In recent years, although Vietnam's 's economy has maintained rapid growth, Vietnam's overall capacity acceptance is still relatively limited at this stage. Vietnam has always been a key area for the transfer of international textile and clothing production capacity. However, some companies are unable to even get factories in Vietnam. Vietnam's production lines are full, and some companies shouted: Investing in Vietnam is not a one-time and all. It is understood that many companies are already considering stopping their expansion in Vietnam and even relocating from here.
So, what problems have occurred in textile and clothing companies investing in Vietnam, and what changes will the production capacity layout be displayed in the future?
infrastructure still lags behind
uncertainties increase
In recent years, in order to pursue cheaper production costs, the US sporting goods giant Nike has expanded its production scale in Vietnam. However, according to recent media reports, as the global environment gradually becomes more complicated, the Vietnamese market is now unable to meet Nike's needs. Previously, many overseas companies, including Nike, moved their production lines to Vietnam in order to avoid risks. But as of now, Vietnam's infrastructure is still behind and cannot meet the demand for rapid expansion of production capacity. Nike company relevant person in charge said that the port is blocked and the water and electricity supply is overwhelmed. Many enterprises need to occupy space in advance for import and export of goods, and transportation efficiency has also dropped significantly due to traffic congestion.
What worries companies the most is that the United States recently planned to launch a trade investigation into Vietnam, increasing the possibility of imposing tariffs on Vietnam. This uncertainty has disrupted many companies' plans to transfer production capacity to Vietnam. The person in charge said that in the next three years, most overseas textile manufacturers may not continue to add factories or expand in Vietnam.
For this reason, Nike also intends to give up investing in Vietnam and instead invest in other Southeast Asian countries such as Indonesia or Cambodia . It is reported that the company is expected to invest US$80 million to establish about 120 production lines in Indonesian and Cambodia to reduce its dependence on the Vietnamese market.
It is worth mentioning that from December last year to the end of February this year, Nike's total revenue reached US$9.6 billion, a year-on-year increase of 7%. However, its business revenue in North America only increased by 7% year-on-year, and the Chinese market is still making greater contributions to it. At the same time, Nike's revenue in China rose 24% year-on-year to US$1.588 billion, or approximately RMB 10.6 billion, which is also the first time that Nike's revenue in China exceeded RMB 100 million.
That is to say, during the period when Nike transferred its production line, its performance in the Chinese market is still better. Therefore, Nike even intends to transfer its production capacity back to China and continue to expand its production capacity layout in China, because the Chinese market is too important to Nike.
labor costs have risen too fast
land rents have risen significantly
statistics show that the average monthly salary of Vietnamese workers is at least US$300. With the rise of local workers' salary increase, there are no cheap wages in Vietnam.
A Chinese company inventor of children's clothing told reporters that at present, the company's proportion of production in Vietnam is already very large. If it wants to build a new factory or expand its production line, it will cause certain operating pressure, because Vietnam now has no cheap labor. New entrants are going to move to Vietnam, and the original companies are going to expand their factories. Now both forces are rushing for work, which will only intensify competitive pressure, and the local labor force is in a supply and demand imbalance. Vietnam's investment is currently overheating.
It is understood that the Vietnam Labor Law stipulates that enterprises entering the country must formulate trapezoidal salary, based on the minimum wage level announced by the government, and the salary level of the first level is the minimum wage plus 7%. From the second level, each additional level is increased by 5%, and so on. In the past 10 years, the Vietnamese government has increased the minimum wage by more than 10% every year. When the minimum wage rises, the trapezoidal salary will be raised, "It means that all employees will be paid by 15%, which is a terrible expense." The company's head said that not only that, potential costs are also a big trap.For example, enterprises pay union dues based on 2% of the total wages of workers every year, with the minimum wage increased year by year and trapezoidal salary. The total salary scale continued to expand, and union dues increased accordingly, which did not include local social security costs.
As foreign investors accelerate investment and construction of factories in Vietnam, not only labor costs, but also land and factory rents, etc. in Vietnam are rising rapidly. The head of an outdoor sportswear company that invested in Vietnam two years ago said that the rental prices in first-tier cities in Vietnam are not much different from those in first-tier cities in Chinese, so the company chose a relatively remote industrial park in Vietnam. "When we came in 2017, the factory rent was US$2.2 per square meter, and now the rent has risen to US$2.8, which is very fast." Even so, most industrial parks are generally in full capacity operation. "Vietnam has begun to show signs of labor shortage." The person in charge said that the focus of many newly established factories is on recruitment when selecting locations. In the past, you could recruit people by posting an advertisement, but with the increase in factories, the difficulty of recruiting workers is also increasing. Companies have to go to remote places to recruit, and the situation of rising wages will continue.
production base is broken down into zero
deceptive tags affect big
Some industry experts have suggested that Vietnam may succeed and fail foreign trade. Although Vietnam's economy has achieved rapid development through an export-oriented model, Vietnam's foreign exchange reserves are only US$70 billion, and Vietnam's debt to GDP has reached 63% in 2018, approaching the 65% upper limit stipulated by the country's laws. Vietnam's high debt problem has become the biggest obstacle to the sustainable development of its own economy, and its economic resistance is weak.
In order to avoid risks, eggs are not placed in the same basket, some textile and clothing companies have begun to suspend their factory expansion plans in Vietnam, turning production into wholes, and shifting to other Southeast Asian countries. They hope to establish multiple production bases to respond more flexibly to the changing international trade situation.
For example, Ruhong, a well-known yoga clothing company Lulu Lemon, currently has 50% of its production capacity in Vietnam, and its business structure is not flexible enough. In order to cope with the continuous changes in global political and economic trends, they are actively spreading risks and are considering investing in building factories in India or Mexico .
Adidas and Puma's footwear OEM company Baocheng has also increased its investment in Indonesian factories. In 2018, Baocheng produced a total of 326 million pairs of shoes, of which 46% were produced in Vietnam. In the first quarter of 2019, its Vietnamese production capacity accounted for 43%, while Indonesia's production accounted for 41% during the same period. The relevant business person in charge of Baocheng said that Vietnam's land prices are also rising and there is no downward trend. In the long run, they believe that there is little room for Vietnam's business to develop.
It is worth mentioning that Sino-US trade frictions have intensified the transfer of textile and clothing production capacity to Vietnam. At the same time, there are also constant gathering of trade fraud problems. For example, some companies do not make corresponding investments to actually transfer production, but directly label the source of the goods as Vietnam to avoid trade restrictions. The relevant department of Vietnam's Ministry of Trade and Industry said: "Deceptive labeling will seriously weaken the reputation and competitiveness of goods produced in Vietnam."
