Garment companies strive to export $9.5bil worth of products this year, and they fear that the target may be out of reach as they are facing four big challenges: the US economic recession, higher material prices, higher wages and the dollar devaluation.

 

Four challenges

 

 

As the US economy is facing big difficulties, US garment importers have to seek the suppliers who can offer lower prices. And China remains the biggest rival of Vietnamese enterprises.

 

Vietnam-made products will also have to compete with China-made ones on the EU market, as the EU is going to remove a quota on China’s imports in 2008.

 

As for the Japanese market, the quota scheme has been removed for six ASEAN countries (Singapore, Malaysia, the Philippines, Indonesia, Brunei and Thailand). Therefore, Vietnam-made products will have to compete fiercely with the products from these countries, as Vietnam’s products are being taxed at 10%.

 

The higher material prices and higher wages for labourers both have put heavier burdens on enterprises. There is a vicious circle: in order to make their products competitive, enterprises have to reduce the production cost, but they cannot do that because they may lose labourers; however, they may lose clients if they raise the wages for labourers and increase the sale prices.

 

According to Le Quoc An, Chairman of the Vietnam Textile and Garment Association (Vitas), garment workers now tend to shift to work in other industries, which can bring better income. Garment companies now all have to think about raising wages for labourers, or they will not have workers.

 

An said that 90% of companies use the dollar in making payment. Therefore, the dollar devaluation (1.5%-2%) has been bringing big losses to garment producers.

 

How to survive?

 

Garment companies need to survive, despite the big difficulties. The strategy on the textile and garment industry development, approved by the Prime Minister on March 10, 2008, said that the industrial growth rate must reach 16-18% per annum and the export growth rate must reach 20%. In the period of 2011-2020, the annual production and export growth rates must reach 12-14% and 15% respectively. By 2010, the total turnover of the textile and garment industry must reach $14.8bil. The figures will rise to $22.5bil by 2015 and $31bil by 2020.

 

Ngo Trung Kien, General Director of Saigon Garment Company No 2 said that his company is trying to raise wages for labourers, cut unnecessary expenses and raise production capacity.

 

Kien said that garment companies will stand hardships until the end of the fourth quarter. If the situation cannot improve, small workshops will have to shut down.

 

Experts have advised enterprises to raise the production capacity, considering this the most effective way to survive the challenges.

 

Pham Xuan Hong, General Director of Saigon 3 Garment Company said that the only solution for now is to reorganize the production and increase labour productivity, which can help Vietnam’s products compete with the products from China, India or Mexico.

 

Hong said that a good head of production team can have the labour productivity 1,5 times higher than others. When the labour productivity increases by 10%, the wage for labourer may increase by 12-13%.

According to Vitas, the productivity of many enterprises is still lower by 30-50% compared to the average productivity of regional countries’ enterprises. 90% of Vietnamese enterprises still find the word ‘ERP’ (enterprise resource planning) unfamiliar to them. Very few companies can have the capacity of $450/worker/month, while the level of $25-300/worker/month is more popular.

 

Vitas is now trying to join forces with enterprises to take necessary measures to deal with the barriers in international trade in the markets where Vietnam’s products have advantages.

 

Besides, a lot of other measures are also being applied by companies, like reducing fixed management costs, reducing electricity consumption (the electricity consumption level in Vietnam is always 2.4 to 3,6 times higher than in other regional countries).

 

(Source: SGTT)

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