Leather footwear supply chain

Illustrative image (Photo: VNA)

Hanoi (VNA) – Domestic leather and footwear firms have no choice but to convert their production activities as difficulties are expected to linger through this year due to the impact of the COVID-19 pandemic, experts have said.

According to Phan Thi Thanh Xuan , an expert from the project on promoting reform and enhancing connectivity of small and medium-sized enterprises funded by the US Agency for International Development ( USAID ), the industry had been negatively affected since the outbreak of the pandemic last year.

At that time, most enterprises merely had enough materials for production until the first week of March. From March onwards, the pandemic spread shut down the European and US markets where almost all stores were closed and sales fell freely.

Another problem is that prolonged pandemic has changed the trends, as well as the habits of consumers. More than 60 percent of consumers have cut down expenses on fashion products. About 65 percent of consumers have switched from fancy fashion to basic and durable fashion products, and 67 percent care about the quality of the working environment of manufacturing enterprises.

Enterprises have encountered difficulties as they have failed to find the market for their products and not revamped production in a timely manner to adapt to the new market changes.

Given this, Xuan suggested domestic enterprises increase their investment in automation, raise productivity to reduce costs, build closed production chains, and self-supply materials.

Illustrative photo (Source: VNA)

However, according to Nguyen Thi Xuan Thuy, head of the Department of Integration Strategy and Policy under the Institute of Industrial and Trade Policy and Strategy, out of 3,000 footwear producers, only 17 have designing activities, 400 process intermediate stages or produce auxiliary materials and accessories, and 20 percent of them use automation equipment.

Economic experts said it is time for Vietnam to look directly at the shortcomings of the domestic footwear industry. First of all, most enterprises produce under the cut, make, and trim (CMT) manufacturing. Because they export through foreign intermediaries, they have not yet built brands. Enterprises have also failed to grasp information about the trends of markets and customers, so they remain passive in production. Most enterprises only produce upon the orders given by partners.

As for the value chain, domestic enterprises are losing the balance between stages. Particularly, they focus more on the processing of footwear and bag products but less on designing, producing raw materials and auxiliary materials, and branding. The source of input materials is heavily dependent on imports, so it does not meet the requirements of rules of origin of new-generation free trade agreements. Just a few Vietnamese enterprises with big brands play a leading role in establishing the domestic supply chain.

Moreover, the fashion industry has yet to receive adequate attention and lacked linkage to form a chain. Regarding sustainability, the appraisal of manufacturing enterprises according to sustainability criteria has not been fully implemented. Activities related to traceability and transparency have not been methodically built and fully carried out. Authorities have not had specific criteria to monitor, evaluate, and use them as a foundation to develop policies to support the green and sustainable development of enterprises.

Quickly overcoming the above disadvantages will create conditions for enterprises to accelerate development.

Nguyen Duc Thuan, Chairman of the Vietnam Leather, Footwear, and Handbag Association (Lefaso), said that on average, the world produces 20 billion pairs of shoes annually, of which China accounts for 60 percent. Vietnam accounts for a modest percentage of about 5 percent.

However, in the context that orders from China are pouring heavily into Vietnam, the opportunity to expand the market share of the Vietnamese leather and footwear industry is great. From the end of last year up to now, long-term orders have returned steadily. Enterprises have actively made production plans until the end of this year.

Cao Quoc Hung, Deputy Minister of Industry and Trade, affirmed that the ministry had been promoting the implementation of groups of solutions for sustainable development of the footwear industry. Particularly, it will focus on developing raw materials and auxiliary materials for the textile and footwear industries in order to gradually meet the rules of origin of free trade agreements.

It will step by step support the establishment of the domestic textile, garment, and footwear value chains, focus on developing human resources to meet the needs of enterprises in the fields of management, designing, technology, market development, and research and development.

Besides, the Vietnamese textile and garment industry must go green, ensure international standards on environment, safety, labour, and sustainable development. This is also a necessary foundation for footwear enterprises to remove technical barriers and penetrate more deeply and broadly into the global market in the coming time.

Last year, the whole industry exported 19.5 billion USD, down 11.5 percent compared to 2019./.

By Lac Phong- Translated by Huyen Huong

Positive move

The Covid-19 pandemic caused the leather and footwear supply chain to break, and the leather and footwear enterprises faced many difficulties in exporting. However, thanks to good disease control in Vietnam and the signing of ‘new generation’ FTAs, the leather and footwear industry has gradually recovered. According to Phan Thi Thanh Xuan, Vice President and General Secretary of the Vietnam Leather, Footwear and Handbag Association (LEFASO), when EVFTA came into effect from August 1, it sparked hope for exports of the leather and footwear industry at the end of the year.

Since the second half of the third quarter of 2020, orders of enterprises in the leather and footwear industry have improved, and export orders are gradually recovering. After four months of implementing the EVFTA, footwear is a commodity in the list of export items of Vietnam with positive changes in exports. The total export turnover of the leather and footwear industry in 2020 is estimated at US$19.5 billion, down from 2019 but equivalent to the export turnover of 2018.

“The decrease in 2020 is said to be a relatively positive decrease compared to the general situation, as aggregate demand is down 22%, while the leather and footwear industry is down only 11%. In the coming time, thanks to the EVFTA, the leather and footwear industry will have more motivation to grow again”, expected Phan Thi Thanh Xuan.

