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If you want to use Vietnam for globalization, Chinese textile enterprises must know this
Publish：2023-08-18 View：801
In recent years, Vietnam has inspired investors with its advantages of low labor costs, inexpensive industrial raw materials and favorable tax policies for foreign investors. On January 14 this year, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) officially came into force in Vietnam, which will help promote Vietnams exports to markets in Asia, America and Oceania. In the Japanese market, on April 1, Japan officially ended the Generalized System of Preferences (GSP) treatment for China, and the average tariff rate for Chinese goods exported to Japan went up by about 3%, and some products even went up by more than 10%. At the same time, Japan still retains the GSP treatment given to Vietnam, Vietnams exports to Japans textile and garment products have significantly increased the competitive price advantage. With the ever-expanding trade "circle of friends" and tax incentives for export markets, Vietnam can become a springboard for the globalization of textile enterprises?
1, industrial development overview
Vietnams textile and apparel industry in the countrys accession to the World Trade Organization (WTO) after the rapid development of textile and apparel exports in 2013, 2014, Vietnam experienced rapid growth, the annual export scale quickly exceeded 20 billion U.S. dollars. According to the Vietnam Statistical Office, Vietnams textile and garment exports in 2013 and 2014 amounted to $17.947 billion and $20.949 billion respectively, jumping 24.49% and 16.73% year-on-year, respectively. Today, the textile and garment industry has gradually become one of Vietnams pillar industries.In 2018, Vietnam exported $30.447 billion in textiles and garments, up 17.43 percent year-on-year; textile and garment exports accounted for 12.44 percent of Vietnams total merchandise exports.
According to the Vietnam Textile and Garment Association, the industry has about 4,000 enterprises with an annual turnover of $20 billion, and products are mainly exported to 180 countries and territories in the world. Vietnam is one of the countries in Asia that have accelerated the expansion of spinning capacity in recent years. The countrys yarn production capacity can reach about 7 million spindles, 82% of which are exported to Indonesia, China and other countries. In addition, Vietnams garment exports have also been rising year by year at a growth rate of 30%, mainly to the US, South Korea and Japan. From the point of view of export markets, the United States is a larger export market for Vietnamese textiles and clothing.
2. Favorable policies
In recent years, Vietnam is increasingly to the depth and breadth of integration into the international economy, a large number of textile enterprises, including Chinese enterprises to invest in Vietnam. Statistics show that from 2000 to 2013, Vietnams textile and garment sector attracted foreign investment of 8.2 billion U.S. dollars, and from 2014 to 2015, the amount of foreign investment in the field of textile and garment was 5.24 billion U.S. dollars, of which 3.5 billion U.S. dollars were invested in the field of weaving. The increase in Vietnams ability to attract investment is mainly due to the countrys bilateral and multilateral cooperation agreements with many countries and regions around the world, enabling the textile and garment industry to benefit from the tax-advantageous clauses of various FTAs. So far, Vietnam has signed 16 Free Trade Agreements (FTAs) with other countries and regions, especially with developed countries such as the European Union (EU), Japan, and South Korea, etc. The Vietnam-EU Free Trade Agreement (EVFTA) signed between Vietnam and the EU may come into force this year. Under the agreement, the EU will exempt Vietnams exports to the EU from tariffs on 85.6% of tariff items and raise the abolition rate to 99% in the following seven-year period. This will inject strong vitality into Vietnams exports, especially footwear and apparel products.
In terms of tax policy, VAT on domestic products is only 10%; the income tax rate for Vietnamese enterprises is 20%, and some industrial zones can enjoy a 4-year tax exemption starting from the first profit-making year after offsetting past losses, followed by a 50% reduction for the next 9 years, and a 15% income tax rate for 15 years starting from the year when the business generates income. In terms of the cost of production factors, the price of water in Vietnam is RMB 1.8~2.4/ton and electricity is RMB 0.42/kWh; the average labor cost in Vietnam is only RMB 2,250/month. The cost of investment in Vietnam also has a clear advantage, in addition to enjoying low water and electricity costs, investment in a medium-sized enterprises require capital of only 1 million to 1.5 million U.S. dollars, as long as the capital required for small enterprises 1 million U.S. dollars, the price of its land is also many Southeast Asian countries in the cost-effective, which highlights the unlimited potential for investment in Vietnam. In addition to the advantages of labor, electricity, plant costs are lower than other countries in the same region, connecting the various industrial and garment and textile centers, ports and infrastructure due to the Vietnamese governments active investment, has also become a major factor in attracting foreign investment in Vietnam.
