Thailand's textile and garment industry is strong due to the entire supply chain cycle from yarn spinning to apparel manufacturing and to some extend even fashion design being located within the country. Meanwhile, Vietnam had to import 85 percent of materials needed for its apparel production. However, with the Vietnamese government planning to promote Vietnam as a global garment hub, conditions will have to change.
Vietnam has successfully negotiated the Trans Pacific Partnership (TPP) and under this framework will likely enjoy tariff exemptions with 12 Pacific Rim countries, including the major US apparel market, by the end of the year. But rules of origin remain a point of concern. The TPP nations are expected to settle on “yarn forward rules”, requiring the entire production process from yarn spinning to sewing to take place within a TPP country. Thus, to fully enjoy import exemptions on a significant number of products, Vietnam will have to strongly decrease its dependence on yarn and fabric imports from China and other Asian countries not located within TPP.
One of the strategies currently pursued by the Vietnamese government is to join forces with Thailand, despite it not being a TPP country. Both countries are looking at deepening their cooperation in order to strengthen their respective garment industries, better exploit the ASEAN market and increase their benefits once TPP comes into effect.
Firstly, Vietnam would to some degree benefit from a fully integrated vertical supply chain with Thailand in regards to sourcing. More importantly yet, the country’s nascent textile industry could learn from the higher knowledge level available in the Thai textile and garment industry, especially in the areas of yarn and fabric production, design activities and administration needed to build a fully integrated supply chain within Vietnam. Thailand on the other hand, not being part of TPP, sees its competitiveness waning and would like to get a foot in the door. At this stage, the best option for Thai textile manufacturers is to enhance cooperation with Vietnamese companies, moving production to Vietnam in order to enjoy TPP’s beneficial regulations.
A Vietnamese-Thai cooperation is thus a win-win situation for both countries. Last year, the trade turnover between the two countries reached 10 billion USD, realizing a year-on-year increase of 12.5 percent.
Overall, global apparel trade was estimated at 800 billion USD in 2014. 50 percent of global apparel production originated in Asia, the number will have risen by 10% in 2030.
BDS Insight: Being the only low cost Asian country joining the TPP, Vietnam enjoys a major advantage compared to its regional peers. The country is already popular with apparel producers due to its comparatively low labor costs and easily trained population. Under TPP, Vietnam is estimated to increase its global apparel market share by 6 to 7% until 2024.