Leather and footwear industry is one of the industries that has greatly benefited from the nation’s international integration framework. Joining ASEAN since 1995, Vietnam officially opened its integration and started joining FTAs. To date, Vietnam has 13 FTAs in effect; one FTA has not been ratified and is about to take effect; one FTA is about to sign; and two FTAs are under negotiation.

In the 2016-2020 period, the whole country has made outstanding efforts in accessing and opening markets, especially the markets where Vietnam has Free Trade Agreements (FTAs), including the ‘new generation’ of FTAs, including CPTPP, EVFTA, UKVFTA and RCEP. The EVFTA has a scale accounting for 30% of global GDP; RCEP is similar with 2.2 billion consumers, accounting for more than 30% of global GDP.

Only accumulating these two regions, Vietnam has penetrated the economic sector with GDP accounting for 60% of global GDP with extensive and continuous tariff reductions with commitments to open markets for Vietnamese products, services and goods in the direction of transparency, openness and convenience with open commitments in all areas. Not to mention, the signing of FTAs also contains reforms of the economy.

Tran Tuan Anh, Politburo member, Head of the PCC’s Economic Commission and Minister of Industry and Trade assessed, with his consistency in the policy of international economic integration, from a latecomer country in the international economic integration process, Vietnam rose to become the leading country for the first time, and was the first developing country in the Asia-Pacific region to have an FTA with the EU. Along with Singapore, Vietnam is among the first group of countries in ASEAN to ratify the CPTPP.

“In particular, the CPTPP and RCEP have affirmed Vietnam’s voice in shaping new cooperation mechanisms, as well as the rules of the region, enhancing the country’s position”, Politburo member Tran Tuan Anh emphasised.

It can be said that the signing and joining of FTAs has opened up an unprecedented large import and export market for Vietnam. Accordingly, import and export turnover to partner countries increased. The signing and joining FTAs also help consolidate traditional markets, opening many potential markets on the basis of promoting relationships with important economic strategic partners, and at the same time enhancing competitiveness for domestic businesses.

Particularly, EVFTA, which took effect from January 1, 2020, had initial “results”. After four months of EVFTA implementation, Vietnam’s exports to the EU increased by 4%, and imports increased by over 11%. In particular, a number of Vietnamese commodity groups have taken advantage of the incentives in areas such as seafood, plastic products and shoes.

Nguyen Hoai Nam, Deputy General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), said that during the first seven months of 2020, seafood exports decreased continuously from 17%-26%. However, seafood export turnover to the EU started to increase by 1% in August, by 19% in September, 20% in October, 30% in November, and 15% in December.

Or with the RCEP, according to a study by the World Bank, the implementation of the RCEP can help Vietnam’s GDP increase by 0.4% by 2030 if direct benefits are considered. This could reach up to 1% if indirect benefits from institutional reform are considered.

The dynamic and continuous opening of the market has created conditions for the scale of the economy and the production capacity of the economic sectors to be continuously expanded.

For example, in 2016, Vietnam only had an export turnover of more than US$ 1 billion per year. Now, Vietnam have 31 products with export scale of more than US$ 1 billion. Previously, Vietnam only had less than 10 items with export value of more than US$ 5 billion, now the number has reached 17 items.

Recovery prospects from FTAs

The year 2020 was a year of challenges for the global and Vietnamese economies, causing strong impacts on production and business activities. However, according to experts, the participation and implementation of ‘new generation’ of FTAs are the condition for Vietnam to expand its market, attract technology investment and improve the business environment, thereby promoting push economic growth in 2021 and the next period.

Minister Tran Tuan Anh affirmed: “With a regional economic and trade area linked and connected through 17 FTAs today, Vietnam completely has adequate room and conditions to orient sustainable development in the coming long-term strategy. The remaining issue is organising the effective implementation of these agreements to make the best use of the “highways”.

In the coming time, the Ministry of Industry and Trade will continue to communicate and disseminate the law so that not only state management agencies and organisations in the political system but also businesses and people can truly become the real subject of the integration process. Thus, Vietnam can make the most of the benefits from FTAs.

In addition, it is necessary to have plans to implement projects on economic restructuring and competitiveness improvement. Meanwhile, it is necessary to continue to implement the reform and improvement of legal institutions according to the tectonic environment and especially focus on people, businesses, and people and businesses as the target.

Regarding the prospects for the annual sectors in 2021, LEFASO Vice President Phan Thi Thanh Xuan said that the CPTPP, EVFTA, UKVFTA and RCEP have just been signed, especially the Free Trade Agreement with the UK which has just concluded negotiations and is expected to come into effect in 2021, will be a big driver for the growth of the leather, footwear and bag industry in next year.

According to LEFASO Vice President Phan Thi Thanh Xuan, leather and footwear is one of the industries that make best use of the EVFTA. If the Covid-19 pandemic is well controlled, the export of leather, footwear and bags is expected to grow by 15%-20% in 2021. Because these agreements will provide tax incentives for exporters. Currently, businesses are implementing production and business plans to prepare for the year of 2021.

With the fisheries sector, the VASEP said that the seafood industry still has opportunities from ‘new generation’ of FTAs such as the RCEP, EVFTA, and UKVFTA. These FTAs all have good effects, helping to improve competitiveness and support seafood exports to reach the target of 10% increase, equivalent to US$9.4 billion.

Seafood is expected to increase exports by 10% from FTAs.