Volcamod – GARMENT MANUFACTURER IN VIETNAM

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As one of the leading knitted fabric & garment manufacturers in the North of Vietnam, Thygesen Textile deeply understands both advantages and disadvantages of a typical Vietnam garment factory.

ADVANTAGES

The large labor force at low cost

The majority of Vietnam’s population lives in the countryside where garment manufacturing is the most popular industry. They are a really good craftsmanship labor force. In the countryside, people’s income totally depends on their harvest which is very low in value and unstable. They are very willing to work as garment manufacturing workers at very low wages.  In fact, about 2.5 million Vietnamese people are working in this industry. The majority of those are experienced laborers. Compared to Chinese, Vietnamese labor cost in the garment industry is relatively lower. That’s why a lot of garment factories have moved from China to Vietnam recently. Textile and garment manufacturing can be considered as a traditional industry of Vietnam which is so familiar with almost all of the population there. It implies that the expense and effort of training to have a good labor force for this industry in Vietnam. In recent years, the fabric & garment manufacturing industry has accounted for about 20% of Vietnam’s GDP. Aiming to build up an export-oriented economy, the Vietnamese government at the same time invested in developing high quality and skillful labor force for this industry. In practice, technicians university graduates in Vietnam are qualified enough to deal with every technical requirement in this industry. Therefore, it can be seen that the labor force is actually an advantage of any Vietnam garment factory.

Government incentives

As mentioned above, the Government of Vietnam is trying its best to support the garment manufacturers. Manufacturers who locate their factories in poor areas and create jobs for local residents will receive big tax incentives and favorable conditions like tax exemption, tax reduction, or tax payment extension…In addition, local administrators help enterprises connect with organizations and associations who can help them to promote their business. The administrative procedures are also simplified thoroughly to save enterprises’ time and effort. There is no obstacle but encouragement to become a Vietnam garment factory in both economic and administrative perspectives. The Government is trying its best to reduce corruption. With the development of social media in Vietnam, Any negative can be revealed. Administrations are positively acting not only as regulatory authorities but also as a public service in terms of creating favorable conditions for every enterprise. In this new socio-economic context, the private sector plays a fundamental role in the country’s development. The Government of Vietnam also orients to prioritize the private sector with the most favorable conditions. It can be said that locating a garment factory in Vietnam has never benefited like it at this time. That’s also how small and medium Vietnam garment factories compete well with manufacturers from other countries.

Beneficial FTAs

Vietnam now has important Free Trade Agreements and Strategic Partnership Agreement with almost all main garment markets like the USA, EU, Japan, Korea, Australia… Garment products, which are of Vietnam origin will benefit from low or even zero importing tariffs while it’s normally about 10-20%. Another advantage Vietnam garment factories will have is that Vietnam is a member of the ASEAN economic community – ACE which has signed FTAs with Australia, New Zealand, Korea, China so that garments made of ASEAN origin materials can be treated with importing tax incentives as if they are of Vietnam origin. Thailand has developed a strong industry of manufacturing high-quality fabric and accessories, especially they are able to supply for even small orders. This is also a big help for Vietnam garment factories in terms of importing tariffs.

Not only reduce tariff barriers, but FTAs reduce also non-tariff barriers. Vietnam garment factories gain a big opportunity to access new bigger markets. FTAs also create a strong media effect as customers from member countries will also gain benefits from those FTAs. Therefore, FTAs also bring more customers from potential markets to Vietnam. Vietnam garment factories have an opportunity to stabilize their productions and develop as well as challenge themselves with new obstacles, especially higher requirements from their new customers.

Logistics system

Transportation infrastructure in Vietnam for the garment manufacturing industry is quite developed. Almost all basic logistics services from sea transportation, internal transportation, customer clearance, warehouses…are available here in Vietnam. From a logistics perspective, there is no limitation for materials from other countries to come to Vietnam and cargo from Vietnam go to other markets. International express shipping service is also available here. In the garment manufacturing industry, sample development is very important. Garment samples should be transferred across countries in the fastest way. International express shipping service is essential in this case. Information logistics is also an advantage of Vietnam as the internet is also very popular here.

Trust

Compared to other countries, Vietnam is considered as trustworthy partners in international trade relationships. Vietnam companies are also trustworthy partners in international business relationships too. They bet their reputation on their customer’s trust. Vietnam is a very stable country. There is no risk of politics, law, wars.. or any similar risk. Vietnam laws are also quite friendly with international trade law and business law. There is not too much difference or conflict between Vietnam laws and international trade law. The Government does not protect companies who have intended to cheat their foreign customers so that those kinds of risks are not much. Many of Vietnam garment factories in Vietnam are perfect themselves to meet well with international quality and manufacturing standards. They know that they need to build their reputation and gain their customers’ trust right from their capacity.

