|
|
 |
 |
 |
| Monday, 9 February 2004 |
 |
|
 |
Features | |
| News Business Features Editorial Security Politics World Letters Sports Obituaries
|
Thwarted Potential by Margot Cohen, Ho Chi Minh City A trade pact with Washington has curbed a major boom in garment and textile exports, leaving some investors very frustrated Benny Liu has clothing samples galore, bearing labels both famous and obscure. Among the $ 2 million worth of garments he shipped from his Ho Chi Minh City factory to the United States last year: 80,000 pairs of Khaki shorts designed for a trendy "distressed" look with two frayed holes on the right pocket. But by the end of 2003, Liu's factory was up for sale - sign of the widespread malaise currently afflicting Vietnam's garment industry as it struggles to adjust to new limits on access to the US market. It's striking case of thwarted potential. Over the last two years, foreign investors had begun to rediscover Vietnam as a low-cost manufacturing hub, rendered more enticing by improved trade relations with the US. From January to October 2003, roughly 55% of Vietnam's worldwide garment and textile exports went to the US; during that period Vietnam shipped $ 1.7 billion worth of goods to the US, a 155% increase over the same period in 2002. But a textile and apparel pact signed in Washington last April has put the brakes on unrestricted growth in the sector. Industry leaders say there's only one way to restore the momentum: Vietnam must join the World Trade Organisation no later than 2005, in order to capitalize on the broader market access granted to WTO members as new global rules take hold governing the trade in textiles and apparel. WTO accession would annul quotas imposed on Vietnam's garment exports. The next round of talks on Vietnam's WTO offer is slated for April. The timing is tight and the chances uncertain. That means frayed nerves and second thoughts among many industry players, including Liu's colleagues at AMW H.K. Ltd, a privately held Hong Kong-based company with $ 200 million in annual revenues. AMW's odyssey is typical of numerous investors who came to Vietnam. While operating two garment factories in mainland China. AMW built up a roster of US customers including Perry Ellis and American Eagle Outfitters. Four years ago, Liu, AMW's deputy general manager, seeking to diversify, placed some orders with local Vietnamese companies. He liked what he saw: good workmanship, low labour costs, and most important, quota-free access to the US market, which AMW's China factories did not offer. The US buyers sought higher volumes than their European counterparts, making production more steady and economical. With a US Vietnam bilateral-trade agreement poised to start in December 2001, Liu figured the opportunities were too good to ignore. Other investors from South Korea, Taiwan, Hong Kong and Singapore were heading to Vietnam with the same idea. "I kept on telling people that in Asia, in the next five years, only China and Vietnam will count," recalls Liu, a forthright 38-year-old businessman born in Hong Kong and educated in Britain. By October 2002, AMW's new factory was up and running in one of Ho Chi Minh City's booming industrial parks. The $ 2.5 million investment included sophisticated new equipment imported from Germany an Japan. Six hundred workers operated 12 sewing lines, mostly making cotton pants and jackets. AMW wasn't the only new employer on the scene. By early 2003 nearly 2 million workers were depending on Vietnam's fast growing garment trade. The axe fell on May 1 when a new quota regime came into force following the signing of the new textile-and-apparel pact one week earlier. In the US domestic manufacturers had shuddered at the rapid growth in Vietnam's garment exports, envisioning another China-like threat down the road. They lobbied hard for immediate application of Vietnam quotas in order to shield apparel makers in Mexico, the Caribbean and Central America that rely on US fabrics and enjoy quota-free and duty-free access to the US. Their pleas drowned out arguments from US retailers that it made sense to help Vietnam get a bigger market share in order to build up sourcing alternatives to China. Liu and some other foreign garment executives expected at least a six-month adjustment period before the restrictions were applied. That also would have given the Vietnamese government some time to hammer out a clear, logical system for allocating quotas among producers. Instead Vietnamese officials appeared overwhelmed by the complexity of managing the trade. The pact called for capping 38 categories of garments with an estimated value of $1.7 billion for 2003; for coming years the quotas allow for annual increases of 7% for cotton items and 2% for wool items. Given this mandate, Vietnamese officials derived a complex formula for quota allocation that incorporated a factory's past performance, current capacity, location and orders from major customers. But as fraud emerged and manufacturers complained that some factories got too much quota and others got too little, officials kept changing the rules. Garments got stuck in storage, expenses rose and frustrations mounted. "That was an unfortunate situation. Being the first year, (the government) couldn't put in the right safeguards," says Geoffrey Paul, Director of Fashion Garments Ltd. in Dong Nai province. Producers are still haggling with the government over the precise quota formula, and government ministries still can't seem to agree on whether they'll permit companies to transfer each other's quota in 2004. As a result of such chaos, Liu says, his factory racked up $50,000 in losses for three straight months - August, September and October. His workers' incomes declined because the company began paying less for piecework, prompting some workers to leave, and productivity fell. Liu's mood sank further each time a local official pestered him for a pay-off, which he says added $600 a month to his overhead. In November, the decision came down from Hong Kong: Sell the Ho Chi Minh City garment factory. Yet newspaper advertisements failed to yield a buyer willing to offer the right price. Liu Says. So in January, AMW hit on a different tactic: Pursue a joint venture with a Vietnamese partner while waiting for WTO accession. Many other producers seem resigned to riding out this rough period. "Things are getting worse. We have no choice. We are trying to survive," says Yi Dong Hwan, Chairman of the Korean Garment Manufacturers' Association in Hanoi. Survival tactics vary. Some investors are scrambling for extra quota to fill orders for the European market. The downside, they say, is that a number of European customers cooled on Vietnam after the factories abandoned them in their rush to focus on the more lucrative US market over the last two years. Other manufacturers are shifting their sights to Australia, Japan and other quota-free markets. And some are attempting to diversify into non-quota items for the US, even though there's not much demand for those at present. Another strategy is making the most of limited quotas by producing high-end, high-margin items for the US market. For Vietnam, the urgency of digging itself out from under these quotas was driven home by recent overtures from JC Penney. In late 2003, the US apparel giant began negotiations for a large new garment factory that would employ 20,000 workers in northern Thai Binh province. Ordinarily, Vietnam would leap at such a high-profile employment booster. But Vietnamese officials say the deal is contingent on getting the government to guarantee $ 500 million worth of quota - nearly a quarter of the total quota available. Impossible, the officials say. "If I give quota to JC Penney, others will ask for it, and how can I give the same to them?" asks Bui Xuan Khu, Vietnam's vice-minister of industry. Courtesy: Far Eastern Economic Review |
|
News | Business | Features
| Editorial | Security
Produced by Lake House |
