Wallex Industry Insights: Vietnam's Textile & Garment Industry

Vietnam’s textile and garment industry is a global powerhouse. The country is currently the second largest garment exporter globally, with only China ahead of it.  

Export value for the full year of 2023 is estimated at around USD $40 billion and behind this economic pillar is 6,000 companies employing 2.5 million people who serve key markets across the world – from the US, Europe and Japan to Africa and the Middle East. The industry accounts for as much as 16% of Vietnam's total export turnover.

It is an understatement to call this industry a pillar of Vietnam's economic growth, and the government is committed to supporting its growth. Today, we’ll find out what these support measures entail and more as we explore Vietnam's textile and garment industry!

Why Invest in Vietnam's Textile and Garment Industry?

There are three main reasons why Vietnam stands out as a destination for manufacturing textiles and garments to global companies. Let’s take a close look at each of them and why doing business in Vietnam is an opportunity not to be missed.

🔑 Read More: Wallex Country Report: Vietnam

Competitive Labour Costs

Vietnam’s competitive labour costs are a key draw for businesses who are looking to shave their costs as far as possible. Between 2020 and 2023, the average monthly wage for Vietnamese workers in the country stands at about USD $330.  

When compared to labour costs in other textile and garment exporting countries in the region like Bangladesh, Cambodia and China, however, Vietnam actually sits somewhere in the middle. For instance, average monthly wages for textile workers in Bangladesh sit at around USD $95, while it ranges from USD $161 to USD $357 in China.  

But costs are only one part of the equation. Below, we take a look at other reasons why Vietnam is considered and chosen for textile and garment manufacturing over its peers.

Favourable Free-Trade Agreements

This is where Vietnam truly stands out. It has inked a comprehensive list of free trade agreements (FTAs) with several other countries and regional blocs, negotiating favourable conditions that enable them to bring their exports with greater ease and lower costs into other markets.

Key agreements for textiles include the EU-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Both of these FTAs reduce tariffs for Vietnamese export goods and open new markets for the country’s textile and garment industry.  

Strategic Geographic Location

Vietnam's geographic location in Southeast Asia provides two key advantages for its textile and garment industry. Central and close to key import markets such as China and India mean Vietnam enjoys quick access to raw materials like cotton, yarn, and fabrics. This proximity translates to significantly faster delivery times and allows factories to maintain their output levels.

It also has the benefit of having a long coastline. Vietnam has capitalised on this advantage by building modern ports along this coast, facilitating seamless import of raw materials and export of finished products, ensuring efficient movement of goods by sea – a vital artery of global trade.

Additionally, Vietnam's position near major consumer markets in Asia such as Japan and South Korea, as well as suppliers in China, allows for quicker and cheaper receiving of raw materials and delivery of finished garments. This is especially crucial for fast-fashion companies that need to react swiftly to ever-changing trends.

What are the Core Challenges when Doing Business in Vietnam?

For Vietnam, being a global exporter of textiles and garments can be a double-edged sword. While this ensures a consistent level of demand that brings employment and economic prosperity, it also means that Vietnam will be affected by any new regulations enacted by its trading partners, creating some challenges. Here are two key hurdles.

Establishing Eco-Friendly and Sustainable Practices

Greater awareness around sustainability and eco-friendly practices is picking up across the world and Vietnam’s textile and garment industry is moving in that direction, driven primarily by requirements set forth in the EU's Strategy for Sustainable and Circular Textiles (EUSSCT), which aims to help member states of the bloc to transition to more sustainable consumption of clothing and apparel.

To do so, it has laid out several core tenets and associated actions. These include minimising environmental emissions, introducing incentives to encourage manufacturers to move towards sustainable manufacturing processes, reducing the volume of waste produced, and increasing the volume of recycled waste, among others

Though the framework is being implemented in the EU, its impact will be felt in Vietnam. Leading brands such as adidas and H&M with factories in Vietnam will be challenged to change their operating approach and find ways to implement changes that fulfill the EUSSCT’s requirements. Such an endeavour will likely be costly as it potentially requires introducing new equipment, revamping processes, and sourcing for different materials.

On the bright side, Vietnam's other export destinations such as the US, ASEAN or Japan could implement similar requirements in the near future. Thus, if Vietnam’s textile and garment industry can make the sustainability pivot early, it will be well-prepared for the future.

High Barriers to Raw Material Sourcing

Earlier, it was highlighted that Vietnam is a part of the EVFTA and CPTPP. Even though they lower the cost and barriers to access markets in member countries, it also has rules that have made it both difficult and expensive for Vietnam’s textile factories.

One such rule is the "fabric forwards" rule, which can be found in both the EVFTA and CPTPP. The rules operate on a largely similar premise, where fabrics used to cut and sew into garments - such as yarn - must be sourced and procured from either the EU or member countries of the CPTPP. Fulfilling this condition is necessary for the industry to enjoy preferential tariffs for its textile and garment exports.  

