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Solid prospects

Released at: 09:02, 10/08/2015

Solid prospects

VET spoke with Mr. Diep Thanh Kiet, Vice Chairman of the Vietnam Leather, Footwear and Handbag Association and General Director of the Thai Binh Group about the current state of the industry.

How would you evaluate the production capacity at enterprises in the leather, footwear and handbag industry?

The leather, footwear and handbag industry is a leading export industry in Vietnam. In the first half of this year export turnover is expected to have increased 18 per cent over the same period last year, to reach $7.35 billion, or 9.5 per cent of country’s total export turnover. The footwear sector is expected to record $5.9 billion, an increase of 16 per cent, and handbags $1.45 billion, an increase of 27 per cent.

Vietnam is among the Top 3 footwear exporters in the world, with over 800 enterprises producing and exporting to more than 50 countries worldwide.

In large footwear markets such as the US, the EU, and Japan, Vietnamese footwear continues to increase its market share and is in second or third place. Vietnam is the biggest footwear exporter to Brazil, which also has huge potential in producing and exporting footwear products. 

However, there are three concerns for the development of the sector at the moment. Firstly, the export turnover of domestic enterprises is relatively low, accounting for 30 per cent of the total, with the majority of exports coming from foreign-invested enterprises (FIEs). Secondly, more than 60 per cent of local enterprises only perform assembly, which means that less than 40 per cent of local enterprises are active in terms of seeking raw material resources. Thirdly, the localization rate in export turnover is increasing but is lower than the growth rate, so will continue to decline in the coming years if we don’t take appropriate action.

 Vietnam has signed free trade agreements (FTAs) and is negotiating to join the Trans-Pacific Partnership (TPP). What opportunities and challenges face the industry as these agreements take effect?

Vietnam has already signed ten FTAs worldwide and is negotiating another six. Many have significantly influenced daily production and the export of footwear and handbags from Vietnam, such as the FTA with the EU, which accounts for 35 per cent of export turnover, while countries negotiating the TPP, such as the US, Canada and Mexico, account for 35 per cent of export turnover. The FTA with Japan accounts for 5 per cent, and the FTA with the Eurasian Economic Union (EAEU) has seen traditional markets for enterprises return. The FTA with ASEAN+6 and the FTA being negotiated with ASEAN+16 will not open up new major export markets but are extremely important for local businesses as these countries are all very strong in producing and exporting footwear.

There are three huge opportunities. Firstly, via these FTAs, industries have opportunities to enter new markets. Secondly, they can attract more investment and acquire technologies, marketing tools, and management practices to increase capacity and competitive advantage. Thirdly, Vietnam has a golden population structure, which is a huge opportunity for the country and for its footwear and handbags industry. 

And there are four main challenges. Firstly, the challenge of deeply integrating in the global value chain requires local enterprises improve their corporate management, increase workplace productivity, and actively find raw material resources. They must also have a Certificate of Origin (COO) to access tax incentives in the FTAs, especially given that the localization rate is relatively low. Production costs will increase, especially labor costs. The domestic market will open up to imported goods from our FTA partners, which will be a challenge for many enterprises, especially those of small scale. 

 What solutions were presented at the Leather and Footwear Export Promotion Conference, held in mid-July, to handle these problems?

The conference discussed a range of solutions, focusing on increasing the competitive capacity of enterprises, especially corporate management and increasing labor productivity and product development; policies on investment and developing support industries; increasing the quality of human resources, especially how to find good personnel for the industry; enhancing the application of high technology in producing footwear and handbags; broadening markets in countries that Vietnam has signed an FTA with; and increasing the domestic market. 
With the solutions discussed I expect that the footwear and handbag industry will see strong and sustainable development in the years to come. 

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