Recently, Xu Zhihua, general manager of Peak (China) Co., Ltd. and president of the Fujian Footwear Industry Association, has caused heated discussion. He said: “Many of our peers have opened factories in Southeast Asia and Vietnam. At present, it seems that , the results are not good.” He also said, “In our industry, if it is not a factory with more than 5,000 people, you must not go there. You will lose money if you go. Because there is no local supply chain, no industrial chain, and no supporting facilities.”
Is Vietnam no longer “favourable”?
Last year, the editor visited companies. At that time, the order situation in the market deteriorated, and many textile and textile companies were unable to receive orders. Many textile people expressed their envy of Vietnamese factories. I heard that they could queue up orders for several months, and they were able to receive orders. The labor costs are low and taxes are saved. Many companies have thought of setting up factories in Vietnam. However, many companies that actually opened factories in Vietnam do not think so.
Artificial
Vietnam’s labor costs are not low either, with workers’ wages close to 3,000 yuan per month. Coupled with factors such as the quality of domestic workers, the gap in work efficiency, labor unions, communication costs and other factors, the overall labor cost ratio China’s low-cost products can easily be replaced from other places, and the advantage of labor cost is very poor compared with other ASEAN countries such as Bangladesh, which is also in Southeast Asia.
Supporting
Compared with other Southeast Asian countries, Vietnam’s advantage is that they developed earlier, are more stable domestically, and have more complete infrastructure and industrial chains. However, this depends on who is compared. Compared with China, Vietnam has no supply chain and no industry. Chain, not matching. For example, water and electricity supply, transportation and logistics are not things that companies need to consider in China, but in Vietnam they may become major issues that trouble companies. This is especially true for the industrial chain. China’s several large textile industry clusters can basically connect the entire industrial chain. As long as a company takes care of one link, other links can be found within a few kilometers nearby.
Therefore, once going overseas, unless a large enough enterprise, such as some multinational giants, establishes an industrial park and builds the entire industrial chain from scratch, some small enterprises will not be able to produce many products normally without supporting supporting facilities. That’s why Mr. Xu said at the beginning, don’t go to factories with less than 5000 people.
policy
Of course, many times textile companies are not willing to open factories overseas, but they have no choice but to be affected by policies. In recent years, Europe and the United States have been looking for alternatives to products made in China, so they have given preferential tax rates to Southeast Asian countries, and sometimes even used administrative orders to prevent textiles made in China. The textile market has reached this point, and profits are not high. Now the RCEP agreement has greatly reduced the trade costs between China and Southeast Asian countries. By moving the final steps of garment making and OEM overseas, it can save some taxes, and some are even the same as the so-called “Yangcheng Lake Hairy Crabs”, crabs from other places go to Yangcheng Lake to take a bath, and their “ID cards” will immediately change, and profits may come.
Huge potential, big risks
Unlike the country, which has a huge domestic trade market, Vietnam has a population of 100 million, but a large number of people live in rural areas with poor economic levels. To put it mildly, the future is promising, but at this stage, residents’ spending power is just not there.
Therefore, the products produced locally are almost exclusively for export, and their ability to resist risks is extremely poor. Once the global economy deteriorates, without the domestic trade market as a buffer, it is easy to stop production without orders.
Data from the Vietnam Ho Chi Minh City Business Association shows that Vietnam’s exports fell by 11.9% in the first quarter of this year, among which export orders in the textile industry fell by 70%-80%, causing 4.29 thousands of factories to shut down. In the second quarter, Vietnam’s textile industry export orders dropped by 80%. According to data from the Vietnam Statistics Bureau, more than 200,000 workers in the country lost their jobs in the second quarter of this year.
However, the dark humor is that before Vietnam’s industrial chain has developed, real estate has begun to boom. The average price in Hanoi’s urban area can reach 2, 3 Ten thousand yuan per square meter, which has exceeded many southeastern coastal cities in China. The lessons learned from many countries such as Japan and South Korea prove that rapid rise in housing prices in the short term can stimulate the economy, but it can also create bubbles and increase risks.
Assess risks and avoid following trends
Generally speaking, it is not impossible to invest in Southeast Asian countries such as Vietnam. There are also many textile companies building factories there. But at this stage, there are generally two types of people who can really make money. One is the wealthy giants who are heavy on assets. National strategic investment can open up the entire industrial chain locally andIt can gain a certain say in the local area to protect its own rights and interests; the second is to be asset-light, and the main production is done domestically, and the final steps of finished products are made locally, which can make a small tax difference, but the risk is also high.
This situation is not always impossible to improve. As the influence of China’s “One Belt, One Road” initiative continues to expand, the scale of “going global” of textile companies will only become larger and larger in the future, which is also a major development trend. However, overseas is an unfamiliar place, and many risks are uncontrollable. Therefore, before going overseas, companies must do a thorough investigation, know themselves and their enemies, and evaluate the risks and their own financial status. Following the trend is the most undesirable.
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