Vietnam's textile industry has increased significantly since normalizing relationships with the United States in the 1990's. Vietnam was granted most favoured nation status (MFN) in December 2001, which led to a dramatic reduction in import tariffs in the US market. Vietnam's induction to the World Trade Organization (WTO) in 2007 and the Vietnamese government's strong support of the textile and garment sector, have provided strong incentives to attract foreign investors. The textile industry is now the second biggest exporter in Vietnam and is expected to become the biggest in 2009. However the financial crisis has had a severe affect on Vietnam's textile industry, which has suffered from a slump in demand from key export markets in the US, Europe and Japan.
Labour cost advantage
In the textile industry, companies are increasingly looking for lower cost countries that can provide outsourcing opportunities. The rising cost of land and labour are diminishing China's labour cost advantage and Vietnam is increasingly seen as a low cost sourcing alternative to China. Estimates are that wage levels in Vietnam are about one third of those in China's coastal region. Companies that are chasing lower labour costs are increasingly moving production to Vietnam. In a 2008 Booz Allen Hamilton survey 88 percent of companies originally chose China for its lower labour costs. Of the companies surveyed, 55 percent believe China is losing its competitive edge to countries such as Vietnam. The survey also indicated that 63 percent named Vietnam as their top low cost sourcing alternative to China. However, costs may be rising. The Navigos Group, a leading recruitment solutions provider in Vietnam, announced early in the year that there had been a 16.47 percent increase in Vietnamese workers' average gross salaries between April 2008 and March 2009.
Low cost location
However, low cost labour is hardly a competitive advantage in the long term. Labour cost keeps changing and today's low cost location is not necessarily tomorrow's viable outsourcing location. If it is not China or Vietnam, it could be Bangladesh or Cambodia. Ig Hortsmann, a professor of business economics at the University of Toronto's Rotman School of Management notes that Nike originally off shored manufacturing to Japan. As labour costs increased, manufacturing was later moved to South Korea and Taiwan. When labour cost increased in South Korea and Taiwan, it was moved to China and later also to Vietnam. Justin Wood, a Director of the Economist Intelligence Unit Corporate Network in Singapore makes the point that in the last 15 years Vietnam has moved from a low to a middle income country. The move towards a middle income will likely put additional pressure on Vietnam's low cost labour status.
source: ezinearticles.com
No comments:
Post a Comment