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Feature story : The Garment industry in Vietnam

Feature story : The Garment industry in Vietnam
Vietnam progressing as a "China plus one" country.
Garment exports are rising by double-digits each year,
powered by an ample labour force.
22nd year under the Doi Moi policy

Vietnam is attracting attention as the "China plus one" manufacturing base for garment. Streets teeming with motorbikes are just one of the many signs of the vibrant Vietnamese economy. But Vietnam's infrastructure is growing at less of a frantic pace. That may be the difference between Vietnam and China.
Now in its 22nd year of the Doi Moi policy launched in 1986, Vietnam is pushing through structural reforms to facilitate the in-flow of foreign capital and strengthen its competitive power internationally. The Asian crisis in the latter part of the 1990s slowed down the Vietnamese economy, but only temporarily. Efforts for omni-directional diplomacy and the promotion of friendly relationship with ASEAN and neighbours in the Asian and Pacific region led to a normalization of the diplomatic relationship with the US and entry into the ASEAN in 1995. A few years later, in November 1998, Vietnam became an official member of the APEC.
Strengthened these advances, the Vietnamese economy grew briskly for the first five years of this decade (6.7% in 2000, 6.8% in 2001, 7.0% in 2002, 7.2% in 2003, 7.9% in 2004 and 8.4% in 2005). The sewing industry, one of the country's main export industries, has been consistently rising by double digits each year. Vietnam became an official member of the WTO on January 11, 2007, and its GDP is has been growing steadily since. The trade deficit, however, raises concern. In the first half of 2007 it reached 4.77 billion US dollars, exceeding the forecast for the whole of the year.
The target for GDP growth this year is 8.5%. This may be a challenge to reach, however, if the chronic trade deficit, the immature investment environment, or social problems such as corruption, the evils of bureaucracy, or the widening gap between the rich and poor grow more severe. Some believe that renovations for sustainable growth over the mid to long term are more important than the rate of growth alone. Recommended are faster renovations in administration and financial communities, the promotion of firm legal systems, measures against corruption, the privatization of national banks and corporations and improvements in productivity.


Three quarters of the population is aged 40 or less. Expectations for the young market are great.

The garment industry has been a star among Vietnam's export industries, achieving double-digit growth every year. Yet the domestic garment industry is polarizing and high quality seems to be becoming a prerequisite for survival. All signs indicate that Vietnam's garment industry has reached the stage where high quality is essential.
Since the abolition of production quotas in January of 2005, Vietnam has attracted attention as a "China plus one" country. Many other countries, meanwhile, are attracted by the young market and thriving labour force in Vietnam. Expectations focus on both.
Overseas corporations are clamouring into the market in an investment boom of sorts, attracted by investment-friendly policies. Another factor fuelling the investment fever is the "Asian highway concept," a plan for a highway network passing through Vietnam and linking up with China and other Asian countries.
A crucial issue for Vietnam is the supply of materials, and many Vietnamese manufacturers rely on China for material procurement. Improved land transportation across the border between China and Vietnam is urgently needed as a secure procurement route. Last December, the Nan-you Expressway, a 180 km thoroughfare connecting Nanning in Guangxi with the Friendship Gate at the border of Vietnam, was completed. Together with the route from Yunnan, another route to Guangxi which has giant markets nearby, such as Guangdong and Hong Kong, is completed. Now that the Nan-you Expressway has been constructed, economic development is expected pick up all over Asia.




Market development with JUKI brand power.

JUKI has been operating in the Vietnam market for 30 years or more. It began on a modest scale, working with local garment customers to support their operations. Yet in only a matter of years, the JUKI brand-name came to be almost synonymous with "" stitch sewing machine." The company now has offices in Hanoi and Ho Chi Minh to handle sales and service activities.

Feature story : The Garment industry in Vietnam - Ho Chi Minh(1) Top interview

Feature story : The Garment industry in Vietnam - Ho Chi Minh(1) Top interview
The secret of rapid growth is high-quality production using high-quality machines.
VIETTIEN puts "high quality" in the limelight as it works aggressively to develop the domestic market.

