Footwear industry: Optimistic with predicted export turnover of 22 billion USD

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In order to increase the internal resources for development, domestic enterprises need to innovate their production technology to supply large orders, creating a foundation to join the global supply chain. Photo: Nguyen Hue

Positive growth

According to the statistics of the General Department of Customs, in the first quarter of 2019, export activities of the leather and footwear industry were positive with export turnover reaching nearly 4 billion USD, up 15.3% over the same period last year. The statistics also showed that 80% of export markets in the industry achieved turnover growth over the same period.The US continued to be the largest partner with export turnover in the first two months of the year reaching 918 million USD, accounting for 35% of the total export turnover of the group, up 14.8% over the same period last year. Secondwas the EU market with 687.93 million USD, accounting for 26.2%, up 7.9%.Next was the Chinese market with 309.27 million USD, accounting for 11.8%, up 36.5%. The Japanese market reached 182.5 million USD, accounting for 7%, up 13.4%.

In the first quarter,exportsofthe leather and footwear industry grew strongly in other markets: Greece increased by 133.8%, Indonesia by 112%, Russia by 78.7%, Hungary by 77.8% and Portugal by 63.4%.

The growth of the leather and footwear industry in 2019 is considered quite positive.According to Ms. Phan Thanh Xuan, Vice chairwoman and General Secretary of the Vietnam Leather, Footwear and Handbag Association, in 2019, the consumption demand in Vietnam's main export markets will remain good.China continues its policy of reducing investment incentives in the leather and footwear fields to focus on high-tech production.Therefore, the processing of orders of shoes and bags will continue shifting from China to Vietnam. The opportunity of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)came into force in early 2019, and the European Union – Vietnam Free trade Agreement (EVFTA)is expected to take effect in 2019.

The trade war between the US and China is increasing, beginning to affect Vietnam's imports and exports.Investment of foreign direct investment (FDI) enterprises in the leather and footwear sector increased in 2018 - 2019 to avoid the impact of the US-China trade war and anticipate the FTAs that enter into force in 2019.Therefore, footwear exportswill continue to risein 2019 thanks to the increase in FDI.

Although the export turnover target of the leather and footwear industry was set at 21.5 billionUSD in 2019, up 10% compared to 2018, according to Mr. Diep Thanh Kiet, Vice Chairman of the Vietnam Leather, Footwear and Handbag Association of the Association, the export turnover of the whole industry in 2019 is estimated at 22 billion USD with a growth rate of 11%.Also according to Mr. Kiet, Vietnam's leather and footwear industry has many development advantages. Labour wages in Vietnam are low, even with anincrease of wage rate by about 5% this year, our labor wage is still more competitive than other countries in the region.

The traditional export markets still maintain their competitive advantage. In the US market, the removal of preferential policies for export footwear from China and India is creating more favorable opportunities for Vietnam's export footwear.On one hand, the CPTPP was approved, helping the footwear industry to expand the market in the Americas.In the European market, the export turnover is stable. If, as expected, the EU-Vietnam Free Trade Agreement (EVFTA) is approved this year, it will be the driving force to push the industry's growth rate to over 15%, leading to an increase to over 22 billion USD in export turnover.

Many challenges

There are somenegative aspects on the industry's activities. Enterprises still have to depend on imported raw materials, fluctuations in raw material prices may have an impact on industry growth.Most enterprises operating in the industry are small and medium-sized, so they do not participate in global supply chains and still mainly work in the processing stage.

The level of technology application in management and production of Vietnam's footwear industry is still poor, the labor productivity is only 60-70% compared to FDI enterprises.In addition to the internal challenges, leather and footwear companies also face the risk of being imposed a tax on trade protection policies from other countries.

In order to increase resources for development, domestic enterprises need to innovate their production technology to supply large orders, creating a foundation to join the global supply chains.Also, investing in product research and development centers, gradually increasing the added value for export leather and footwear products.

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According to Mr. Kiet, the Association will improve the competitiveness of leather and footwear enterprises and coordinate with the Italian Leather and Footwear Associationto organize training courses on leather and footwear design.The association also wants to have the support of the Government in this work. The association strives to improve the labor productivity by 10% this year.

The Association will organize training courses for employees and management teams and enhance automation in production stages.The Vietnam Leather, Footwear and Handbag Associationhas been assigned by the Government to implement the Impact Assessment of Industry 4.0 Project.This research will have an impact on Vietnam's footwear industry and enterprises.The leather and footwear industry and enterprises will also identify weaknesses, which is also a step for enterprises to improve their competitiveness.