Garment companies fight to the death

Garments might be looking at export turnover near $7.7bil in 2007, but the actual profit Vietnamese companies retain is really quite modest. Experts attribute this to a lack of cooperation and fierce competition.

Vietnam is now listed among the top 10 garment exporters. However, despite significant turnover, Vietnamese companies are not profiting nearly as much as they can, and should.

Most Vietnamese garment companies are outsourcers for foreign companies; meaning they are making products from materials and designs provided by foreign companies.

Vietnamese companies are trying their best to improve the situation, trying to export garment products Free on Board (FOB) (buyer, rather than seller, pays for transportation and insurance costs). Experts pointed out companies can pocket three times higher profit from FOB orders over outsourcing orders.

Experts also said that a French importer has canceled its FOB order with a Vietnamese partner and instead placed an outsourcing order; not what their Vietnamese partner expected, and certainly not what they wanted.

The problem lies in the fact that if the Vietnamese partner does not accept the outsourcing order, other Vietnamese companies will lower prices. The French importer may well understand that a lot of Vietnamese companies now need distribution sources and will accept orders at any price.

In fact, Vietnamese companies are ‘killing’ each other by accepting overly low production prices. Analysts explain that in every one of the above cases, Vietnamese exporters are the ones who suffer, never the importers.

United we stand, divided we fall

The lack of coordination is currently garment companies biggest problem. Pham Xuan Hong, General Director of the Saigon 3 Garment Company, said that if local enterprises sit together to discuss the standard price levels for garment export products, foreign importers won’t be able to force Vietnamese companies to accept less.

“If Vietnamese companies cooperate with each other, they will be able to improve the current situation,” Mr. Hong said, adding that in the eyes of foreign garment importers, Vietnam is no more than a low-cost outsourcing market.

Who will come forward and call for a united front? The answer should be the Vietnam Textile and Apparel Association (Vitas).

However, a Vitas official said that it is very difficult to act as the bridge between garment producers.

The official said the association once called on members to contribute money for lawyers to protect Vietnamese companies in the US market in case of legal proceedings. However, several members refused, saying that only companies exporting to the US should have to contribute. (Securities Investment)