Going green the way forward for garment companies in Vietnam: RMIT expert

How would you assess the positioning of Vietnam's textile and garment industry in the global market?

The Vietnamese textile and garment industry has shown remarkable resilience and adaptability in the face of global market uncertainties. As of end-2022, Vietnam had maintained its position as the third-largest textile and garment exporter in the world, after China and Bangladesh. The industry's export turnover reached over $44 billion in 2022, reflecting growth of about 10% compared to 2021.

This growth was achieved despite market volatility, with the first half of the year seeing businesses thriving with abundant orders, but the situation reversed in the last months, eroding many companies' profits. The U.S. remains the largest importer of Vietnamese textile and garment, with over $18 billion, followed by South Korea ($4.2 billion), Japan, and China (nearly $4 billion each).

However, the industry is not without its challenges. The global economy is expected to continue facing difficulties due to high inflation and reduced consumer spending on non-essential goods, including textile and garment. In the first quarter of 2023, the number of orders is estimated to have decreased by 25-27% due to reduced global purchasing power. Moreover, the World Trade Organization's statistics show that Vietnam's share of the global textile and garment market was about 5.7%, with Bangladesh slightly ahead at 6.5%.

This indicates a highly competitive environment, with other countries also striving to increase their market share. There is also a significant shift towards green transformation, with an increasing focus on producing raw materials from recycled or organic sources.

What are your thoughts on Vietnam’s textile and garment export over the past few months?

In the first five months of 2023, Vietnam’s textile and garment export decreased 21.42% compared to the same period in 2022, with total export turnover estimated at $14.42 billion. The decrease in Vietnam's textile and garment export has been significantly influenced by a combination of global economic factors and internal industry challenges.

Firstly, the global demand for textiles and garments has been weakening, which has led to a decline in orders for Vietnam. This trend was particularly noticeable in the fourth quarter of 2022 and the first quarter of 2023. Despite this, Vietnam's garment industry managed to achieve an export turnover of $43-43.5 billion in 2022, with exports in the first 10 months of the year totaling $37.7 billion, up 16.9% from a year earlier. However, the first five months of 2023 saw a decrease of 21.42% compared to the same period in 2022, with total export turnover estimated at $14.42 billion.

Secondly, high inflation in many of Vietnam's key markets such as the U.S., the EU, and Japan has hurt demand, including the demand for Vietnam's textile and garment products. This has led to local companies having to cut about 10-15% of their production and many have been forced to cut their workforces.

Thirdly, the weakening of the Vietnamese dong has added to the difficulties faced by some garment makers, as imports of their raw materials have become more expensive. The dong has lost 8% against the dollar so far in 2023, which has increased the cost of importing raw materials.

In addition to these challenges, Vietnam's slow transition to green practices has led to a loss of orders to Bangladesh, which has been quicker in "greening" its supply chains. This has improved Bangladesh's competitiveness and opportunities to secure orders.

Finally, the global textile and garment market is predicted to continue facing difficulties in the remaining months of 2023. The total demand for textiles and garments worldwide is forecast to reach about $700 billion this year, a decrease of 8% compared to 2022, and even lower than in 2020 when the Covid-19 pandemic hit.

In conclusion, the recent trends in Vietnam's garment exports reflect a challenging period for the industry, with weakening global demand, high inflation, currency devaluation, slow green transition, and a competitive global market. The industry will need to continue its efforts in innovation, efficiency improvement, and market diversification to navigate these challenges.

Vietnam's textile and garment industry has lost orders to Bangladesh. Is there a possibility of Bangladesh overtaking Vietnam as the second-largest exporter of textile and garment? What actions should Vietnam take to maintain its current position?

The competition from Bangladesh is indeed a concern. Bangladesh has been able to leverage its low labour costs and preferential trade agreements, such as the Everything But Arms (EBA) initiative with the EU, to gain a competitive edge. In 2022, Vietnam's textile and garment exports were expected to reach $43-43.5 billion, with the industry accounting for 12% of the country's total exports. However, the industry has been hit by weakening global demand due to high inflation in key markets such as the U.S., the EU, and Japan. This has led to a decrease in production by about 10-15% and workforce cuts in many local companies.

