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Vietnam Textile Factories Propose Wage Freeze to Boost Competitiveness

Vietnam may not make its export target for 2016 and now textile and garment factories there are mulling a wage freeze to help them stay in the game.

Thanks to a lack of orders and increased competition and currency fluctuations in neighboring low-cost nations, Vietnam has only reached 41 percent of its export target for 2016.

For the first half of the year, Vietnam exported $12.6 billion worth of textiles and garments, a 4.72% increase over the prior year, according to Vietnam News. The growth came largely from an increase in foreign direct investment firms, while local companies struggled to drum up new export business.

At a Vietnam Textile and Apparel Association (VITAS) conference in Hanoi last week, association deputy chairman Truong Van Cam said part of the problem is that Vietnam’s currency policy has remained stable while competitors like India, Bangladesh, China and other ASEAN countries have devalued their currencies, thus increasing their export competitiveness, Vietnam News reported.

Add to that, interest rates on often necessary banking loans are as high as 8 to 10 percent, which makes capital pricier for local enterprises.

So factory owners are turning to wages for aid.

The minimum wage for textile and garment workers in Vietnam has risen by an average 26.4% per year for local businesses and 18.1% each year for businesses with foreign investment in the 2008-2016 period, Vietnam News reported. With those wage hikes come increases in insurance payments and union dues, which pose further problems for factory owners.

Now VITAS wants the government not to increase the minimum wage at all in 2017 and then only increase it every two or three years thereafter in order for Vietnam to maintain its competitiveness in the sector.

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Vietnam’s competition has also faltered due to a lack of investment in new technology for yarn and fabric, which could help the industry there produce higher-value products for export.

The other problem, as VITAS explained, is that textile and garment firms are facing troublesome administrative processes. The time it takes to clear garments and materials from customs has increased production to uncompetitive lengths at a time when nearly all brands are looking for lessened lead times.

Fox fur, feathers and bear fur used to produce jackets, for example, are required to get import licenses in accordance with local regulations—despite having animal quarantine and origin certificates from exporting countries—a procedure that can take as many as 10 days.

Similar procedure duplication and tie-ups happen when local firms try to import cotton for production, or want to purchase printers for garment production.

VITAS is calling on the government to help allay some of these ills and said if the lack of export orders persist, many small and medium-sized firms will be forced to shutter. If conditions don’t improve, the country may end up $2 billion down from its export target, bringing in a lower $29 billion for the year.

The textile association has handed its suggestions for change over to the country’s prime minister for solutions.