Increased Investment for Leather and Footwear Industry

Recently, the Minister of Industry and Trade has issued the Decision No. 6209/QD-BCT to approve the Master Plan for Vietnam Leather and Footwear Industry Development until to 2020 and towards 2025. The master plans aims at investing to build and develop the leather and footwear industry into an important export-oriented sector. According to the Government’s orientations, the ratio of locally made components will reach 60-65 percent by 2015, 75-80 percent by 2020 and 80 - 85 percent by 2025. In particular, Vietnam will export 1.6 billion pairs of shoes, 300 million suitcases, briefcases, bags and wallets, and nearly 63,000 tonnes of hard leather in 2020. To realise this goal, the industry requires VND59,570 billion (nearly US$3 billion) of investment capital for development. The domestic financing source will account for only accounts for 43 percent and the rest will be made up by FDI capital.

 

The Vietnam shoe development strategy recently built by the executive board of the Vietnam Leather and Footwear Association (Lefaso) has two main contents: (1) shifting from export-centred production to balanced domestic consumption and export production, and (2) reducing the ratio of outsourced works in export footwear production (the ratio of outsourcing is above 50 percent in the entire industry and over 70 percent in Vietnamese-invested companies). After comparing with regional countries with similar conditions to Vietnam, Mr Diep Thanh Kiet, Vice Chairman of Lefaso, said the rate of export/domestic consumption was much lower in Vietnam, compared with 42.5 percent in Thailand, 40.5 percent in Indonesia, 37.9 percent in Malaysia, 5.4 percent in Pakistan and 7.3 percent in the Philippines. At present, footwear export accounts for 92.3 percent of Vietnam’s production output.

The leather and footwear industry will be centrally developed in four main regions, namely Red River Delta, Southeast, North Central, Central Coast and Mekong Delta. According to the plan, many input material investment projects will be made in details. For instance, the plan presents five leather tanneries with an annual output of 30 million square feet each, which cost VND1,500 billion in total; two PU-coated leatherette production plants; two accessory production plants; three heel production projects, etc.

 

While investments for material production are made in detail, orientations for designing development remain vague. Perhaps, this is because Vietnam is now subcontractors for famous foreign firms. Remarking on this, Ms Nguyen Thi Tong, Vice President of Lefaso, said: The Association launched a footwear designing contest in 2005, another one in 2007 and planned for the next in 2011. The association will choose best Vietnamese designers for the International Footwear Design Competition 2011 (IFDC 2011) in Taiwan. It is also noted that, in addition to low investment, infringements of copyrights and intellectual property rights also make Vietnam weak in designing. Thus, beautiful and popular models are not made in Vietnam. Like a vicious circle, Vietnam will act as a subcontractor for foreign partners.

 

According to Vietnamese chambers of commerce in foreign nations, most Vietnamese shoes have medium or low quality (with retailing price of US$40 or lower a pair). The Vietnamese footwear industry is still heavily reliant on foreign capital, technology, raw materials and markets. All production materials are delivered or assigned by contractors; thus, the added value in products is relatively low.

 

Mr Bui Xuan Khu, former Deputy Minister of Industry and Trade, said: The biggest advantage of the Vietnamese leather and footwear industry is export but most important criteria were not achieved in the 2006 - 2010 period. “Most products are downmarket and the industry does not have any centralised material production zones and trade promotion centres. This deficiency will be a burden when the country caries out objectives in the coming time," Mr Khu said. Particularly, the investment in material production facilities for the leather and footwear industry is encountering high barriers because of environmental pollution.

 

According to Ms Tong, before difficulties of raw materials for the leather and footwear industry, the Government allowed Lefaso to use ODA capital to invest in tanneries but no localities have supported the association to build these facilities. Meanwhile, the investment capital for tanning factories is huge; thus, both domestic and foreign companies are not interested in.

 

To achieve the targets of the master plan, the leather and footwear industry must be aggressively invested in both human and material resources to reduce the ratio of outsourcing and balance export/import.