3. Business Risks
3.1 Mismatched industrial chain development
Although textile enterprises to invest in Vietnam can enjoy a variety of benefits, but in the process of business management, is still facing many practical problems. Vietnams textile industry is a problem that the industrys overall supply chain system is backward, spinning, weaving, clothing, dyeing and finishing of all aspects of the industrial system is not perfect, the domestic only lone production plant, low production efficiency. Vietnams Ministry of Industry and Trade data show that Vietnams textile enterprises in the domestic procurement of raw materials accounted for only 10%, while Vietnams domestic production of textile auxiliary materials can only meet the countrys textile industry only 30% of the production demand, most of the textile raw materials and auxiliary materials are dependent on imports to the fabric imports as an example, Vietnams textile industry needs 6.8 billion meters of a variety of fabrics each year, the annual domestic production of only 800 million meters, and more than to the general fabrics-based, the industry self-sufficiency rate is far lower than Chinas. The self-sufficiency rate of the industry is much lower than that of China and India. Therefore, if the Vietnamese textile industry does not fully grasp the situation, blind investment in building factories, Vietnamese factories can only act as a production workshop far from the enterprise in this role, the enterprise can not play the advantages of Vietnams low cost.
3.2 Foreign exchange risk
Chinas textile enterprises to invest in Vietnam, but also face the risk of exchange between the Vietnamese dong, RMB, USD, if the Vietnamese dong appreciates, it is adversely affecting the flow of funds for textile enterprises investing in Vietnam. Relevant research shows that for every 1% appreciation of the Vietnamese dong, the profitability of textile enterprises fell by 2% to 6%, and if the Vietnamese dong appreciated by 5%, the profitability of the textile industry fell by at least 10%, which can be seen in the exchange rate changes directly affect the profitability of textile enterprises.
3.3 Inflation risk
Over the past decade, Vietnams rapid economic development is also accompanied by high inflation, such as in August 2008, Vietnams inflation rate hit a 17-year high of 28.3%, high inflation brought about by large fluctuations in prices, which indirectly improves the operating costs of production management of foreign enterprises, but also seriously affects the countrys macroeconomic environment. Take Vietnams textile and garment industry as an example, the domestic supply of self-sufficient textile raw materials is to hinder the development of Vietnams textile industry hard, and cotton belongs to the main source of textiles, due to high inflation makes the cost of growing cotton is very high, coupled with the low productivity and low output, resulting in a lack of price competitiveness of Vietnams cotton in the market, so the Vietnamese people are not very much like to grow cotton. At present, although the price index and inflation rate in Vietnam are within the controllable range, they should also attract the attention of investors.
4 Investment Cases
4.1 Tianhong Group
Tianhong Group is one of the early enterprises in Chinas textile industry that have made capacity layout in Vietnam and become successful, Tianhong Groups first investment in Vietnam is divided into three phases, with the total investment in the first, second and third phases amounting to US$40 million, US$70 million and US$90 million, respectively, and the resulting production capacity of the three phases will be as high as 350,000 spindles after the completion of the construction. Ltd. was formally established in Vietnam, with spandex core yarn as the main industry. Nowadays, the subsidiary of Rainbow Group in Vietnam has developed into a more mature production base, which generates even higher revenue than domestic companies. Investing in Vietnam is a milestone in the history of Rainbow Textile Group. The groups implementation of the "Vietnam Production Scale Expansion Program" coincided with the appreciation of the renminbi and the establishment of the countrys overseas financing platform, which accelerated the process of investing in Vietnam, making Tianhong Group an enterprise in the textile industry whose overseas production capacity is even higher than its domestic capacity. Today, the Rainbow Group has a total of three production bases in Vietnam, which are Haihe Industrial Park, Rainbow Yinlong in Quang Ninh Province and Rainbow Inze in Dong Nai Province.
