In the first 10 months of 2022, Vietnam’s textile exports nearly reached USD 38 billion, a 17.2% increase compared to the same period in 2021. This performance makes the export goal of USD 42 billion for the entire year 2022, a 3.8% increase over 2021, achievable.
The industry exported to 66 countries and territories in 2022 but faced significant pressures. According to Vũ Đức Giang, Chairman of the Vietnam Textile and Apparel Association (Vitas), exports showed good growth in the first half of 2022. However, by the third quarter, there was a noticeable decline in orders. High inflation in major markets like the USA and the European Union (EU) reduced consumer spending, particularly on clothing. Additionally, key Vietnamese trade partners like China, Japan, and Taiwan, still enforcing strict COVID-19 measures, affected the supply chain and consumption of Vietnamese textile products.
VNDirect Research’s analysis noted that demand for premium clothing like recycled fiber shirts and high-priced cotton t-shirts would slow down in the latter half of 2022. US clients shortened the lead time for orders from six months to three due to high inventory levels and inflationary pressures, impacting orders for the fourth quarter of 2022.
The new challenges for Vietnamese textile businesses include traceability requirements for cotton, fabric, fibers, and greening the industry as per new-generation free trade agreements. Vo Manh Hung, representative of the Cotton USA Association in Vietnam, mentioned that over 3,000 textile shipments imported into the USA were detained by customs for origin verification within just six months. This means that goods imported into the USA can be held by customs for five days for inspection, and within 30 days, businesses must provide sufficient supply chain documents to prove the origin of goods not from Xinjiang cotton (China).
Despite these challenges, Vietnam’s textile export in the first 10 months of 2022 remains promising, showcasing the significant efforts of the Vietnamese textile industry, especially as the global consumer market slowed down significantly in the last quarter of 2022. Vietnam achieved an export turnover of 37.9 billion USD in the first 10 months of 2022, a 17.2% increase compared to the same period in 2021. The main export markets were the USA (13.9 billion USD), countries in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (4.733 billion USD), EU countries (3.63 billion USD), South Korea (2.525 billion USD), and China (925 million USD). Clothing remains the largest export item, accounting for 29.1 billion USD. Besides clothing, Vietnam also exported fabrics (2.13 billion USD), yarns (4.083 billion USD), garment accessories (1.165 billion USD), and geotextiles (747 million USD).
In 2022, the Vietnamese textile industry exported to 66 countries and territories, marking a breakthrough in market development. Around 47 – 50 different items were maintained for global export, with clothing being a significant contributor.
In 2022, Vietnam’s textile industry achieved 10 national brands, including Viettien Fashion Products (Viet Tien Garment Corporation), Merriman (Hoa Tho Textile – Garment Joint Stock Corporation), Mattana & Novelty (Nha Be Garment Corporation), An Phuoc Garments (An Phuoc Garment – Embroidery – Shoes Company), May10 Series, May10 Suits & Eternity GrusZ (May 10 Corporation), Thai Tuan Fashion (Thai Tuan Group Corporation), and Mollis Towels (Phong Phu Joint Stock Corporation). The goal is to have 20 fashion brands recognized both domestically and globally by 2025.
Prospects for Textile Exports Moving Forward
Going forward, the Vietnamese textile industry faces challenges such as reduced orders from late 2022 to the first quarter of 2023, with a 25 – 27% overall decrease due to global demand reduction. Contract manufacturers face greater pressure than FOB (Free On Board) enterprises due to their dependency on market dynamics, input costs, and rising bank interest rates. Furthermore, businesses focused on low-cost, low-priced products have experienced a significant reduction in orders since the second quarter. High-end products, although not guaranteed as before, remain relatively stable. The industry also faces labor challenges, with a 5 – 7% workforce turnover.