On the other hand, Bangladesh's textile industry has been growing steadily. In the first quarter of 2023, Bangladesh's garment exports increased by 12.59% compared to the same period in 2022, reaching $9.89 billion. If this trend continues, it is possible that Bangladesh could pose a significant challenge to Vietnam's position as the world's second-largest textile and garment exporter.

However, it is important to note that overtaking Vietnam's position would not only require sustained growth from Bangladesh but also a continued decline or stagnation from Vietnam, which is not a given. The Vietnamese textile and garment industry has shown resilience in the past and has the potential to bounce back.

While the competition from Bangladesh is a concern, Vietnam's textile and garment industry has the potential to maintain its position with the right strategies and investments such as investing in technology and upskilling, sustainability, and green transition, strengthening the supply chain.

Many experts emphasize the importance of making the textile and garment industry more environmentally friendly to ensure Vietnam's products can compete globally. What is your perspective on this matter?

The shift towards sustainability in the textile and garment industry is no longer just a trend, but a requirement, particularly in developed countries. Consumers, brands, and regulators are increasingly demanding that products be produced in an environmentally friendly manner. This shift is driving significant changes in the industry, and companies that do not adapt risk being left behind.

For Vietnam's textile and garment industry, adopting sustainable practices is not just about meeting these new requirements, but also about seizing strategic opportunities such as meeting global standards, efficiency, and cost savings, while attracting investment. To meet these requirements, Vietnam's textile and garment industry needs to invest in green technologies, adopt sustainable practices, and ensure transparency in their supply chains. It is also important to work closely with stakeholders, including governments, NGOs, and communities, to ensure a holistic approach to sustainability.

Looking ahead, what steps should be taken to promote sustainability in the textile and garment industry?

Firstly, financial support and incentives are necessary. The transition to more sustainable practices often requires significant investment. The government could provide financial support in the form of grants, low-interest loans, or tax incentives to businesses that are willing to invest in sustainable technologies and practices. This would help to alleviate some of the financial burden and make the transition more feasible for many businesses.

Secondly, support in research and development is needed. Government and industry associations could support research and development into new sustainable materials and technologies. This could include funding for research projects, partnerships with universities and research institutions, and incentives for businesses to invest in research and development.

Thirdly, the government should encourage the import of clean, high-tech, and renewable technologies. This could be achieved through reduced tariffs or other incentives. This would make it easier for businesses to access the technologies they need to become more sustainable.

Besides, Vietnam should develop sustainable industrial parks. The strategy of building several large textile and garment IPs with preferential policies for large-scale projects from reputable investors using advanced and modern technology, ensuring compliance with environmental regulations, should be pursued. These IPs should have proper wastewater treatment systems and comply with all environmental regulations.

What are the prospects for Vietnam's textile and garment exports in the second half of this year?

Vietnam's textile and garment industry has been facing difficulties, including weakening global demand, supply chain disruptions, and high inflation in key markets. These challenges have resulted in a decrease in orders and production cuts. However, there has been a recent increase in interest from partners in Europe, Northeast Asia, and Southeast Asia for Vietnamese textile products, particularly office fashion items. This presents an opportunity for increased exports in the second half of the year.

To capitalize on the potential increase in demand, Vietnam's textile industry needs to diversify its markets and products. While the US market is currently facing difficulties, markets in Southeast Asia and Asia are showing resilience. This highlights the importance of adapting to changing demand patterns and targeting emerging markets. The Vietnam Textile and Apparel Association (VITAS) has set optimistic export scenarios for the industry. In one scenario, the export turnover of textiles and garments could reach $47-48 billion, while in a less favourable scenario, it could be around $45-46 billion. These projections indicate a potential recovery and growth compared to the challenging period experienced in recent times.

To enhance competitiveness and meet partner requirements, the industry is focusing on sustainable production practices and digital transformation. These strategies not only align with global sustainability trends but also improve efficiency and reduce costs. The government plays a crucial role in supporting the industry. VITAS has proposed a sustainable development program, emphasizing the need for special support policies, such as reduced taxes and mechanisms for accessing loan capital. Government support is essential to enabling businesses to invest in new technologies, machinery, and equipment necessary for sustainable production.

While the challenges faced by the textile and garment industry are significant, the recent increase in interest from international partners and the industry's adaptability provide reasons for optimism. The diversification of markets focuses on sustainability, and government support can contribute to a potential recovery and growth in Vietnam's textile and garment exports in the second half of this year.