With the announcement of Vietnam’s proposal to sign the Trans-Pacific Partnership Agreement and the Free Trade Agreement with the EU and South Korea, investors in the textile and garment industry from many surrounding countries are planning to go to Vietnam to open garment factories, intending to make full use of the agreement. favorable conditions and cheap local labor. However, some investors who have already gone to inspect said that the cost of investing in clothing production-related projects in Vietnam, especially raw material production projects, is extremely high.
It is reported that locally produced clothing in Vietnam accounts for 45% of Vietnam’s clothing industry. The country’s government aims to vigorously develop the local clothing industry and increase this proportion to 80% by 2020. However, only a few Vietnamese companies are able to carry out full-line closed production and independently complete all production processes from weaving to dyeing to finished garments. Because many enterprises in Vietnam are small and medium-sized enterprises and lack sufficient financial resources, investing in textile factories is much more expensive than investing in garment factories. It takes an average of US$20 million to US$30 million to open a dyeing and textile factory, while it only costs US$60,000 to US$110,000 to open a garment factory. There is a huge difference in investment costs.
In terms of raw material supply, Vietnamese farmers do not like to grow cotton because the Vietnamese government does not provide subsidy support and it is difficult for farmers to profit from it. Therefore, the production efficiency of local cotton is low, the output is small, and the price is not competitive compared with imported cotton.
Phan Thi Hue, the head of Vietnam’s local ThanhCong Garment Company, said that although the company can carry out full-line closed production, it still needs to import about 10% of its raw materials from Indonesia. Executives of Vinatext, Vietnam’s largest textile and apparel manufacturer, said that the biggest challenges faced by Vietnamese companies are investment capital, technology, labor and consumption issues.
Part of the reason for the high cost of investing in a garment raw material manufacturing plant is the high cost of building a sewage treatment system in Vietnam. Therefore, local people are least willing to open dyeing and weaving factories. In addition, some provinces in Vietnam do not welcome textile and clothing factory construction projects due to concerns about environmental pollution. The dyeing and weaving factory construction projects proposed by some foreign investors were rejected by the local Vietnamese government because the Vietnamese government’s requirement was that the sewage treatment system must reach Class A level, and the investors were unable to meet this requirement. They can only build Class B sewage treatment systems, and the Class B discharge water treated by the factory can only be used for growing vegetables and fish, and is not drinkable. As a result, the project was rejected by the authorities.
