3:26:38 PM | 7/8/2005
Asia countries are now major manufacturers and suppliers of footwear in the world market with Vietnam becoming the fourth largest exporter. To gain a target of a gross domestic product (GDP) growth rate of 8.5 per cent in 2005, the leather and footwear industry will have to strive to gain an increase of between 17.5 and 19.5 per cent against that of 2004. This means that the industry will have to export around 410 million pairs of shoes, earning a total turnover of between USUS$3.25 billion and USUS$3.3 billion. However, it is a possible uphill task if Vietnam does not promote its international integration, in particular when Vietnam's accession to the World Trade Organisation is approaching.
In the last seven years, Vietnam's leather and footwear industry has made great progress, especially in output and export. In the 1999-2000, the industry's output increased from 206 million pairs to 303 million pairs. The figure now has reached around 400 million. Most products of Vietnamese enterprises are exported. So far, Vietnamese-made footwear products have been made available in over 100 countries with the EU being the largest market, occupying 65 per cent of Vietnam's export volume. Other major markets of Vietnam include the US, Japan and the Republic of Korea.
Comparative advantages
In 2005, the Vietnam leather and footwear industry has continued to maintain its comparative advantages, consisting of low outsourcing costs and high quality of products. Also, the EU has continued to grant Vietnam with the Generalised System of Preferences (GSP), which is considered as a financial instrument for helping developing countries reduce poverty by encouraging these countries to export to Europe. In fact, European partners enjoy GSP more than Vietnamese enterprises.
A rapid development of the Vietnam leather and footwear industry has coincided with a downfall of some strong, direct competitors in the region, such as Thailand and Indonesia. At present, many footwear producers in the two countries have had to close because of consumption difficulties. The number of footwear producing enterprises in Indonesia fell from 112 to 90 in 2004. Meanwhile, between 2000 and 2004, Thailand's footwear export turnover in its major markets dropped sharply, except 2003, which saw an increase of 3.4 per cent.
Difficult questions
One of the biggest difficulties of the Vietnam leather and footwear industry is its dependence on materials imported from China. According to statistics from the Ministry of Industry, around 80 per cent of materials of the leather and footwear industry are imported. The remainder comes from domestic supplies. However, domestic materials cannot meet the international quality standard. Some materials are not yet available in Vietnam.
As with the textile and garment industry, the leather and footwear industry is weak in designing products and finding outlets for products. To be successful in the international market and to have strong trademarks, designers, capable of creating products which can meet customers demands, are needed. Vietnam has few of designers of this kind. Also, the Vietnam leather and footwear industry's marketing capability remains poor. They have yet to become active in marketing their products to customers. Around 80 per cent of Vietnamese producers are subcontractors of foreign firms. This is partly because Vietnamese enterprises do not have direct relations with importers. Their transactions are implemented mainly via intermediaries. In the long term, Vietnamese producers will be unable to be follow the consumption patterns, demand and developments of the international market in order to develop suitable competition strategies.
The EU is a main market of the Vietnam leather and footwear industry with 20 per cent of the block's footwear import turnover. However, if Vietnam's export turnover to the EU exceeds 25 per cent, the EU will take measures to constrain it.
Apart from tariff barriers, one of Vietnam's leather and footwear industry major obstacles during its international integration is technical barriers. This is a broad concept, covering many aspects in international trade, such as corporate social responsibility (CSR), safe working conditions (SWC) and environment management system (EMS). At present, multi-national corporations outsource producers in developing countries, where labour costs are low and legal systems are not strict in order to maximise profits. However, they face greater pressures from consumers as they have to ensure that their goods meet requirements on clean environment, working hygiene and safety, and non-exploitation. The developments of the market and demand of consumers in the last few years show that producers' increased investment in CSR, SWC and EMS has paid off.
Another major difficulty for the Vietnam leather and footwear industry will come from fierce competition from Chinese-made products when Vietnam joins the World Trade Organisation (WTO). So far, Vietnamese products have lost their share in the domestic market to Chinese products. In the international market, China is the leading producer with an output of around six billion pairs of shoes per annum, equal to 50 per cent of the world's output. In the coming time, China will become the largest competitor for any footwear producing countries, Vietnam included.
Aspects needing reform
For the Vietnam leather and footwear industry to develop in a sustainable manner during international integration, the industry should make adjustments in some aspects as soon as possible.
Accordingly, local human resources should be used better with improved quality of training of skilled workers and strengthened management and production capability, as well as renewed technology.
The Vietnam Footwear Association with support provided by the Government should concentrate on planning of domestic material supplies and improving design capability. This will become the decisive factor of the Vietnamese leather and footwear industry in the future. Along with trade promotion and sales skills, this is one of the most important factors for the building of Vietnamese footwear trademarks.
Enterprises should reduce their subcontracts and increase directly exported volume. Also, they should diversify their markets by promoting export to the US and other markets.
In the near future, the Government and the Ministry of Trade will continue to negotiate with the EU on granting GSP to Vietnam's major goods, including footwear products. At the same time, Vietnam's accession to WTO should be accelerated to reduce competition pressure from other countries in the region, especially China.
Tran Danh Dang
Director of Hanoi Leather Shoes Company
Vietnamese