4.2 Shenzhou Knitting Co.
Headquartered in Ningbo, Zhejiang Province, Shenzhou Knitting Co., Ltd. is a knitwear manufacturer with a vertical supply chain system, mainly supplying knitwear to downstream customers on an OEM basis, with its main customers including Uniqlo, Adidas, Nike, Puma and other international famous brands, and its products are exported to the Asia-Pacific, European and American markets. Shenzhou has fabric and garment production factories in Vietnam, and overseas employees (Cambodia and Vietnam) are expected to account for more than 1/3 of the total workforce. however, the per capita output of the Vietnam factory is still lower than Shenzhous China factories, so there is still some room for improvement in the future. Shenzhou plans to add 5,000 workers in Vietnam in the second half of 2019 to improve worker efficiency through continuous automation.
4.3 Waffle Fashion Co.
At the end of 2018, Chinas well-known color spinning supplier and manufacturer, Waffle Fashion Co. announced that it intends to invest in a new yarn project built by Waffle in Vietnams Long An Province through its subsidiary, which has a capacity of 500,000 spindles and a total investment of RMB 2.5 billion. The project is the first phase of the enterprises planned 1 million spindle new yarn project. Previously, the opening ceremony of Vietnam Waffle Industrial Park and the signing ceremony of "Zheshang Green Town" project was held in Vietnam. Sun Weiting, Chairman of Waffle Fashion, believes that Vietnam has become a rapid response production base of Waffle in Southeast Asia, and investment in Vietnam can effectively reduce the cost impact of the price difference between domestic and overseas of the main raw materials, make full use of the local policies, labor costs and location advantages, reduce international logistics costs, avoid tariff barriers, and improve the competitiveness of the products.
5、Investment Opportunities
At present, Vietnam and China are promoting the "Two Corridors and One Circle" plan and the "Belt and Road" construction, which will help expand trade and investment between the two countries, and continue to develop the market. In terms of trade between the two countries, in 2018, textile trade between China and Vietnam increased rapidly, and the import and export commodities form complementary advantages, China mainly exported knitted fabrics and crocheted fabrics, as well as non-knitted or non-crocheted garments and clothing accessories to Vietnam; Vietnam mainly exported cotton and other products to China. According to China Customs statistics, in 2018, Chinas exports of textile raw materials and textile products to Vietnam amounted to USD 16.030 billion, up 25.31% year-on-year; Chinas imports of textile raw materials and textile products from Vietnam amounted to USD 4.309 billion, up 17.88% year-on-year; in terms of proportion, Chinas exports of textile products to Vietnam accounted for 19.11% of the total merchandise exports in 2018, up 1.09% from 1.09 percentage points in 2017; in 2018, Chinas textile imports from Vietnam accounted for 6.74% of total merchandise imports, a decrease of 0.53 percentage points from 2017 (. Among the categories of Chinas main textile exports to Vietnam, wool and other animal hair, horse hair yarns and their woven fabrics increased by 49.53%; while among the categories of Chinas main textile imports from Vietnam, carpets and other floor coverings made of textile materials grew rapidly.
In recent years, attracted by labor cost and favorable trade environment, more and more Chinese textile and garment enterprises have located part of their new production capacity in Vietnam. Dong Nai province is an area in Vietnam that attracts much foreign investment and rapid industrial development, with more than 1,000 foreign direct investment projects in 31 industrial parks in the province, in which a number of leading domestic textile companies such as Tianhong, Bailong and Shenzhou have built factories here. Chinese enterprises have invested in Vietnam more on the basis of their globalization, hoping to enter the ASEAN and even global markets through Vietnam. The CPTPP, which came into effect at the beginning of this year, is a multilateral trade agreement in which 11 member countries have pledged to reduce tariffs in member countries by more than 98%, liberalize business and investment on the basis of compliance with the laws and regulations of the host country, create many business opportunities for member countries enterprises, and provide convenience for member countries consumers. For enterprises investing in Vietnam, this is a good opportunity to improve competitiveness, optimize the quality of goods and services, and align with global trends to participate more effectively in the global supply chain.
