| Vietnam's textile industry has increased significantly | | | | experience is less hectic." This can have a negative |
| since normalizing relationships with the United States | | | | impact on a designer's creativity as the designer is |
| in the 1990's. Vietnam was granted most favoured | | | | restricted by what is on offer in the local market. |
| nation status (MFN) in December 2001, which led to a | | | | Rolskov thinks Vietnam is currently a great location |
| dramatic reduction in import tariffs in the US market. | | | | for smaller manufacturers as the market is more |
| Vietnam's induction to the World Trade Organization | | | | flexible. "China is more volume focused", adds |
| (WTO) in 2007 and the Vietnamese government's | | | | Rolskov, a view supported by Rebecca Lebold, |
| strong support of the textile and garment sector, | | | | director of apparel product and technical |
| have provided strong incentives to attract foreign | | | | development at Lilly Pulitzer. "Vietnam has higher |
| investors. The textile industry is now the second | | | | production minimums than many other countries. |
| biggest exporter in Vietnam and is expected to | | | | Lower minimums would allow smaller companies to |
| become the biggest in 2009. However the financial | | | | source their product in Vietnam", Lebold notes. |
| crisis has had a severe affect on Vietnam's textile | | | | Intellectual property threat |
| industry, which has suffered from a slump in demand | | | | For many companies outsourcing to Vietnam, |
| from key export markets in the US, Europe and | | | | intellectual property (IP) remains a concern. Within the |
| Japan. | | | | fashion industry, IP is not as enforced as it is within |
| Labour cost advantage | | | | the film and music industries. Designers can "take |
| In the textile industry, companies are increasingly | | | | inspiration" and it is seen as a major driver for setting |
| looking for lower cost countries that can provide | | | | trends in the industry. The World Intellectual Property |
| outsourcing opportunities. The rising cost of land and | | | | Organization (WIPO) has called for stricter intellectual |
| labour are diminishing China's labour cost advantage | | | | property enforcement within the fashion industry to |
| and Vietnam is increasingly seen as a low cost | | | | better protect companies and promote |
| sourcing alternative to China. Estimates are that | | | | competitiveness within the textile and clothing |
| wage levels in Vietnam are about one third of those | | | | industries. "It is a hard thing to take care of and you |
| in China's coastal region. Companies that are chasing | | | | just have to be faster than everybody else", says |
| lower labour costs are increasingly moving production | | | | Rolskov. For smaller designers and labels it is much |
| to Vietnam. In a 2008 Booz Allen Hamilton survey 88 | | | | easier to switch manufacturing. However to prevent |
| percent of companies originally chose China for its | | | | the copying of designs is a challenging undertaking. |
| lower labour costs. Of the companies surveyed, 55 | | | | Infrastructure development |
| percent believe China is losing its competitive edge to | | | | For Vietnam to advance as an outsourcing location, |
| countries such as Vietnam. The survey also indicated | | | | the textile industry supply chain needs to be |
| that 63 percent named Vietnam as their top low cost | | | | considered. Local logistics are influenced by direct and |
| sourcing alternative to China. However, costs may be | | | | indirect cost. In Vietnam's textile industry raw |
| rising. The Navigos Group, a leading recruitment | | | | materials are often imported, which increases cost |
| solutions provider in Vietnam, announced early in the | | | | compared with those countries able to source locally. |
| year that there had been a 16.47 percent increase in | | | | Managing reverse logistics can also be a challenging |
| Vietnamese workers' average gross salaries between | | | | undertaking in Vietnam. Procedures, processes and |
| April 2008 and March 2009. | | | | infrastructure are sometimes not in place to manage |
| Low cost location | | | | repairs, returns and warranties. |
| However, low cost labour is hardly a competitive | | | | According to a new market research report from |
| advantage in the long term. Labour cost keeps | | | | Transport Intelligence (Ti) entitled Vietnam Logistics |
| changing and today's low cost location is not | | | | 2009, the high cost of logistics remains one of the |
| necessarily tomorrow's viable outsourcing location. If | | | | biggest stumbling blocks in Vietnam. According to TI |
| it is not China or Vietnam, it could be Bangladesh or | | | | analyst John Manners Bell, logistics costs are |
| Cambodia. Ig Hortsmann, a professor of business | | | | estimated at 25 percent of Vietnam's GDP. Even with |
| economics at the University of Toronto's Rotman | | | | cheap labour cost, poor infrastructure remains a |
| School of Management notes that Nike originally off | | | | major barrier for entry. This is largely due to Vietnam |
| shored manufacturing to Japan. As labour costs | | | | being in the early stages of infrastructure |
| increased, manufacturing was later moved to South | | | | development. |
| Korea and Taiwan. When labour cost increased in | | | | Many experts believe that China's advanced |
| South Korea and Taiwan, it was moved to China and | | | | infrastructure gives it a major competitive advantage. |
| later also to Vietnam. Justin Wood, a Director of the | | | | Electricity and transportation costs will likely come |
| Economist Intelligence Unit Corporate Network in | | | | down even further and and this will have a significant |
| Singapore makes the point that in the last 15 years | | | | impact on the total cost, even if their labour is more |
| Vietnam has moved from a low to a middle income | | | | costly. The Vietnamese government is aware of this |
| country. The move towards a middle income will likely | | | | dynamic and has invested billions of dollars in the |
| put additional pressure on Vietnam's low cost labour | | | | country's infrastructure. The government is actively |
| status. | | | | encouraging foreign direct investment in the country's |
| The Vietnam advantage | | | | infrastructure. This is visible with projects such as the |
| Elisabeth Rolskov, founder of ER-Couture in Vietnam, | | | | Cai Mep Container Port in the Mekong River Delta |
| notes that manufacturing advantages in Vietnam go | | | | and the new Long Thanh airport that's projected to |
| beyond labour cost and the country has some | | | | be completed by 2015. |
| competitive advantages compared to China. "Vietnam | | | | Through assessing the overall supply chain, rather |
| has very good embroidery skills and needle work", | | | | than a singular focus on labour costs, it is easier to |
| says Rolskov. "A lot of designers and manufacturers | | | | identify where Vietnam's opportunities and challenges |
| need embroidery skills and Vietnam has kept in touch | | | | lie in the textile industry. While small scale designers |
| with its traditional roots," she adds. | | | | and manufacturers take advantage of a flexible |
| However, for local designers, Vietnam has limitations | | | | environment, infrastructure and logistics processes will |
| as a sourcing location. "Sourcing material, buttons and | | | | need further investment to make Vietnam an |
| zippers from Guangzhou is much better," says | | | | outsourcing destination and source for tomorrow's |
| Rolskov. In Guangzhou you can find everything in | | | | fashionista wardrobes. |
| air-conditioned shopping areas and the shopping | | | | |