textile-and-garment-industry-in-vietnam

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Textile&Garment IndustryinVietnam

ResearchonGarmentProducersinVietnam InternationalBusinessResearchVietnam2008 Ms.L.Buisman Ms.G.J.Wielenga Groningen August15th,2008 UniversityofGroningen,FacultyofEconomicsandBusiness

InternationalBusinessResearchVietnam2008 Bandolera 1

ExecutiveSummary Vietnamisknowntohaveanimpressiveandquicklydevelopingtextileandgarmentindustryandlow laborcosts.ThesefactorsmakeitapossibleinterestingandattractivemarketforDutchgarmentand fashionbrandssuchasBandolera.BandoleraisaDutchfashionbrandforwomenof2560years.Her collectionsaredesignedwithspecialcare,madeoutofhighqualityfabricsandusemanydetailsand accessoriestoprovidewomenwithtrendyclothing.ForherproductionsheisalreadysettledinChina andIndiaandnowlookingforextrasourcingpossibilitiesinVietnam.Thegoalofthisreportistogive ananswertothemainquestionwhetheritisinterestingforBandoleratoproducetheirgarmentin Vietnam. From February till August 2008, the International Business Research Project of the University of GroningencontainedmarketresearchinVietnambyorderofBandolera.Theresearchwasexecuted by 2 selected business students of the Faculty of Economics and Business and supported by two assistantprofessors. To get detailed information on all important aspects, both desk and field researchwasexecuted,ofwhichthelatertookplaceinVietnam(MayJune2008). TodecidewhetheritisinterestingforBandoleratolettheirgarmentbeproducedinVietnam,three requirements are of main importance. First of all, the fabrics Bandolera wants to use should be availableinVietnamandofgoodquality.Secondly,thelocalgarmentproducershavetobecapableof producingfashionablegarmentwithmanydetails,forloworderquantitiesrangingfrom3003.000 pieces and deliver everything within 90 days in the depot in The Netherlands. Third and last of all, Vietnameselegislationsshouldnotrestraintheexportofgarmentandgoodlogisticservicesofshould wellrepresentedforbothshipmentandairmail. ThefabricsavailableinVietnamaremainlycotton,followedbypolyesterandsilk.Thegarmentsector needs up to 200.000 tonnes of cotton for its export plans. The current production does not meet morethan2%ofthisdemand.Despitebiginvestmentsbythegovernment,theproductionofcotton isdecreasinginthelastcoupleofyearsduetoloweconomicefficiency.Theproductionofpolyester onlymeets4%ofthenationaldemand.Recently,biginvestmentshavebeenmadeinthepolyester plantswhichshouldbeableprovidein50%ofthenationaldemandby2012.Thesilkproductionin Vietnamissmallandstillinatraditionalway.ComparedtoJapanesesilkthequalityislow.Itturnsout that Vietnam does not have the machinery and capacity to produce silk for the industry to export. Overall,differentsourcesconfirmthattheVietnameseproductionoffabricsisinsufficienttoprovide inthesectorsdemand,makingitdependentonimport.Intermsofquality,Vietnamcanprovidein lowtomidlevelquality,buthighqualityfabricsstillneedtobeimportedfromChina,Taiwan,etc.It hastobenotedthatVietnamisheavilyinvestinginitsfabricproductioncapacity,butthefocusisfirst ofallonquantitiesandtheseplansalsocopewithmanydifficulties. Ingeneral,mostgarmentcompanies(70%)arelocatedinthesouthofVietnam,neartheharborand airport of Ho Chi Minh City. In total we visited 17 garment companies in Vietnam. These company visitsclarifiedthatthefocusofthesectorisonmassivequantitiesoflowtomidlevelquality.These massive quantities are needed because the main reason for customers to go to Vietnam for productionofgarmentisitslowpricing.Therearealotofbigquantitiesordersoflowqualityfabrics availableforlowprices,whichhastheinterestofhugecorporationsmostlyfromtheUS.Althoughthe machineryinVietnamesefactoriesisnewandadvanced,thereislittlemarketfortheproductionof small,fashionableorders.OftenVietnamesegarmentproducerswillnotacceptloworderquantities, becausetheyneedtokeeptheirmachinesrunninganddonothavethetimetoinstructthesewerson differentproductionlineshowtocreatemanydetails.Theyrealizehighturnoversbyproducinglarge, simple orders for low prices. None of the companies we visited could meet all requirements of Bandolera. TheVietnamesegovernmentispromotingtheexportofgarmentandthereforethereisnorestriction ontheexportofgarmentandverylittlelegislationinfluencesthedeliverytimesofgarmentorders. Next to that, logistic services in Vietnam are well represented and accommodated. However, there

