Vietnam is poised to become a major player in the textile industry thanks to a convergence of unexpected factors. A large and youthful population; substantial capital and intellectual foreign investment in the textile and apparel sector; and a major new trade agreement on the horizon are all setting the stage for Vietnam to enjoy a competitive price advantage and gobble up market share.
Some companies are investing in Vietnam to take advantage of price and duty opportunities while others, like Sai-tex, have built new wave green factories that flourish in virtually any environment and under any circumstance. Their idea is simply to be the best creatively while leading the world in environmental processes.
Last year, Americans purchased 20 billion garments, 97 percent of which were imported. China, not surprisingly, shipped the most garments to the United States but, what is surprising, is that Vietnam is the second largest supplier of apparel to the U.S. market. This is a relatively new development.
About the size of Finland, Vietnam is physically a small country, that is just 3.5% the size of China. Despite its small territory, the country has a population of 92 million, of which 63 percent are between the ages of fourteen and fifty-four, while another 24 percent are between the ages of one and fourteen. As a result, Vietnam enjoys a young median age of just twenty-eight years which makes up a sizable and young workforce.
The fiber, textile and apparel sector is typically either the first or second largest source for foreign revenue, accounting for 15 percent of all Vietnamese foreign receipts in 2012. Moreover, the textile and apparel industry employs 10 percent of Vietnam’s industrial workforce. The rapid advance of Vietnam’s textile and apparel industry is particularly amazing when considering the fact that in 2000, just thirteen years ago, Vietnam signed its first bilateral trade agreement with the U.S. and joined the WTO only in 2007. Dramatically, exports to the U.S. in this period went from $1.8 billion to $17 billion.
All this activity has transpired before Vietnam was even invited to participate in the Trans-Pacific Partnership (TPP), the largest regional economic trade pact ever negotiated involving twelve countries and 40 percent of the world’s GDP. While TPP has been under negotiation since 2010, Vietnam has attracted considerable investment in its fiber, textile and apparel sector, at least in part in anticipation of the TPP’s completion.
For example, in 2011, construction of the Dinh Vu polyester fiber plant was completed, with total investment capital of $324.85 million. Dinh Vu polyester and fiber plant has a production capacity of 500 tons per day. The plant’s investor also plans to open three additional fiber mills in an attempt to increase the quality of Dinh Vu mill’s polyester fiber products.
Another example is Pacific Textiles, a mainland fabric manufacturer, which is set to open a $180 million joint-venture facility in Vietnam with Hong Kong garment maker Crystal Group this year, and will invest up to $49 million to boost its own production capacity by some 70,000 spindles. In July of this year, Hong Kong-based TAL Group announced a $200 million investment in textiles and apparel.
Texhong Textile, with $1 billion in yarn sales, has committed heavily to Vietnam. With one million spindles in China, Texhong has another 900,000 either already running or soon to be running in Vietnam. Much of this production currently ships back to China. In preparation for TPP opportunities, Texhong will complete production in 2014 of its Texhong Haiha Industrial Park which will cover 7,600 acres at a cost of $25 billion. This park is meant to attract textile companies from China or elsewhere to invest in Vietnam.
These are just three foreign investments in Vietnam and TPP has not even passed yet. Such is the heat of perceived opportunity. There are various elements in all this flurry of activity to consider. For instance, the Chinese government has set the price of cotton fiber at a substantially higher price than global markets. While cotton fiber requires quota to be imported into China, cotton yarn does not. So it is logical for Chinese textile companies to import yarn rather than spin it themselves. The government has tilted the game in this direction. Texhong, it would appear, has approximately 25 percent to 30 percent market share in Vietnamese yarn production already and is clearly leading the way for market domination before TPP is even a reality.
With Chinese demand for Vietnamese cotton and the growing Vietnamese garment exports, cotton fiber imports to Vietnam from January to August of 2013 increased by 43 percent, while U.S. cotton fiber sales climbed by over 100 percent. At the same time, garment shipments to the U.S. through September 2013 were up 16 percent.
