- 2024-10-18T00:00:00
- Sector Reports
Textiles and garments (T&G) together are Vietnam’s second-largest export industry. While their combined share of Vietnam’s total export value dropped from 16% in 2011 to 11% in 2023, the trade surplus as a percentage of export value increased from 41% to 53% during the same period. This shift suggests greater profitability of Vietnam’s T&G industry, which we attribute to the fact that industry is evolving from low-cost production to higher value-added activities. This is bolstered by improved supply chains, production efficiency, and Vietnam’s involvement in key free trade agreements (FTAs). This mirrors China from 2000 to 2013, when rising labor costs coincided with improved workforce skills and technology.
Opportunity to expand upstream: According to the Ministry of Industry and Trade (MoIT), in 2023, Vietnam had to import 40% of its synthetic fiber, 50% of cotton yarn, and 80% of fabric for domestic needs. Despite remaining large gaps in the upstream value chain, the ratio of imported raw materials and accessories to export value has decreased from 50% to 40% over the past decade. We believe Vietnam can continue to expand upstream, aided by the relocation of Taiwanese and Chinese fabric/yarn factories. A more integrated value chain will help Vietnam to secure more FOB/ODM orders (see page 7) and maximize the benefits from FTAs requiring evidence of products’ ‘origin from fiber’ and/or ‘origin from fabric.’
Bangladesh’s political unrest - only short-term gains for Vietnam: While Vietnam may gain from diverted orders, we believe India will be the primary beneficiary due to its proximity and strong ties to Bangladesh's value chain. With unrest in Bangladesh starting in late 2023 and order shifts in early 2024, we do not expect a significant impact in 2025. We believe Bangladesh’s government will support this key industry in the long term.
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