In response to deflationary pressures and currency devaluations, the textile industry has diversified its markets. Businesses have shifted from contract manufacturing to developing designs, digital management, and self-sufficient supply chains. Additionally, internet commerce has been thoroughly adopted by importers. Big brands are increasingly interacting with Vietnamese companies online for design and price negotiation, even without visiting Vietnam. There has also been a noticeable shift in foreign investment into Vietnam. This shift offers opportunities for businesses to diversify markets and products.
Facing deflationary pressures, inflation, and devaluation of currencies in various countries, the textile industry has found solutions to diversify its market. Businesses have shifted from contract manufacturing to developing samples and digital management, promoting self-sufficient supply chain solutions. Additionally, not just in the domestic market, but business through the internet has also been fully embraced by importers. Major brands usually share ideas and communicate with Vietnamese enterprises through online platforms for design and pricing, with some brands having not yet visited Vietnam. Furthermore, there has been a significant shift of investment into Vietnam from other countries, providing opportunities for enterprises to diversify markets and products. Vietnam has been proactively and increasingly sourcing domestic raw materials. The current domestic localization rate in the industry is 49%, with a target to reach 50 – 51% between 2023 – 2025. The driving force for brands to enter the Vietnamese market includes sustainable development programs, greening, digital management, and circular economy initiatives in Vietnam. In particular, encouraging textile enterprises to develop design and creativity-based sales (ODM) and reduce reliance on contract manufacturing is key. For instance, the export of the textile industry now depends not only on the traditional five markets (USA, EU, Japan, South Korea, China) but also starts shifting to Russia and other countries.
Especially for the EU market, where Vietnamese textiles previously focused on a few large countries like Germany, France, Spain, and the UK, they have now exported to 26 out of 27 EU countries. Many businesses have proactively shifted their vision and operating models to countries like Africa, Mexico, etc. The industry has also quickly adapted to investing in technology and automation, adapting to changes in product structure. Moreover, facing a decrease in orders, businesses have reorganized working hours, avoiding overtime and reducing the number of working days per week to ensure stability for the workforce.
Vũ Đức Giang affirms that despite many challenges and difficulties in the latter part of the year, the Vietnamese textile industry still expects to achieve USD 42 billion in 2022. Moving forward, the textile businesses will continue to adapt, though the fourth quarter will be challenging, possibly extending into the first quarter of 2023.
According to VNDirect Research, the textile industry is expected to improve in the first quarter of 2023 as textile products will benefit from reduced export taxes to the EU market in 2023 thanks to the Vietnam – EU Free Trade Agreement (EVFTA). Under this FTA, various clothing items including B3, B5, B7 will see a 2 – 4% reduction in export taxes in 2023. Additionally, the European Commission predicts that inflation in the Eurozone will reach 8.3% in 2022 before dropping to 4.3% in 2023. Lower inflation will stimulate the demand for fashion items in 2023. Therefore, several textile enterprises exporting suits, shirts, trousers, and dresses to Europe like May Song Hong, May 10, Viet Tien, etc., will benefit from EVFTA.
For the period 2023 – 2025, amidst global economic uncertainties, the textile industry needs a new direction, reducing dependence on international markets, self-sufficiency in raw materials, and gradually focusing on exploiting the domestic market. With a population of nearly 100 million people, Vietnam is a promising textile consumption market for businesses. The industry aims for an export target of about 45 – 47 billion USD in 2023 (subject to adjustment if there is information about a reduction in inventory of major importing countries). The basis for setting a 47 billion USD export target for 2023 is due to Vietnam having 15 effective FTAs, laying the foundation for diversified market solutions. Particularly in 2023, some FTAs will reach the zero percent tariff rate, which will be a driving force for shifting investment from outside into Vietnam.
To achieve the goals set for 2023, under the current context, Vitas, along with the Vietnam Leather, Footwear and Handbag Association, have submitted proposals to the Government and ministries regarding tax reduction or postponement for businesses, continuing to seek financial sources for enterprises to borrow at low interest rates to maintain production and stabilize the workforce. Additionally, for major export industries like textiles, maintaining reasonable interest rates should be considered to encourage businesses to continue operations and stabilize employment.