Vietnams proximity to China and its similarities with China in terms of culture, system, thinking and behavior, as well as its advantages in terms of geography and resources, make Vietnam a frontier for Chinese enterprises to "go global" and a practical classroom for Chinese enterprises to internationalize. Although investment in Vietnam has shown many benefits, but Chinese textile enterprises should still correctly assess their own financial situation, market share, raw and auxiliary materials production capacity, labor and equipment, etc., only to do "know yourself and know your enemy", Chinas textile and apparel enterprises in order to embrace the "going out! "Spring".
1, industrial development overview
Vietnams textile and apparel industry in the countrys accession to the World Trade Organization (WTO) after the rapid development of textile and apparel exports in 2013, 2014, Vietnam experienced rapid growth, the annual export scale quickly exceeded 20 billion U.S. dollars. According to the Vietnam Statistical Office, Vietnams textile and garment exports in 2013 and 2014 amounted to $17.947 billion and $20.949 billion respectively, jumping 24.49% and 16.73% year-on-year, respectively. Today, the textile and garment industry has gradually become one of Vietnams pillar industries.In 2018, Vietnam exported $30.447 billion in textiles and garments, up 17.43 percent year-on-year; textile and garment exports accounted for 12.44 percent of Vietnams total merchandise exports.
According to the Vietnam Textile and Garment Association, the industry has about 4,000 enterprises with an annual turnover of $20 billion, and products are mainly exported to 180 countries and territories in the world. Vietnam is one of the countries in Asia that have accelerated the expansion of spinning capacity in recent years. The countrys yarn production capacity can reach about 7 million spindles, 82% of which are exported to Indonesia, China and other countries. In addition, Vietnams garment exports have also been rising year by year at a growth rate of 30%, mainly to the US, South Korea and Japan. From the point of view of export markets, the United States is a larger export market for Vietnamese textiles and clothing.
2. Favorable policies
In recent years, Vietnam is increasingly to the depth and breadth of integration into the international economy, a large number of textile enterprises, including Chinese enterprises to invest in Vietnam. Statistics show that from 2000 to 2013, Vietnams textile and garment sector attracted foreign investment of 8.2 billion U.S. dollars, and from 2014 to 2015, the amount of foreign investment in the field of textile and garment was 5.24 billion U.S. dollars, of which 3.5 billion U.S. dollars were invested in the field of weaving. The increase in Vietnams ability to attract investment is mainly due to the countrys bilateral and multilateral cooperation agreements with many countries and regions around the world, enabling the textile and garment industry to benefit from the tax-advantageous clauses of various FTAs. So far, Vietnam has signed 16 Free Trade Agreements (FTAs) with other countries and regions, especially with developed countries such as the European Union (EU), Japan, and South Korea, etc. The Vietnam-EU Free Trade Agreement (EVFTA) signed between Vietnam and the EU may come into force this year. Under the agreement, the EU will exempt Vietnams exports to the EU from tariffs on 85.6% of tariff items and raise the abolition rate to 99% in the following seven-year period. This will inject strong vitality into Vietnams exports, especially footwear and apparel products.
In terms of tax policy, VAT on domestic products is only 10%; the income tax rate for Vietnamese enterprises is 20%, and some industrial zones can enjoy a 4-year tax exemption starting from the first profit-making year after offsetting past losses, followed by a 50% reduction for the next 9 years, and a 15% income tax rate for 15 years starting from the year when the business generates income. In terms of the cost of production factors, the price of water in Vietnam is RMB 1.8~2.4/ton and electricity is RMB 0.42/kWh; the average labor cost in Vietnam is only RMB 2,250/month. The cost of investment in Vietnam also has a clear advantage, in addition to enjoying low water and electricity costs, investment in a medium-sized enterprises require capital of only 1 million to 1.5 million U.S. dollars, as long as the capital required for small enterprises 1 million U.S. dollars, the price of its land is also many Southeast Asian countries in the cost-effective, which highlights the unlimited potential for investment in Vietnam. In addition to the advantages of labor, electricity, plant costs are lower than other countries in the same region, connecting the various industrial and garment and textile centers, ports and infrastructure due to the Vietnamese governments active investment, has also become a major factor in attracting foreign investment in Vietnam.
