Category: General
Country: Vietnam
Region: Asia
By Akhi Akter
17th August, 2024 10:51 AM
Vietnam’s apparel and textile industry is at a critical stage as it faces opportunities and challenges under its evolving authoritarian political landscape. The recent rise of a former Security Minister To Lam to power has sparked a mix of optimism and concern among industry experts, particularly regarding his ties to Russia and potential shifts in international trade relations.
According to the Vietnam Textile and Apparel Association (VITAS) data, as of the end of May 2024, Vietnam’s textile and garment sector had attracted over US$37 billion in foreign direct investment (FDI). The country hosts approximately 3,500 foreign-invested textile and garment projects. The General Statistical Office (GSO) reported a 4.6 percent increase in the sector’s export value, attained $16.5 billion in the first half of 2024.
Political influence on the apparel sector
Vietnam's authoritarian regime has played a significant role in shaping the economic environment, particularly in the apparel sector, which is the heart of the country's economy. The appointment of a former Security Minister as the country's leader could bring about stricter government controls and policies. However, some industry insiders believe that his ascent could also lead to greater stability, which might benefit the apparel sector in terms of predictable governance and policy continuity.
Ties with Russia and potential trade risks
The geopolitical implications of Vietnam's closer relationship with Russia cannot be ignored, especially in the context of ongoing international sanctions against Russia. As Vietnam seeks to strengthen its ties with Russia, it risks alienating key markets such as the United States and the European Union, both of which have been critical to the success of Vietnam’s apparel exports. These regions have strict regulations and are increasingly concerned with ethical sourcing and sustainability, areas where Vietnam must tread carefully if it wishes to maintain its market share.
After a year of negative growth in 2023, Vietnam’s textile and garment sector is showing signs of recovery. The General Statistical Office (GSO) reported a 4.6 percent increase in the sector’s export value, reaching US$16.5 billion in the first half of 2024. The month of June alone recorded a 2 percent monthly rebound to US$3.16 billion, driven primarily by the recovery of the US market.
Any deterioration in relations with these regions due to geopolitical alignments could lead to reduced demand for Vietnamese textiles and garments.
Challenges and strategic considerations
However, the sector is not without its challenges. The rising cost of living and labor in Vietnam is squeezing profit margins, making it difficult for manufacturers to compete on price alone. Additionally, the recent 6% increase in the minimum wage, effective from July 2024, adds further pressure on businesses already struggling with fluctuating demand and tight profit margins.
Positive aspects
Economic pressures and market dynamics
Despite these political concerns, Vietnam's apparel industry has demonstrated resilience amid various economic pressures. The sector has seen fluctuating demand, with a significant drop in export sales in the early part of 2024, primarily due to global economic uncertainties and reduced orders from key markets like the U.S. and Europe. However, there are signs of recovery as the year progresses, driven by renewed consumer confidence and the gradual stabilization of the global economy.
Moreover, the Vietnamese government has been proactive in securing Free Trade Agreements (FTAs) with major economies, which have provided the apparel sector with preferential access to important markets. These agreements have been crucial in maintaining Vietnam's competitiveness, especially as the sector faces increasing competition from other low-cost manufacturing countries like Bangladesh and India.
The role of technology and sustainability
To cross the challenges posed by both the political climate and global market dynamics, Vietnam's apparel sector is increasingly turning to technology and sustainability. The adoption of digital solutions and advanced manufacturing technologies is helping Vietnamese manufacturers streamline operations, reduce costs, and improve efficiency. This digital transformation is essential for maintaining competitiveness in a global market that is becoming more demanding in terms of speed, quality, and sustainability.
Sustainability is another critical area where Vietnam's apparel sector is making strides. With growing pressure from international buyers and consumers for environmentally friendly practices, many Vietnamese manufacturers are investing in sustainable production processes. This shift is not only about compliance with global standards but also about ensuring long-term market access, particularly in regions like the European Union, where sustainability regulations are becoming increasingly stringent.
Conclusion
Vietnam's authoritarian leadership under a former Security Minister may lead to stricter controls, but also greater stability for the apparel sector. However, closer ties with Russia could risk alienating key markets like the U.S. and EU, threatening Vietnam's export success. Despite these challenges, the sector is showing signs of recovery in 2024, driven by a rebound in U.S. demand. Balancing political shifts with maintaining international trade relations will be critical for future growth.
Courtesy: Textiletoday.com
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