VIETTIEN:
Vice General Director NGUYEN KHAC CHINH
Vice General Director LE VIET TOA
Interviewer:
JUKI SINGAPORE PTE LTD Chief Representative
Nobuhiko YAMAZAKI
JUKI SINGAPORE PTE LTD Chief Representative Nobuhiko YAMAZAKI
JUKI SINGAPORE PTE LTD Chief Representative Nobuhiko YAMAZAKI
"Six years ago, our company changed from a national enterprise into a joint stock corporation". (Mr. Le Viet Toa, Vice General Director of Export and Overseas Business.)
"Six years ago, our company changed from a national enterprise into a joint stock corporation". (Mr. Le Viet Toa, Vice General Director of Export and Overseas Business.)
"If anyone wants to open a factory, I will be happy to give advice and know-how on factory operation in Vietnam. Please feel free to contact us". (Mr. Nguyen Chinh, Vice General Director of Engineering and Manufacturing.)
"If anyone wants to open a factory, I will be happy to give advice and know-how on factory operation in Vietnam. Please feel free to contact us". (Mr. Nguyen Chinh, Vice General Director of Engineering and Manufacturing.)

Three-thousand people work at the headquarters factory. Four hundred of them work in administration departments. The other 2,600 work in sewing lines, producing shirts and other products.
Three-thousand people work at the headquarters factory. Four hundred of them work in administration departments. The other 2,600 work in sewing lines, producing shirts and other products.

Shirt manufacturing factory. The workplace is kept in good order: clean, well illuminated and thorough implementation of the 5S concept.
Shirt manufacturing factory. The workplace is kept in good order: clean, well illuminated and thorough implementation of the 5S concept.

Shirts. Items produced for the domestic market are comparable in quality to those produced for export. The products are getting high marks for their high quality.

Shirts. Items produced for the domestic market are comparable in quality to those produced for export. The products are getting high marks for their high quality.
Shirts. Items produced for the domestic market are comparable in quality to those produced for export. The products are getting high marks for their high quality.


Lockstitch machines are 100% JUKI. In addition to the machine with an automatic thread trimmer DDL-9000, Computer-controlled, high-speed, lockstitch buttonholing machine LBH-1790, Computer-controlled, high-speed, bartacking machine LK-1900, and feed-off-the-arm, 2-needle, double chainstitch machine MS-1190 are being used.
Lockstitch machines are 100% JUKI.  In addition to the machine with an automatic thread trimmer DDL-9000, Computer-controlled, high-speed, lockstitch buttonholing machine LBH-1790, Computer-controlled, high-speed, bartacking machine LK-1900, and feed-off-the-arm, 2-needle, double chainstitch machine MS-1190 are being used.

Lockstitch machines are 100% JUKI.  In addition to the machine with an automatic thread trimmer DDL-9000, Computer-controlled, high-speed, lockstitch buttonholing machine LBH-1790, Computer-controlled, high-speed, bartacking machine LK-1900, and feed-off-the-arm, 2-needle, double chainstitch machine MS-1190 are being used.

Lockstitch machines are 100% JUKI.  In addition to the machine with an automatic thread trimmer DDL-9000, Computer-controlled, high-speed, lockstitch buttonholing machine LBH-1790, Computer-controlled, high-speed, bartacking machine LK-1900, and feed-off-the-arm, 2-needle, double chainstitch machine MS-1190 are being used.

Lockstitch machines are 100% JUKI.  In addition to the machine with an automatic thread trimmer DDL-9000, Computer-controlled, high-speed, lockstitch buttonholing machine LBH-1790, Computer-controlled, high-speed, bartacking machine LK-1900, and feed-off-the-arm, 2-needle, double chainstitch machine MS-1190 are being used.

