I remember that a few years ago, the news that “a Zhejiang company spent huge sums of money to start construction projects in Vietnam” gained a lot of attention in the industry.
According to the announcement, the company will establish a wholly-owned subsidiary and invest in the construction of a 50,000-spindle high-grade worsted ecological yarn textile dyeing and finishing project in Vietnam. The total investment in the project is US$153 million (approximately RMB 1.096 billion).
According to relevant media reports, India, Vietnam, Thailand, Malaysia and Bangladesh are stepping up to assume the role of the world’s factory.
Does this indicate that Southeast Asia’s influence on the textile and apparel industry will further expand?
“Competitors” perform strongly, exacerbating the risk of order loss
According to the latest reports, Vietnam’s textile, clothing and footwear industry exports will total US$71 billion in 2022, a record high. Among them, Vietnam’s textile and clothing exports reached US$44 billion, a year-on-year increase of 8.8%; footwear and handbag exports reached US$27 billion, a year-on-year increase of 30%.
Throughout the past year, Vietnam’s troika of foreign trade, investment, and consumption has fiercely grabbed a wave of global trade market share. It can be seen from the data that despite the global economic recession and reduced orders, Vietnam’s performance is still outstanding. Especially in the second half of the year, economic difficulties and inflation affected global purchasing power, leading to varying degrees of decline in related orders. However, Vietnam’s total exports of textiles, clothing and footwear maintained double-digit growth.
A foreign trade company revealed that 2022 will be a “nightmare” for companies focusing on foreign trade. Not only will it be difficult to expand new customers, but it will also be difficult to maintain old customers. Subsequently, through communication with the customer, it was found that about 20% of the customer’s orders were directly transferred to Southeast Asian countries such as Vietnam and Malaysia. Faced with this situation, we are a little helpless. Those fabrics with low added value are more cost-effective in Southeast Asia than us and easier to conclude transactions. Therefore, the loss of orders is also reasonable.
In the current form of foreign trade, loss of orders is a problem that companies have to face. After all, in the past three years, the epidemic has blocked the pace of going abroad. Not only has it been impossible to participate in overseas exhibitions, but face-to-face communication with overseas customers has become a luxury. These have also invisibly become a boost to Southeast Asia’s “overtaking in corners”.
Shift “position” development and actively participate in market competition
As the competitiveness of Southeast Asia continues to increase, more and more companies are choosing to “fly southeast” in order to break through.
Taken together, the “Southeast Fly” companies either directly invest and set up factories locally, or encourage upstream and downstream companies in the supply chain to relocate to build local factories for production. Both models rely more on cheap labor and preferential treatment in Southeast Asian countries. export tariff policies and long-term transfer of land use rights.
Looking back at the news in recent years, it is not difficult to see that it is not uncommon for textile and garment companies to invest and build factories in Southeast Asia. Taking Vietnam as an example, it can be seen from export data that industry, electronic equipment, and textiles have gradually accounted for half of Vietnam’s economy. According to statistics, more than 50% of Nike’s footwear products and 30% of its apparel products are produced in Vietnamese factories.
A fabric merchant said that as early as the beginning of 2021, we already had the idea of investing in Southeast Asia. By comparing factors such as investment policies, labor costs, and production environment, we decided to lease land and build factories in Vietnam. Fortunately, after the equipment workers were in place and we were preparing for the factory inspection, a customer came to us and asked to postpone the factory inspection and start production and delivery immediately. At present, there are about a hundred looms in Vietnam, and the employees are trained according to the domestic model. The overall operation is smooth and the harvest is quite fruitful. After coming to Vietnam to set up a factory, I have two deep impressions. First, Vietnam’s trading system can better control customer complaint losses and payment pressure. Generally, orders are based on a 30% deposit + 70% loan delivery model. Second, the proportion of labor costs is low, with workers’ wages around 4,000 yuan, but we need to be wary of “strike waves.”
From this point of view, the textile and clothing enterprise “Southeast Fly” can take advantage of various local advantages to reduce production costs and enhance profitability and competitiveness.
Postscript
In general, the layout of Southeast Asia is an important measure for textile and clothing giants to deepen their global industrial layout. On the one hand, it will help improve the delivery capabilities of overseas supply chains, and on the other hand, it can continue to expand market share. Therefore, the “southeast flight” of enterprises may be a journey where opportunities and challenges coexist.
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