Lefaso: Vietnam is already taking advantage of the US-China trade war

Nguyen Duc Thuan is the Chairman of the Vietnam Leather, Footwear and Handbag Association (Lefaso) and also the Chairman of the TBS Group, one of the largest footwear and handbag producers in Vietnam employing more than 40 000 workers. 

According to the latest World Footwear Yearbook (HERE) Vietnam is the 3^rd largest producer of footwear with a share of 5.4%, behind India (10.7%) and China (55.8%). This strong industry in Vietnam is responsible for more than 1.5 million jobs. Foreign direct investment (FDI) is a main factor contributing to recent years' rapid development of the country's footwear sector. According to data from the Lefaso: in 2018 FDI covered almost 80% of Vietnam’s footwear export.

We have asked Mr. Nguyen Duc Thuan to tell us about the footwear industry in Vietname: "70% of the Vietnamese footwear producers are local SMEs with lower production and export revenue, comparing to 30% of large foreign investing producers. Many local producers lack financing resources to upgrade their structures with modern technology necessary for larger productions that can feed into the external markets. On the other hand, about 60% of the materials for footwear production have to be imported at increasing prices. The strenghts of the Vietnamese footwear industry stand on a skilful workforce and competitive wages. The Vietnamese Government is also promoting the industry, by welcoming and placing priorities for foreign investors in the footwear sector. Our country is also benefiting from low and free duty from various FTAs with main trade partner countries that entered in effectiveness during last 5 years, especially the CP-TPP with 11 countries, including Japan, Canada, Australia... Recently, Vietnam signed the EU-Vietnam FTA, which can be effective as earlier as end of 2019, or early of 2020".

This Free Trade Agreement has been much celebrated: "The signing of EVFTA is very good news for Vietnam’s footwear industry. Among other trade facilitations, the 65% of import duty lines for Vietnamese footwear imported to EU will be zero % immediately from effectiveness, and 100% of import duties for footwear will be eliminated after 7 years from the effectiveness. This will create favorable conditions for Vietnam’s export of footwear to EU, in comparison with other exporter countries, especially China".   

        

That creates expectations for the future. What about the recent years? When we look at the numbers, there isn't room for much doubt: Vietnamese footwear exports more than doubled in the last 10 years. The local industry is benefiting from various FTAs and with the low increase of China’s footwear export in recent years, Lefaso anticipates Vietnam’s footwear export could increase by 8–10% a year up to 2030. "Footwear exports turnover can reach about 35 billion US dollars in 2030", Mr. Nguyen Duc Thuan antecipates.

We have asked Mr. Nguyen Duc Thuan about the recent developments in the trade war US-China: "Recent developments of the US–China Trade war already have some positive impacts to Vietnam’s footwear export in some aspects, such as: moving new orders from China to Vietnam and attracting more foreign investment to Vietnam for footwear production. In case Chinese footwear imported to the US is charged with addittional import duties by the US Government, there will be more advantages for Vietnam’s exports. But one must not forget that Vietnam has to import up to 60% of materials for footwear production, mainly from China, so footwear imported to the US from Vietnam will have to conform to some new regulations on Rule of Origin set by US Government, including the Made-in-Vietnam definition.  

Another topic on everyone's agenda and minds is Sustainability. We have to ask: is this a real concern or a fashion trend? "Sustainability is not a fashion, but it is a trend of production and consumption in the world market, in terms of applying new technology for green production, safety consumption and environment protection. Thus it’s real concern for footwear production as these will make higher production costs", Mr. Nguyen Duc Thuan concluded.

To conclude, we talked about the challenges of the industry for the coming years. The country already witnessed a 90% minimum wage increase between 2012 and 2018 and the  Head of Lefaso underlined that the rising of labour costs will continue. This combined with the need to apply the 4.0 technologies will be the challenges of the footwear industry in Vietnam.