3. Business Risks
3.1 Mismatched industrial chain development
Although textile enterprises to invest in Vietnam can enjoy a variety of benefits, but in the process of business management, is still facing many practical problems. Vietnams textile industry is a problem that the industrys overall supply chain system is backward, spinning, weaving, clothing, dyeing and finishing of all aspects of the industrial system is not perfect, the domestic only lone production plant, low production efficiency. Vietnams Ministry of Industry and Trade data show that Vietnams textile enterprises in the domestic procurement of raw materials accounted for only 10%, while Vietnams domestic production of textile auxiliary materials can only meet the countrys textile industry only 30% of the production demand, most of the textile raw materials and auxiliary materials are dependent on imports to the fabric imports as an example, Vietnams textile industry needs 6.8 billion meters of a variety of fabrics each year, the annual domestic production of only 800 million meters, and more than to the general fabrics-based, the industry self-sufficiency rate is far lower than Chinas. The self-sufficiency rate of the industry is much lower than that of China and India. Therefore, if the Vietnamese textile industry does not fully grasp the situation, blind investment in building factories, Vietnamese factories can only act as a production workshop far from the enterprise in this role, the enterprise can not play the advantages of Vietnams low cost.
3.2 Foreign exchange risk
Chinas textile enterprises to invest in Vietnam, but also face the risk of exchange between the Vietnamese dong, RMB, USD, if the Vietnamese dong appreciates, it is adversely affecting the flow of funds for textile enterprises investing in Vietnam. Relevant research shows that for every 1% appreciation of the Vietnamese dong, the profitability of textile enterprises fell by 2% to 6%, and if the Vietnamese dong appreciated by 5%, the profitability of the textile industry fell by at least 10%, which can be seen in the exchange rate changes directly affect the profitability of textile enterprises.
3.3 Inflation risk
Over the past decade, Vietnams rapid economic development is also accompanied by high inflation, such as in August 2008, Vietnams inflation rate hit a 17-year high of 28.3%, high inflation brought about by large fluctuations in prices, which indirectly improves the operating costs of production management of foreign enterprises, but also seriously affects the countrys macroeconomic environment. Take Vietnams textile and garment industry as an example, the domestic supply of self-sufficient textile raw materials is to hinder the development of Vietnams textile industry hard, and cotton belongs to the main source of textiles, due to high inflation makes the cost of growing cotton is very high, coupled with the low productivity and low output, resulting in a lack of price competitiveness of Vietnams cotton in the market, so the Vietnamese people are not very much like to grow cotton. At present, although the price index and inflation rate in Vietnam are within the controllable range, they should also attract the attention of investors.
4 Investment Cases
4.1 Tianhong Group
Tianhong Group is one of the early enterprises in Chinas textile industry that have made capacity layout in Vietnam and become successful, Tianhong Groups first investment in Vietnam is divided into three phases, with the total investment in the first, second and third phases amounting to US$40 million, US$70 million and US$90 million, respectively, and the resulting production capacity of the three phases will be as high as 350,000 spindles after the completion of the construction. Ltd. was formally established in Vietnam, with spandex core yarn as the main industry. Nowadays, the subsidiary of Rainbow Group in Vietnam has developed into a more mature production base, which generates even higher revenue than domestic companies. Investing in Vietnam is a milestone in the history of Rainbow Textile Group. The groups implementation of the "Vietnam Production Scale Expansion Program" coincided with the appreciation of the renminbi and the establishment of the countrys overseas financing platform, which accelerated the process of investing in Vietnam, making Tianhong Group an enterprise in the textile industry whose overseas production capacity is even higher than its domestic capacity. Today, the Rainbow Group has a total of three production bases in Vietnam, which are Haihe Industrial Park, Rainbow Yinlong in Quang Ninh Province and Rainbow Inze in Dong Nai Province.
4.2 Shenzhou Knitting Co.
Headquartered in Ningbo, Zhejiang Province, Shenzhou Knitting Co., Ltd. is a knitwear manufacturer with a vertical supply chain system, mainly supplying knitwear to downstream customers on an OEM basis, with its main customers including Uniqlo, Adidas, Nike, Puma and other international famous brands, and its products are exported to the Asia-Pacific, European and American markets. Shenzhou has fabric and garment production factories in Vietnam, and overseas employees (Cambodia and Vietnam) are expected to account for more than 1/3 of the total workforce. however, the per capita output of the Vietnam factory is still lower than Shenzhous China factories, so there is still some room for improvement in the future. Shenzhou plans to add 5,000 workers in Vietnam in the second half of 2019 to improve worker efficiency through continuous automation.
