Vietnam's leather and footwear firms told to join forces ahead of free-trade deals

By    July 16, 2016 | 11:08 am GMT+7

Vietnam’s leather and footwear industry is trying to move up the global value chain to seize the potential benefits of new-generation free trade agreements.

Vietnam’s leather and footwear industry has grown significantly in recent years to become the country's third largest foreign exchange earner after crude oil and garments and textiles.

The industry has annually accounted for 8-10 percent of the country’s total export value, according to the Light Industry Department under the Ministry of Industry and Trade.

Last year, the Southeast Asian country earned $14.88 billion from exporting leather and footwear products, a 15.8 percent jump from the year before.

Vietnam is ranked fourth in the world for footwear exports after China, India and Brazil, selling products such as sneakers, canvas and leather shoes to more than 50 countries and territories, including the European Union, the United States and Japan.

The industry currently exports up to 90 percent of its output, said Diep Thanh Kiet, vice chairman of the Vietnam Leather and Footwear Association (Lefaso), referring to the industry’s heavy reliance on foreign markets.

Statistics show leather and footwear exports expanded 7 percent in the first half of this year, much lower than the 16 percent jump in the same period last year.

The government has revised down this year’s export target to $16.5 billion from the previously estimated $17.4 billion.

Industry experts said the unprecedented decision by the United Kingdom to withdraw from the European Union, or Brexit, will probably slow growth in the E.U. zone as well as the global economy, taking its toll on Vietnam’s sector in the years to come.

Vietnam’s leather and footwear companies need a shake-up so that they can seize the opportunities offered by new-generation free trade agreements, including the pending Trans-Pacific Partnership (TPP).

“The industry must proactively cope with shortages in materials and high-quality labor […] to make unique Vietnamese products,” the government's online news portal quoted Kiet as saying on Thursday at a conference in Ho Chi Minh City.

Team up in face of daunting challenges

Vietnam currently has around 800 leather and footwear manufacturers, mainly located in the southern part of the country.

Noticeably, although locally-owned firms heavily outnumber foreign-invested companies, accounting for 77 percent of the total, they make up only 35 percent of the country’s leather and footwear exports.

Local companies are not only struggling to enter foreign markets but also missing out on the domestic market.

Vietnamese consumers buy some 150 million pairs of footwear per year, but the industry meets only 40 percent of the demand.

vietnams-leather-and-footwear-firms-told-to-join-forces-ahead-of-free-trade-deals

Employees work at a shoe factory in Sichuan Province, China. European shoemakers will drop their call for an extension to import tariffs on shoes from China and Vietnam, instead seeking strict monitoring of imports. Photo by Reuters.

One of the biggest challenges that the industry is faced with is a shortage of materials.

Like the textile and garment industry, Vietnamese leather and footwear companies have to import most of their raw materials such as leather and canvas from overseas.

Vietnam's supporting industries are weak, putting the country’s manufacturing sector, including the leather and footwear industry, at risk of missing out on the benefits of free trade agreements.

The TPP, for example, with a mechanism called the “rules of origin”, will only benefit companies either importing materials from within the TPP community or sourcing them at home.

At a conference co-hosted by the Ministry of Industry and Trade and Lefaso on Thursday to promote the growth of the leather and footwear industry, experts suggested local companies team up with each other to form a domestic chain that will allow them to source materials at home and sell products through local retail outlets.

The process of taking over the domestic market will gradually prepare Vietnam's leather and footwear firms to move up the global value chain, said Lefaso’s vice chairman.

Currently around 70 percent of Vietnamese companies still remain focused on labor-intensive cutting and sewing and do sub-contracting and outsourcing work for foreign companies.

The industry is yet to get involved in design or other upstream activities.

Lefaso is about to launch a center to connect enterprises in the industry including machinery suppliers, material producers and manufacturers in an attempt to help Vietnamese companies to enhance their competitiveness both in the domestic and international markets.

The Vietnamese government has also worked on a plan to spur the development of supporting industries, said Pham Anh Tuan, deputy director of the Heavy Industry Department under the Ministry of Industry and Trade.

The long-term plan is for Vietnam’s support industries to grow rapidly to meet 70 percent of the demand by 2030, and to double the number of suppliers to 2,000.

Related News:

>Vietnam to shake up supporting industries to seize TPP opportunities

>Vietnam's textiles: Low productivity could eat up TPP benefits

>TPP offers promising new world for Vietnam's textiles sector

>Vietnam to ratify TPP trade deal by August 9

 
 
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