Local businesses in Vietnam are no longer interested in going into material supplying for garment and textile businesses. The reasons behind that has been the low profit margin and long payback period.
Vietnam has 5,028 garment and textile businesses, while only 604 material suppliers, leading to a prolonged shortage in materials, a situation that is not likely to improve within the next five years, as experts predict. Such acute material deficiency has created a larger lacuna in the industry. Investors who have been willing to invest in the industry are mostly foreign direct investment (FDI) firms.
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According to economic experts, who spoke at a conference hosted by the Vietnam Textile and Apparel Association (Vitas) recently, FDI capital to the garment and textile industry has reached US$2 billion by the end of last year. Local businesses lacked funds and appropriate government policies in order to capitalise on the garment and textile industry. They would rather explore other options.
For example, a representative of Hoan My Company, a zipper manufacturing company, said the company have had to spend US$25 billion on a zipper plant, apart from a much higher, undisclosed amount on weaving machines.
Elaborating on the issue, he added that many provinces and cities have limited licensed textile and weaving projects to prevent environmental pollution. This has resulted in a number of Vietnamese products to fail in meeting the rules of origin and enjoy facilities from free trade agreements.
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Moreover, owing to the instability in Vietnam’s government policies regarding support to investors, more than 60 per cent of the small and medium enterprises have investment direction of 5 to 10 years, and not 50 years as in most Japanese firms.
Even the current regulations have certain issues that badly affect businesses and their chances for investment and development. Naturally, material projects with a payback period of 20 years or longer are not preferred by local investors.