Lockstitch machines are 100% JUKI.  In addition to the machine with an automatic thread trimmer DDL-9000, Computer-controlled, high-speed, lockstitch buttonholing machine LBH-1790, Computer-controlled, high-speed, bartacking machine LK-1900, and feed-off-the-arm, 2-needle, double chainstitch machine MS-1190 are being used.

Lockstitch machines are 100% JUKI.  In addition to the machine with an automatic thread trimmer DDL-9000, Computer-controlled, high-speed, lockstitch buttonholing machine LBH-1790, Computer-controlled, high-speed, bartacking machine LK-1900, and feed-off-the-arm, 2-needle, double chainstitch machine MS-1190 are being used.
A rapidly growing national garment factory in Vietnam (20% growth annually) has introduced a stock corporation system and is starting to approach the domestic market with aggressive plans to evolve further. It even plans to move into the silk industry in the future.


What once was a modest national enterprise has become a sprawling group of garment manufacturers.

Yamazaki:
As we know, your company is one of the representative garment factories in Vietnam. You are now achieving double digit growth every year as a national enterprise, and there are many stock corporations within your group.
TOA:
Yes. We were a single independent national enterprise before. Then, six years ago, we restructured ourselves into a corporation by acquiring several smaller corporations as subsidiaries. We took part in the establishment of many joint ventures and have become a sizeable group of corporations in the process.
CHINH:
For the Viettien brand we have 9 factories. We also have many wholly owned subsidiaries and overseas joint ventures under our group.
This chart shows the names of the companies. Each of the companies runs several factories, so altogether we run many factories.
Yamazaki:
The headquarters manages the entire group, right?
TOA:
Yes. The headquarter consists of centralized departments-export and import, personnel, engineering, marketing, logistics, and so on-with control over the entire group.
Yamazaki:
Your subsidiaries seem to have suddenly multiplied over the last few years.
CHINH:
Not all of our subsidiaries were established in the last few years. Some have been around for much longer. In the last few years we have established not only sewing factories, but also many other types of factories. We also provide consulting services for firms that wish to start up apparel factories in joint ventures with foreign entities. If you know of anyone looking for such a service, please let us know.
Yamazaki:
Thank you very much. That's very encouraging.
What's the current volume of your business?
TOA:
The total sales for 2006 was about 150 million USD. About 23 million of that was for the domestic market.


Orders from overseas are rising. International customers are pleased with the punctual delivery and stable quality.

Yamazaki:
Your company used to export most of your products, but now domestic sales seem to be increasing. Am I right?
TOA:
We are aggressively developing the domestic market and selling about 15% of our output to domestic customers. As for our exports, 28% go to the USA, 25% to Japan, 23% to Europe, and the other 10% to the rest of Asia. Until about four years ago, exports to the USA made up more than half of the total. But the ratio is getting smaller. We expect the ratio for Japan to increase in the future.
Yamazaki:
Why are your exports to the USA declining ?
TOA:
Actually they aren't declining. It's just that our exports to other countries are growing much faster. Our exports to Japan over the last few years have grown by 10%. This is a big factor, I think.
Yamazaki:
Why are your exports to Japan increasing?
CHINH:
People nowadays are talking about "China plus one". This "one" often implies Vietnam. Orders from Japan are increasing for two reasons. First, Japanese customers want to diversify in order to avoid concentrating all of their risk in China. Second, they think highly of our factories in Vietnam, especially our punctual delivery and stable quality.
TOA:
Efforts by the governments of Japan and Vietnam have also contributed. Our governments have recently concluded agreements to engage in active cooperation, to exchange visits by prime ministers, to lease land for plants, to introduce favourable tax systems, and to streamline export and import transactions.
CHINH:
In some cases we receive orders even when we lack the factories to produce them. And now that labour is getting scarce inside Ho Chi Minh City, we have decided to invest 4 million USD to construct new factories outside of the city. This is all happening this year, in 2007.


The secret for the growth is the technology to make high-quality products.
Good machines are the key to high quality.