Capacity

Don't have huge capacity but Vietnam garment companies know how to perfect their capability to be able to meet well with customer’s requirements. Most of the Vietnam garment factories are small and medium manufacturers. However, it doesn’t mean that they can’t carry out big orders or provide ONE-STOP-SHOP service for manufacturing garment products. Many Vietnam garment factories do not pursue the business model of economies of scale. They focus on their services instead.  Firstly, they can serve customers with small order quantities. Nowadays, the boom of e-commerce brings small businesses another big opportunity. E-commerce platforms help sellers and buyers across the globe connect with each other. A clothing shop in the EU do not need to buy from a local wholesaler at a high price and then retails for very small margins, They now can directly contact a manufacturer in Vietnam to ask for service supplied. The point is that those customers usually do not have a big order quantity. Big manufacturers ignore those orders while many factories in Vietnam are willing to help. In this case, the Vietnam garment factory has a better suitable manufacturing capacity. Secondly, garment factories in Vietnam build very close-knit cooperating relationships together to have a stronger manufacturing capacity. Not many garment factories in Vietnam have printing or embroidery systems of machines in their house. They choose to cooperate with a professional printing or embroidery service supplier instead to save their capacity from expensive investment.

DISADVANTAGES

Designing

Designing is a big disadvantage of Vietnam garment factories. For many years, the garment manufacturing industry in Vietnam focused on outsourcing orders or CM or CMPT services. The Design stage was not included in the Vietnam garment factories’ service. Among so many reasons which lead to that practice, the lack of talented designers is the main one. There is neither a professional education nor training academy nor a business environment for garment designing. The lack of professional garment designers in Vietnam is also understandable.

Vietnam garment factories don’t have good international business and marketing knowledge as well as experience. This is also a typical weak point of Vietnam enterprises. Not many Vietnam garment factories develop their own collection, promote and distribute for their own brand. Therefore, most of them do not really have a demand for design. Or almost all of them don’t want to pursue such risky projects. They are too busy with outsourcing orders.

However, it’s not absolutely that there is not any Vietnam garment factory as in-house designers. ONE-STOP-SHOP service suppliers often have talented designers. They are able to help their customers bring raw ideas of garment products to life in a very delighted look while their designs are still very friendly with the industrial manufacturing environment. They also have solid knowledge and experience of materials. They know exactly which is the best kind of material for a specific design with desired properties.

Marketing

As mentioned above, marketing is Achilles’s heel of Vietnam garment factories. They are mainly focused on a very narrow stage of the global value chain – CM or CMPT or FOB. Most of them do not have enough capacity to carry out full professional marketing campaigns for their own branded products. Therefore, the knowledge about the market and consumers are very limited and, of course, they don’t have their potential distribution channel for those products too.

Customer service

How good customer service depends a lot on its supplier capability and orientation. This is also a Vietnam garment companies’ weakness. Most Vietnam garment factories do not invest in a professional sales team who has both technical knowledge of the garment industry and business experience as well as necessary skills. In Vietnam, there are a lot of garment factories that do not know anything about the foreign market. They even do not work directly with foreign customers. Fortunately, e-commerce has re-defined how the world implements marketing campaigns. This’s a rare opportunity for Vietnam garment factories to take off.

Sourcing

The lack of knowledge about international trade makes Vietnam garment factories not really good at sourcing for input materials.

People may argue that it’s not too hard nowadays to find a good supplier for any kind of material. Yes. They are right. But many Vietnam garment factories do not want to risk their finance in input materials. Both 2 those reasons make Vietnam garment factories not really good at sourcing. That makes them find it difficult in providing their customers with a full-package garment manufacturing service.

Certificate of Origin

The majority of materials used by a typical Vietnam garment factory are of China origin while additional value created by their outsourcing service is relatively low. Consequently, lots of Vietnam garment factories are struggling with the localization of their supplies in order to benefit from FTAs. However, the supporting industry is developing quite fast in Vietnam, opening a bright future for the garment manufacturing industry.

The fail of TPP

If TPP had been passed by the American Congress, any Vietnam garment factory would have had a chance to exploit the biggest market under the most favorable conditions which the main competitors of Vietnam garment factories do not have.

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