InternationalBusinessResearchVietnam2008 Bandolera 2

aresomesetbacksconcerningthepricingmethods.BandolerapreferspricingonCost&Freight(C&F), inwhichtheproducertakescareofalllogisticmattersuntilthedeliveryinthecustomersdepot.One stepdownispricingonFreightonBoard(FOB),inwhichtheproducertakescareofthegoodsuntil they are on board of the ship. Pricing on FOB is becoming more common in Vietnam, but is still consideredasariskybusiness.WehavenotfoundanyproducerwillingtodeliverordersonC&Fbase. Other barriers exist in the more informal aspects such as language and communication problems. These barriers make it necessary for a company such as Bandolera to, when producing in Vietnam, keepacloseeyeontheproductiontopreventmistakesandmisunderstandings. BasedontherequirementsofBandoleraitisdifficulttofindafittinggarmentproducerinVietnam. Vietnamesefabricplantsarenotabletoproducemiddletohighqualityfabrics,andoftenthequality is not stable. Next to supplying fabrics from other foreign countries buttons, sewing threads, interlining,shoulderpads,andotherembroideryareimportedaswell.Duetothefactthatmostmust besourcedfromotherAsiancountries,thelead/deliverytimeofgarmentaswellasthecostpriceof garment increases. Furthermore, Vietnamese garment companies are not specialized in the production of detailed, fashionable garment and also do not prefer this kind of orders. At this moment there is much competition in the textile and garment industry and there are many big quantityordersavailable,guaranteeingsalaryandemployment.Becauseofthebadfitontwoofthe threeinvestigatedaspects,wecananswerourmainquestionnegatively.Alltogether,Vietnamdoes notappearasaninterestingmarketforBandoleratoinvesthertimeandenergyin.

InternationalBusinessResearchVietnam2008 Bandolera 3

Preface Thereisnodoubtaboutit,Vietnamisbooming.Sincetheadoptionofthedoimoi(renewal)policy in the late 1980s, Vietnams economy has shown remarkable growth. Numerous economic progressionshavetransformedthecentrallyplannedeconomyintoamarketbasedone.Overthelast fiveyearsVietnamreachedasteadyaverageeconomicgrowthof8percent.WhenVietnamjoinedthe WorldTradeOrganizationin2007,theinternationalborderswereofficiallyopenedandinthatsame yeartheamountofforeigninvestmentsdoubledto7.8billionUSdollars. Vietnam has become a great potential for foreign investors because of its crude oil production, its richness in natural gas reserves and its hardworking workforce with low labor costs. All together, Vietnam has become one of Asias best economic performers and is often described as the new China.ThismakesitaninterestingbusinessopportunityforDutchcompanies. From February till August 2008, the International Business Research Project of the University of GroningencontainedmarketresearchinVietnamfor11Dutchcompanies.Thereportinfrontofyou is the result of the research for one of those companies: Bandolera, a Dutch fashionable garment brand for women. The research was executed by 2 selected business students of the Faculty of EconomicsandBusinessandsupportedbytwoassistantprofessors. Goal of this report is to give an answer to the question whether it is interesting for Bandolera to producetheirgarmentinVietnam.Todothis,welookedatthreeaspects:(1)theavailabilityoffabrics inVietnam,(2)visitingandevaluatinglocalgarmentproducersoncapability,and(3)theinfluenceof legislations and the availability of logistic services. Toget detailed information on all three aspects, both desk and field research was executed, of which the later took place in Vietnam (May June 2008). During our stay in Vietnam we visited both stateowned and private companies and held interviews with different experts and agents. The results of our research are represented in this report. Forallthehelpwereceivedduringtheresearchandthewritingofthereport,wewouldliketothank our assistantprofessors Mr. dr. K.J. Alsem and Mr. dr. T.W. de Boer. They have guided us through manydifficultiesduringourresearchandsupporteduswiththewritingofthereport.InVietnamwe hadmanyhelpwhencommunicatingwithVietnamesecompaniesfromourinterpreters,Ms.Nguyen ThuyVyandMs.NguyenHongChinh.Manythanksforalltheirhelp,withoutthemwecouldnothave gathered as much information as we have. Finally we would like to thank Mrs. Nghiem Lien Huong andMr.JosLangensfortheirhelpandhospitalityduringourstayinHCMC.Fromthemwereceived manyimportantadditionalinformation,weotherwisewouldnothavebeenabletofind. Alastwordtoallreadersofthisreport;wehaveputmucheffortinwritingthisreportasclearand pleasantaspossible.Wehopeyouwillfindtheinformationyouarelookingfor.Enjoy! August2008,Groningen. LisetteBuismanandGerdaWielenga

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ContentExecutiveSummary............................................................................................................................... 2 Preface Content Chapter1 1.1 1.2 1.3 1.4 Chapter2 2.1 2.2 2.3 Chapter3 3.1 3.2 3.3 Chapter4 4.1 4.2 4.3 4.4 4.5 Chapter5 5.1 5.2 5.3 5.4 5.5 5.6 Chapter6 6.1 6.2 6.3 6.4 4 5 Introduction..................................................................................................................... 7 Bandolera............................................................................................................................. 7 Purposeofresearchandresearchquestions........................................................................ 8 ConceptualModel................................................................................................................ 9 Reportsetup .............................................................................................................