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Labor Costs and Trade Agreements are Luring Footwear Brands to Vietnam

As sourcing costs rise along with trade tensions, the appeal of affordable labor costs and relatively tension free trade relations has footwear companies increasingly turning their attention to Vietnam.

Pulling from the data compiled for its World Footwear Yearbook, World Footwear said Vietnam produced 1.18 billion pairs of shoes in 2017, giving it a 5.2% share of the world market and making it the third largest producing country in the world. Vietnam was also the second largest exporter of footwear, shipping 1.02 billion pairs around the world and commanding a 7.4% share of the market.

When it comes to U.S. footwear imports in particular, Vietnam is the second largest supplier of shoes after China. In the year to March, the U.S. took in 109.4 million pairs of shoes from Vietnam, a 14 percent increase over the 95.8 million pairs it had imported from the country at the same time in 2017.

Part of the growth has to do with more shift away from China as labor costs there continue to climb.

Last month Adidas indicated a shift in its own footwear sourcing from China to Vietnam, and alluded to the trend continuing.

Forty-four percent of Adidas’ footwear was made in factories in Vietnam last year, up from 31 percent in 2012, World Footwear reported. By contrast, its Chinese suppliers only produced 19 percent of its footwear volume, and that number is down from 30 percent over the same period. By 2019, Adidas expects more than half of its footwear will be produced in Vietnam.

The shrink from China may prove beneficial amid the ongoing Sino-U.S. trade battle being waged with tariffs.

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According to World Footwear, Puma, which makes close to one-third of its goods in China, recently noted efforts to move some production out of China and into other Asian markets as a result of new tariff impositions. Nike has also spent big money in Vietnam, benefiting from a favorable trade environment and reasonable labor costs.

The threat of higher duties—no matter how harsh they seem—still won’t unseat China as the leader in footwear production, however.

“China is still an important procurement market, irrespective of trade duties,” Adidas CEO Kasper Rorsted told shareholders at an annual meeting.

For Diệp Thành Kiệt, deputy chairman of Lefaso, Vietnam’s leather, footwear and handbag association, there’s confidence that Vietnam’s current performance will continue as the country looks to enhance its development.

Speaking at the two-day Vietnam Footwear Summit in Ho Chi Minh City in March, Kiệt pointed to the country’s trade agreements with Japan, ASEAN and the TPP-11, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), plus its ample workforce.

“We have a golden demographic ratio with 66.9% of the population being working age, providing an abundant supply of cheap and skilled workers,” Vietnam News reported Kiệt as saying. “Vietnam can supply materials for the footwear industry and becomes a destination for large producers.”

The key for the country, Kiệt added, has been its ability to produce and export high value-added products.

Continuing, he said, “This is a big opportunity for the industry. If we continue to promote the export of high-value products, the industry will develop strongly.”