But Vietnam continues to rely on raw fabric imports from outside this batch of nations. For instance, the country depends heavily on China for its yarn. In 2022, 61% of Vietnam’s total yarn import volume came from China, which is not a signatory to the CPTPP.

Overcoming this challenge would require Vietnamese textile businesses to plan well into the future, investing in machinery and technology that allows them to improve the production capacity and quality of locally produced raw fabrics, and reducing dependence on imported raw materials.

🔑 Read More: Wallex Industry Insights: Japan

Government Support for the Textile and Garment Industry

Vietnam’s government has taken broad measures on this front, as it has long been aware of the need to develop not just its main industries, but also supporting industries.

Preferential Tax Rates

For the textiles and garment industry, developing its upstream sector such as fabric and fibre production is crucial for the country to reduce reliance on imports and gain preferential tariff rates under its FTAs.

Steps were taken to elevate such supporting industries as far back as 2015 when the government passed Decree No.111/2015/ND-CP. Under this decree, investment projects that aid the growth of relevant supporting industry products are entitled to corporate income tax (CIT) incentives, which come in the form of preferential rates and tax holidays.  

Preferential tax rates can go as high as 17% for the lifetime of the entire project. Meanwhile, tax holidays provide for exemptions from paying tax for four years, and then a 50% reduction of tax payable for the subsequent nine years. These are subject to various factors but are more likely to be granted to projects in designated industries or selected economic zones, for example.

Strategic Business Opportunities in Vietnam

In late 2022, the Vietnamese Prime Minister issued Decision No. 1643/QD-TTg, approving the "VIETNAM TEXTILE AND GARMENT INDUSTRY DEVELOPMENT STRATEGY TO 2030, VISION TO 2035." One of the biggest aims of this Decision is to help the textile and garment industry become less reliant on imports of raw materials.  

To accomplish this, the strategy lays out a number of initiatives to help them meet their goal of raising the output of supporting industries to meet 70% of local demand and account for 14% of industrial production by 2030. It is in these initiatives that businesses in Singapore can find opportunities for expansion. Let’s take a look at what these opportunities entail.

Investment in Eco-Friendly Technology for Raw Material Production

To improve Vietnam’s self-reliance on locally produced raw materials, the government is looking to encourage investment in projects focused on the production of fibres, synthetic materials, high-cost, high-quality yarns; and textile production, among others.

Environmental concerns will inevitably emerge as Vietnam embarks on higher volume production and integrates new processes. Accordingly, mechanisms are being created to fund the development of technologies for wastewater and waste treatment in specialised industrial zones.  

Technology providers offering solutions for functional fibers and new materials, wastewater treatment, and sustainable production processes can find a receptive market in Vietnam. Specialists in clean energy solutions can also contribute to the development of waste treatment processes and equipment for manufacturers.  

Supply-Chain Optimisation and Digital Transformation

Recognising the need for a more efficient and transparent supply chain, plans are in place to implement programmes connecting domestic and foreign enterprises through technology and knowledge transfers in factory management and production.  

This includes building a database system that will share information on raw materials and auxiliary materials that allows enterprises to exchange information about supply sources, and establish a trading floor for raw materials and accessories.  

Software developers and consultancies can design and implement such a system, ensuring smooth information exchange and efficient supply chain management. Additionally, commodity trading companies can contribute their expertise in dealing with textile-related materials, and provide data collection and analysis to populate the database.  

Development of Infrastructure

The goal is to produce high quality garments at high volumes, and so Vietnam needs to improve its production capabilities for growing market demands. To accommodate this, the government is building a number of specialised industrial parks. These parks will prioritise large-scale projects from reputable investors using advanced and modern technology.  

This push for specialised industrial parks with advanced technology opens doors for firms with expertise in machinery and equipment as well as infrastructure development. Engineering companies can contribute to the design and construction of these parks, while manufacturers of high-tech textile machinery can establish a presence to cater to the growing demand.

🔑 Read More: Wallex Industry Insights: Philippines

Let Wallex Make Doing Business in Vietnam Simple For Your Business

Vietnam's textile and garment industry presents a compelling case for international businesses seeking to expand their reach, regardless of whether they are manufacturers of apparel or garments. The industry's agility, adaptability, and commitment to sustainable practices position it for continued growth.  

Accessing these opportunities is now much easier with Wallex. Enjoy an unmatched VND payments experience with Wallex. We provide:

• Real time payments in VND for transactions up to VND 500 million

• Instant virtual accounts in your company name in VND  

• Estimated savings of 50% in fees compared to other providers  

• Highly competitive FX rates for pay-ins in SGD, USD, IDR, HKD  

• No transfer limits to payments to other corporate beneficiaries

What truly makes Wallex the ideal partner for your cross-border needs is the support you’ll enjoy from your dedicated Account Manager. They will always be ready to support your business’s needs, assist to expedite urgent transactions, and address any issues you face.  

Are you ready to be a part of the success story that is Vietnam’s textile and garments industry? Speak to us today!

‍