Yamazaki:
Your company is growing by more than 20% every year. The customer demand to support that growth must be enormous. How do you manage to win so many orders and grow so rapidly? What's your secret?
CHINH:
As we mention in our company brochure, the biggest secret behind our success is our sustained effort to high-quality products. On top of that, we offer good prices and keep delivery dates. Our customers think highly of our QCD.
We provide products to many countries, but our most difficult customers by far have been from Japan. When we started making products for Japan, the quality requirements from the customers were astounding. Later, once we were producing for Japan on a full scale, we realized that we could sell our products to anyone, as long as we produced them at the same high levels of quality. So we decided to make the quality requirements for Japan as the standard for all of our products. Now we train our operators to qualify for the methods of quality manufacturing.
The high quality of the Japanese machines we use for our manufacturing operations are a major factor supporting high-quality manufacturing. We started manufacturing shirts at our headquarter factory in 1996. Now we use JUKI machines exclusively, at all of our factories. About 90% of the sewing machines are computer-controlled. These machines are unsurpassed in sewing quality, stability, and operability. Once the operator uses a JUKI sewing machine, he'll never switch back to what he was using before.
TOA:
It has recently been getting difficult to recruit operators in the Ho Chi Minh area, as well. Young operators who join us after school are coming to work for us. We train them using the educational program prepared by Mr. CHINH. They learn the techniques very quickly. The outstanding operability of the sewing machines is a great help in their training.
Yamazaki:
I'm pleased to hear that. Thanks very much for the compliment.


Fast growing cotton shirt and sportswear business.
Next target: to expand domestic business.


Yamazaki:
I understand that your company is manufacturing many items, including shirts, pants, jackets and suits for men and women. Has there been rapidly growing demand for any specific item recently?
TOA:
Yes. There is very strong demand for cotton shirts, cotton pants, and sportswear.
Yamazaki:
You said earlier that you were selling about 15% in the domestic market, though exports have been your main target so far. Does this mean that domestic demand is substantially growing?
TOA:
Vietnam is a major producer of garment products. You may be surprised to hear that the garment industry contributes 65% of the GDP. Yet many more people work in agriculture: 65% of the total population of 84 million Vietnam is exporting more garment products year by year, and importing more as well. With the young population in Vietnam (three-quarters of the people are aged 40 or less), the domestic market is rapidly growing. We are strengthening our sales network to expand business in the domestic market targeting young customers.
Yamazaki:
Your products are produced at a Japanese level of quality. Has this won them a reputation as high-grade products?
CHINH:
We divide our products into three categories. The first is office wear or uniforms in the 10~15 dollar range; the second, mid-class products in the 20~25 dollar range; and the third, high-grade products in the 50~70 dollar range.
In manufacturing we use the same production lines. This prevents us from changing our production methods by product category. So the products we make for the domestic market are comparable in quality to those that we export. Our domestic brands include "Viettien" (shirts and suits for men), "Vee Sendy" (jeans for young customers aged 18 to 25 ), and "T-up" for exports. Viettien products are getting high marks for quality.
TOA:
We now have 350 distributors for the domestic market. We are now trying to promote mainly our mid class products, our highest-volume category, to supermarkets. Our near-term target is to increase the domestic sales ratio from 15% to 25%.


Recruitment in Ho Chi Minh is getting more difficult year by year.
From the apparel industry to the silk industry.


Yamazaki:
As the leader in the garment exports in "China plus one", you can be expected to grow and grow. Do you have any objective for the future?
TOA:
We have an abundance of young workers in this country, but labour costs are rising in Ho Chi Minh. We are now paying an average monthly salary of 120 dollars, and recruitment is getting difficult.
As you may know, material supply is the major issue for the garment industry in this country. We are relying on imports for 70% of our materials. We urgently need to solve this problem. So we have plans to take control over the material supply side in the future.
Yamazaki:
Does that mean you will be in two businesses, sewing and material?
CHINH:
Yes. Instead of expanding our sewing business, we plan to start producing material in 2009.
Yamazaki:
You will probably have to introduce new technologies for the development of your new business. This will be a challenge. I wish you every success in your new business.

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