials, production capacity, and design have put major pressure on local leather and footwear businesses. 

To stand out from the two leading Vietnamese footwear manufacturers - TBS and Biti’s - and given the increasing difficulties in the country’s production and processing industry, some domestic enterprises have chosen another means of doing business in order to diversify their portfolios. The Viet Tien Garment Joint Stock Corporation (Viettien) has recently signed a franchise agreement to distribute Skechers, a famous US shoe brand, in Vietnam, with sales getting underway early last month. According to Viettien, the deal is the first step in future cooperation with international brands, which are expected to contribute a larger proportion of total annual sales.

Meanwhile, the well-known Converse brand has been in the local market since 2003, provided by the Nghi Hung Trading Services Company, its exclusive sales distributor in Southeast Asia. Nghi Hung has also faced its share of challenges in the local market, however. Its business results in Vietnam last year saw growth of 10 per cent; less than the expected 15 per cent. According to Ms. Huynh Thanh Loan, Marketing Manager at Nghi Hung, costs are higher due to rising rentals for good shop locations. “Vietnam consumption power in fashion is 3.5-times lower than in the world, so there is potential but also challenges given that most local people aren’t ready to spend too much on fashion,” she said. 
Bright future 
Though remaining limited in production capacity, local manufacturers have many opportunities in front of them thanks to Vietnam’s FTAs. Prospects will be particularly bright for Vietnam’s footwear exports after the EU-Vietnam FTA comes into force next year. Mr. Diep Thanh Kiet, Deputy Chairman of Lefaso, said that a 0 per cent tariff will be applied on around 50 types of Vietnamese-made shoes exported to Europe. In this new landscape, footwear export turnover to the bloc is predicted to grow substantially in 2019. 

The EU has also offered unilateral preferential treatment to a large number of goods originating from Vietnam under the Generalized System of Preferences (GSP). “This scheme, coupled with tariff reductions brought about by the FTA, will help Vietnamese footwear become more competitive than Chinese products in the EU,” Mr. Kiet said. He also pointed out that the average price for Vietnamese shoes has increased over the last few years, to higher than that of Chinese counterparts. In 2016, Vietnam spent $180 million on importing Italian leather, which indicates that its footwear exporters are climbing up the value chain. This trend is inevitable, as Vietnam is shifting its focus on to value.

At a footwear and leather export promotion conference held in Ho Chi Minh City in July, Mr. Phan Chi Dung, Director of the Light Industry Department at the Ministry of Industry and Trade (MoIT), said the ministry is drafting a master plan for the development of Vietnamese footwear to 2020 and vision to 2025. The country is to produce 2 billion pairs of shoes by 2025, doubling total output in 2016, and record export turnover of $30 billion. “We are therefore encouraging enterprises to build factories to produce leather, other materials, and accessories in Vietnam,” he said. “MoIT is considering proposing to the government the setting up of industrial zones specializing in producing raw materials for Vietnam’s leather and footwear sector.”

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