Driven to near desperation by prolonged lockdowns, Vietnam’s textile and garments industry managed to recover quickly and regain its growth momentum towards the end of the year.
Cao Huu Hieu, General Director of Vietnam National Textile and Garment Group (Vinatex), has called 2021 an “unprecedented year in history.” Thousands of employees had to quit key companies in the industry. For instance, the Viet Tien Garment Corporation with 34,000 employees had approximately 94 percent of them leave. Many other firms had to stop production due to the bad Covid situation in the south.
“We were in a desperate situation at times. The Vietnam Textile and Apparel Association (VITAS) has never seen such a large number of workers leave their jobs and require assistance as a result of the epidemic.”
Apart from the thousands of workers, textile firm owners experienced many hardships this year as well. In the first quarter, businesses were very excited because they were able to sign contracts until the end of the third quarter. But starting in May, soon after the fourth wave of epidemic broke out strongly in southern provinces, the firms plunged into an existential crisis.
The industry was particularly hard hit in the third quarter with Covid-19 erupting massively in Ho Chi Minh City and southern provinces. Businesses were forced to use the “stay at work” model, with only half of employees working and living in the factory.
Eight factories of Viet Tien Garment Corporation were located in the red zone during the period of social distancing that 19 southern provinces and cities went through. After the local government tightened epidemic prevention measures, the firm’s factory in Tien Giang, which employed over 10,000 people, was forced to temporarily close.
“The damage was enormous,” said Bui Van Tien, General Director of Viet Tien Garment Corporation, recalling the ordeal.
Normally, the profit margin for textile processing goods is less than 10 percent, according to some industry insiders, but the damage caused by four months of business closures “destroyed all business targets.” After a long period of social distancing, a unit of Viet Tien was forced to restructure itself.
Costs incurred in the second and third quarters, combined with raw material shortages, changes in orders and increased logistics costs exerted enormous pressures on the textile industry, particularly in the south. Differences in provincial Covid policies exacerbated many problems, particularly in transportation.
More than 40 percent of the textile and garment industry’s production capacity comes from businesses in the south. As a result, when a number of businesses in region had to close temporarily or operate at half capacity, its impact was immediately seen. Textile exports turnover fell by nearly 16 percent in September compared to July, and the downward trend continued.
Businesses were unable to fulfill orders until the main textile export markets recovered. During this time, some firms spent about VND2 billion ($85,800) per week to keep production going, retain customers and avoid supply chain disruptions.
Fresh start
After this period of intense pain, some light appeared at the end of the tunnel. Starting in October, the government relaxed prevention and control measures, shifting from a “zero Covid” policy to living safely with the virus. Businesses reopened, as did a number of large markets, including the United States, the European Union and Japan, allowing the industry to grow once more.
Hieu of Vinatex said that in the first month following the prolonged lockdown, 90 percent of employees returned to work for the group’s companies, while many other businesses in the same industry and location saw only 50-60 percent of the employees return. Almost all of Vinatex’s employees have returned to their normal jobs as of now, Hieu said.
With production recovering, the high growth rate in the fourth quarter assisted the textile and garment industry in meeting the year-end export target of $39 billion, an increase of nearly 12 percent over 2020, and returning to pre-Covid-19 levels.
VITAS chairman Vu Duc Giang called this a “great effort” in the midst of slow global economic recovery.
At nearly $16 billion, up 12 percent year on year, the United States has remained Vietnam’s largest textile and garment export market. Other major markets include the EU with $3.7 billion, up 14 percent; South Korea with $3.6 billion, and China with $4.4 billion – primarily exporting yarn.
While there was regional disparity in profits among manufacturing enterprises due to the impact of the epidemic and the extended lockdown, many businesses still experienced impressive growth.
Hieu said this was a huge success, with his group’s consolidated profits more than doubling in 2020, reaching VND1.2 trillion, 70 percent higher than in 2019.
He cited the following as some of the primary reasons for success: business restructuring and increasing the proportion of the yarn industry, which has boosted revenue and profit growth to 50-55 percent; and the gradual streamlining of manufacturing supply-chain.
Thanks to good business results, Hieu’s group still maintains a Tet bonus of 1.5-2 months of salary, with some units rewarding employees with three months’ salary as Tet bonus.
The TNG Investment and Trading Joint Stock Company (Thai Nguyen) is another company in the north that is expected to increase its profits this year to around VND230 billion.
Nguyen Van Thoi, Chairman of TNG Joint Stock Company (Thai Nguyen), said their factories were concentrated in Thai Nguyen Province, a location less affected by social distancing, so the company’s operations remained relatively stable. His company also benefited from the market trend of shifting textile and garment orders to northern production plants as southern businesses struggled to tackle the Covid-19 pandemic’s impacts.
Despite the resilience and dynamism shown by the textiles and garments industry, industry insiders have called for caution. The presence of a new strain of the novel coronavirus – Omicron is one of the factors to watch out for. If there is a spike in Omicron cases, production and overall business goals of the entire industry will be affected, they warned.
Among the other obstacles for the industry include: increased logistics costs (4-5 times higher); a scarcity of empty containers; congestion in sea transportation and other shipping difficulties; changes in major markets like the United States and the European Union; and changes in competitors like India, Bangladesh, and China.
Tran Nhu Tung, Chairman of Thanh Cong Textile and Garment Company, said many textile and garment enterprises were hesitant to take on Q1 and Q2 orders due to labor uncertainties. If the production schedule cannot be guaranteed, he will have to deliver goods by air, which increases overall costs that not all customers are willing to share, he added.
Currently, the cost of transporting goods by air has quadrupled, from $4,000-$4,500 per ton, to $17,000, and flight routes are hard to come by. “This is a huge challenge for textile enterprises right now,” said Giang of VITAS.
According to a survey conducted by the Research Center for Employment Relations (ERC), only 16.7 percent of buyers agree to share air freight costs with businesses with long-term contracts.
Vinatex chairman Le Tien Truong noted that the textile industry’s 12 percent growth rate does not necessarily indicate an increase in market share. The reason is the passivity of Vietnamese companies when global orders resume following a long period of closure, he said.
The pandemic situation in Vietnam and around the world is expected to remain complicated and unpredictable in 2022, but there are some positive signals from the market that indicate growth opportunities for the textile industry.
Vietnam’s garment and textile exports were worth $39 billion this year, nearly 12 percent up from 2020 and back to pre-Covid-19 levels, the Vietnam Textile and Apparel Association said.
Exports to the U.S., its biggest market, fetched nearly $16 billion, a 12 percent rise. The other major buyers were the EU ($3.7 billion), South Korea ($3.6 billion) and China ($4.4 billion).
Vinatex reported a development this year, with yarn accounting for 50-55 percent of its revenues and profits, up from 20 percent until last year.
It achieved this by creating a closed supply chain of yarn, weaving, dyeing, and making garments amid the global supply disruption, its general director Cao Huu Hieu said.
VITAS said the country’s garment and textile exports would rise to $43-43.5 billion in 2022.
But garment companies are wary of new cases of Covid, higher logistics costs, adverse changes in key export markets such as the U.S. and the EU, and fiercer competition from India, Bangladesh and China
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