Export of leather and footwear businesses are expected to increase in 2018

The enterprises have been conscious of their efforts to increase their competitive advantages and take advantages of the FTAs. Photo: Tran Viet.

To raise the propulsive power

Footwear is one of Vietnam’s key export items, ranking 4th in export turnover. Now, Vietnam's footwear products have been exported to 45 markets around the world. According to data from the General Statistics Office, in the year 2017, the export turnover of footwear reached US$ 14.6 billion, up 12.6% over 2016. For the whole sector of leather and footwear, the Vietnamese Leather – Footwear – Handbags Association were estimated to reach US$ 17 billion in 2017, an increase of 10% over 2016.

According to the Light Industry Department, up to now, Vietnam had about 1,700 leather and footwear enterprises (including about 800 large enterprises) which employed 1.2 million direct laborers. According to opinions of many enterprises, the Government was making efforts to reform the administrative procedures, improve the investment environment; In addition, the authorities had many incentives to develop the supporting industry for the leather and footwear industry. This would help the businesses have more conditions to develop, and improve the product quality.

In particular, the businesses also appreciated the opportunity that the FTAs had brought.

According to Ms. Phan Thi Thanh Xuan, General Secretary of the Vietnam Leather – Footwear - Handbags Association, the leather and footwear industry would likely get more power than in 2017 due to the support of FTAs. The Vietnam-EU Free Trade Agreement (EVFTA) is expected to be signed in mid-2018, which will help Vietnam's footwear products enjoy a different level of 3.5-4.2% when exporting to the EU, creating a large competitive advantage, especially for the Chinese enterprises. Moreover, when this FTA comes into effect, the key commodities such as sport shoes and handbags are not protected, the tariffs will fall immediately to 0%..., so surely, more orders will be moved to Vietnamese enterprises.

At present, enterprises are very active in picking up these opportunities when the import markets for Vietnamese leather and footwear are mainly North America, the EU, and Asian countries. In particular, many year ago, leather and footwear businesses were looking forward to the implementation of the Trans-Pacific Strategic Partnership Agreement (TPP), but, when the TPP broke down with the withdrawal of the US, the export turnover into this market was almost unchanged. According to the experts, if the TPP had not been available, the leather and footwear industry would have still have had the competitive advantages because the decisive factor in the export growth of the footwear industry is "health" of the US economy in particular, and the world economy in general. According to the representative of the Vietnam Leather - Footwear – Handbags Association, the Association was promoting to approve a Law for reducing tariffs on a number of import products, including many types of footwear and textiles imported from Vietnam.

Finding the right road

It can be seen that the push for the development of the Vietnamese leather and footwear industry is very large. Therefore, the management agencies have been optimistic about the target that the export turnover of the sector would reach US$ 24-26 billion by 2020, US$ 35-38 billion in 2025 and US$ 50-60 billion by 2035. The average export turnover in the period 2016-2020 would increase from 10-11%/year. Moreover, the Government has also encouraged enterprises to build factories manufacturing leather tanning, and imitation leather, PU imitation leather and other materials. The Ministry of Industry and Trade is also considering the proposal by State to set aside a land fund for the construction of an industrial zone to specialize in the production of raw materials and auxiliary materials for the leather and footwear industry, and support for land, human resources, science and technology…

Thus, the road for development is opening up "very wide" for leather and footwear enterprises. The problem is how the enterprises can catch opportunities as well as move on proactively, join the global value chain, avoid waiting too long for the support of the State, because it is probable that this will violate the terms of international practice and FTAs.

In this regard, according to Ms. Nguyen Thi Lan, Director of Phu Yen Footwear Manufacturing and Import-Export Co., Ltd, the company has expanded actively its production and search for customers, so the number of customers and trading partners are much more connected. However, the partners are still waiting for the opportunity from the FTAs, so Ms. Lan expects the company’s export volume will increase dramatically when more customers are lining up the orders by the end of 2018. The same opinion, Mr. Nguyen Huu Anh, Deputy Director of Phong Chau Footwear Co., Ltd., said that the company had expanded the export markets actively to new markets such as the countries in Africa, ASEAN... to find more opportunities for cooperation. However, the company continued to promote the export to the traditional markets where the company had the connection to take advantage of the incentives, hence there would be more capital to invest in expanding the scale of production.

Not only that, the enterprises are very active in increasing localization. A number of footwear products have been active in 80-90% of domestic raw materials, which will help the enterprises to meet the rules of origin well, so that they could benefit from the tariff preferences.

Although the enterprises are aware of the opportunities and consciousness of the need for change to improve competitiveness, according to Ms. Phan Thi Thanh Xuan, the enterprises should improve productivity. Because, in Vietnamese leather and footwear enterprises, one Vietnamese worker produces only 3-4 pairs of shoes per day on average, while a Chinese worker produces 7-8 pairs of shoes per day, despite of their higher labor cost. Therefore, enterprises must improve the quality of human resources, improve the skills of workers as well as enhance the application of science and technology for better production, towards the application of quality management model. The enterprises should strengthen a stronger link with FDI enterprises to approach a good management model that the FDI enterprises in Vietnam were applying successfully.