4.3 Waffle Fashion Co.
At the end of 2018, Chinas well-known color spinning supplier and manufacturer, Waffle Fashion Co. announced that it intends to invest in a new yarn project built by Waffle in Vietnams Long An Province through its subsidiary, which has a capacity of 500,000 spindles and a total investment of RMB 2.5 billion. The project is the first phase of the enterprises planned 1 million spindle new yarn project. Previously, the opening ceremony of Vietnam Waffle Industrial Park and the signing ceremony of "Zheshang Green Town" project was held in Vietnam. Sun Weiting, Chairman of Waffle Fashion, believes that Vietnam has become a rapid response production base of Waffle in Southeast Asia, and investment in Vietnam can effectively reduce the cost impact of the price difference between domestic and overseas of the main raw materials, make full use of the local policies, labor costs and location advantages, reduce international logistics costs, avoid tariff barriers, and improve the competitiveness of the products.
5、Investment Opportunities
At present, Vietnam and China are promoting the "Two Corridors and One Circle" plan and the "Belt and Road" construction, which will help expand trade and investment between the two countries, and continue to develop the market. In terms of trade between the two countries, in 2018, textile trade between China and Vietnam increased rapidly, and the import and export commodities form complementary advantages, China mainly exported knitted fabrics and crocheted fabrics, as well as non-knitted or non-crocheted garments and clothing accessories to Vietnam; Vietnam mainly exported cotton and other products to China. According to China Customs statistics, in 2018, Chinas exports of textile raw materials and textile products to Vietnam amounted to USD 16.030 billion, up 25.31% year-on-year; Chinas imports of textile raw materials and textile products from Vietnam amounted to USD 4.309 billion, up 17.88% year-on-year; in terms of proportion, Chinas exports of textile products to Vietnam accounted for 19.11% of the total merchandise exports in 2018, up 1.09% from 1.09 percentage points in 2017; in 2018, Chinas textile imports from Vietnam accounted for 6.74% of total merchandise imports, a decrease of 0.53 percentage points from 2017 (. Among the categories of Chinas main textile exports to Vietnam, wool and other animal hair, horse hair yarns and their woven fabrics increased by 49.53%; while among the categories of Chinas main textile imports from Vietnam, carpets and other floor coverings made of textile materials grew rapidly.
In recent years, attracted by labor cost and favorable trade environment, more and more Chinese textile and garment enterprises have located part of their new production capacity in Vietnam. Dong Nai province is an area in Vietnam that attracts much foreign investment and rapid industrial development, with more than 1,000 foreign direct investment projects in 31 industrial parks in the province, in which a number of leading domestic textile companies such as Tianhong, Bailong and Shenzhou have built factories here. Chinese enterprises have invested in Vietnam more on the basis of their globalization, hoping to enter the ASEAN and even global markets through Vietnam. The CPTPP, which came into effect at the beginning of this year, is a multilateral trade agreement in which 11 member countries have pledged to reduce tariffs in member countries by more than 98%, liberalize business and investment on the basis of compliance with the laws and regulations of the host country, create many business opportunities for member countries enterprises, and provide convenience for member countries consumers. For enterprises investing in Vietnam, this is a good opportunity to improve competitiveness, optimize the quality of goods and services, and align with global trends to participate more effectively in the global supply chain.
Vietnams proximity to China and its similarities with China in terms of culture, system, thinking and behavior, as well as its advantages in terms of geography and resources, make Vietnam a frontier for Chinese enterprises to "go global" and a practical classroom for Chinese enterprises to internationalize. Although investment in Vietnam has shown many benefits, but Chinese textile enterprises should still correctly assess their own financial situation, market share, raw and auxiliary materials production capacity, labor and equipment, etc., only to do "know yourself and know your enemy", Chinas textile and apparel enterprises in order to embrace the "going out! "Spring".
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