In addition to the perceived economic benefits, there is also a sublime political element to the TPP. The potential trade accord includes Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam and last week Korea requested to join the pact. As a developing nation, Vietnam is clearly the odd man in the bunch. Why Vietnam? Some say the United States wants Vietnam in the agreement in order to balance excessive trade in textiles with China. By giving Vietnam free trade access to the U.S. and, thus, a 17 percent price advantage, the American government is clearly placing China at a long-term disadvantage. In the old days of Multi Fiber Agreements (MFA), countries were limited in what they could export to the U.S. by bilateral trade agreements. In the new world of “globalization,” the U.S. is wielding its “import” power by granting free trade to countries of its choice like Haiti, Central American nations and, now, potentially Vietnam. Chinese textile companies like Texhong see the writing on the wall. China has formidable short and long-term obstacles in shipping to the U.S.; high currency, high cotton fiber cost and now possibly an Asian competitor with duty free access.
The European Community and Canada have already granted free trade to Bangladesh and Cambodia. Talks with India have been under way for quite some time and China is the one country no nation on earth is considering to endow with a free trade agreement. This is no accident but clear strategy to isolate China’s manufacturing industry. With foreign companies investing so much, Vietnam is quietly becoming the most exciting country in Asia from which to source apparel. Everyone is waiting for TPP to pass although one wonders if the bill can actually make it through Congress. The American political quagmire has not been a friendly place for new ideas (good or bad) to attain consensus. Regardless of TPP approval, Vietnam’s textile industry is on fire.
Sai-tex, with or without TPP, is a company worth watching. Believing Vietnam is a fertile ground in which to invest, they are creating a benchmark for jeans production factories. In 2014, Sai-tex will complete the construction of a new Leadership in Energy & Environmental Design (LEED) certified garment cutting and sewing facility in Ho Chi Minh City. When completed, the factory will produce an additional 450,000 units per month and the energy supplied will be a combination of photo voltaic (PV) and electrical energy where the PV is merged into the electrical supply system. A new product integrity building has also been built and, in total, Sai-tex will provide work for 4,500 people in all areas of the factory. Founded by Sanjeev Bahl in 2002, Sai-tex likely has the most innovative and environmentally-friendly jeans factories and laundries in the world. After working with jeans factories and laundries in Vietnam, Bahl had the futuristic vision to change the way jeans are washed. Working with non-industry architects and consultants, Sai-tex completed construction in 2012 in Ho Chi Minh City and became the first Bluesign approved jeans laundry in the world.
A traditional laundry of the same size, producing 350,000 to 400,000 units per month, would normally use 600,000 liters of water daily. The new Sai-tex laundry used 600,000 liters, only on the first day of operation, and every day after uses 30,000 liters. This is possible because Sai-tex recycles 95 percent of its water. Solar panels blanket the roof of the building and supply renewable energy throughout the facility–to heat water, run the boiler, run air-conditioning and all the electrical for the factory. Jeans are dried using recycled heat from machines, and chemicals were selected and implemented that could garment dye at room temperature, eliminating the need to use energy to heat water. Sludge (a nemesis in all jeans laundries) is recycled and used to form bricks that are given away to those that can use them in building homes.
An airflow system was set up for the factory workers using natural ventilation and fans which keep the laundry at eighty-two degrees Fahrenheit in a country whose average temperature is eighty-six degrees outside the laundry. Bahl says he was inspired by Porsche–which is not a benchmark most people in the jeans industry would use. “You can eat off the floors while automation is our Mantra,” Bahl said. “Everything is built with lean principles in mind.”
And so Vietnam, already in second place for apparel exports, is launching toward the future without Congress’ approval of TPP. Should the law pass, and many people believe it will before Obama leaves office, Vietnam will become the star nation in apparel exports to America, with its high capital investment, young population and intelligent and creative investment.
Andrew Olah is the CEO of Olah Inc.