Trans-Pacific Partnership agreement (TPP) and several free trade agreements are expected to be signed this year and they will provide huge opportunities for the breakthrough development of Vietnamese leather - footwear industry. However, to seize these opportunities, businesses need to identify their market positions and products as well as satisfy requirements for quality and model.
Vice President of the Vietnam Chamber of Commerce and Industry (VCCI) Doan Duy Khuong spoke with the Vietnam Business Forum Magazine (VBF) about the issue.
*What do you think about opportunities for Vietnamese economic sectors in general and the leather - footwear sector in particular when TPP and FTAs are signed?
Vietnam has been gradually deepening its integration into the world economy. The WTO entry in 2007 has brought a lot of remarkable achievements in promoting economic growth, especially international trade. Currently, Vietnam is pushing up negotiations of some trade agreements, including the TPP, the Vietnam - EU Free Trade Agreement and the Free Trade Agreement between Vietnam and the Customs Union (Russia, Belarus and Kazakhstan). The effect of these trade agreements is forecast to be greater than the WTO entry, particularly for export-oriented industries like leather - footwear.
Trade agreements, including TPP, will actually open up golden opportunities and provide new boosts for Vietnamese leather, footwear and handbag companies to develop in both scale and quality. When TPP takes effect, exports and imports among member countries will enjoy preferential tariffs, which may be reduced to zero in the long term. This advantage will help Vietnamese footwear edge up its competitiveness against products from some rivals like China and India. They are the world-leading exporters of leather, footwear and bags but they are not TPP members.
The FTAs between Vietnam and the EU and between Vietnam and the Russia Customs of Union - Belarus - Kazakhstan, which are under negotiation, also present great opportunities. These are important trading partners and traditional markets of Vietnam and the big importers of Vietnamese leather and footwear. Compared with other exporters in the region, Vietnam holds considerable advantage in footwear export to the EU market. The FTA with the EU will substantially support Vietnam. If the FTA negotiations with the EU and the Customs Union of Russia - Belarus - Kazakhstan are concluded, the Vietnamese leather - footwear industry will have competitive advantages over other countries.
Besides, many foreign manufacturers will locate their projects in Vietnam and this is another plus for the leather - footwear industry. US and EU footwear and handbag firms will relocate their production bases from China to Vietnam to enjoy TPP treatments. If Vietnam misses this tremendous opportunity, it will be unable to address its inherent weakness: Reliance on foreign inputs.
*What are the weak points of Vietnamese leather - footwear companies when they join these joint markets?
For years, leather, footwear and handbag are key exports of Vietnam. In 2013, this sector fetched 10.32 billion USD from exports, up 18 percent over 2012 and exceeding the full-year target by 3 percent. Strong growths are expected when the above FTAs take effect. Nevertheless, in reality, Vietnamese leather - footwear enterprises still have a lot of weakness and face with numerous difficulties.
The biggest challenge for Vietnamese leather, footwear and handbag firms is how to approach TPP countries when inputs are mainly imported from non-TPP members. According to statistics, the localisation ratio of this sector is just 50 - 55 percent and the rest is offset by imports.
The sector will encounter difficulties in production mode because many companies are offshore contractors for foreign partners. Many take on low-value stages in the global supply chain.
In addition, they will see difficulties with non-tariff barriers because their competitiveness, technical competence and designing capacity are weak while importers always demand strict quality, delivery, technical specifications. To penetrate into developed markets like the US and Japan, they cannot limit themselves with average products but they must look to higher grade product lines.
Besides, they lack experience in building independent brands. This is very important when branding and intellectual property are of deep concern as now.
*So, what is your advice to them?
According to the master plan on Vietnam leather - footwear industry development to 2020, with a vision to 2025, the leather - footwear industry will become a spearhead export sector of the economy. Its annual production value was forecast to expand 9.4 percent in the 2011 - 2015 period, and 8.8 percent in 2016 - 2020 and the localisation ratio is expected to be raised to 60-65 percent by 2015 and 75-80 percent by 2020. To achieve these objectives, they need to change business methods and sensibly approach markets.
First of all, they must form internal supply chains with organic interconnectivity among stages. A complete supply chain, from design, input, accessory, production and distribution must be established by TPP signatories because one of conditions to be granted tariff preference in TPP member countries is Vietnamese companies have to show the proof that their products use materials from TPP countries and are made by TPP countries.
In addition, they must understand market tastes to have appropriate approaches.
For technical barriers or non-tariff barriers, they must actively invest in technological innovation, enhance product competitiveness in TPP countries, and apply certified technical and quality standards to pass all requirements imposed by importing countries. Besides, they should step up market research and trade promotion and build long-term business plans to improve export quality and competitiveness.
They also have to take into account other factors like rules of origin, intellectual property, technical barriers, and sanitary-VNA
Vice President of the Vietnam Chamber of Commerce and Industry (VCCI) Doan Duy Khuong spoke with the Vietnam Business Forum Magazine (VBF) about the issue.
*What do you think about opportunities for Vietnamese economic sectors in general and the leather - footwear sector in particular when TPP and FTAs are signed?
Vietnam has been gradually deepening its integration into the world economy. The WTO entry in 2007 has brought a lot of remarkable achievements in promoting economic growth, especially international trade. Currently, Vietnam is pushing up negotiations of some trade agreements, including the TPP, the Vietnam - EU Free Trade Agreement and the Free Trade Agreement between Vietnam and the Customs Union (Russia, Belarus and Kazakhstan). The effect of these trade agreements is forecast to be greater than the WTO entry, particularly for export-oriented industries like leather - footwear.
Trade agreements, including TPP, will actually open up golden opportunities and provide new boosts for Vietnamese leather, footwear and handbag companies to develop in both scale and quality. When TPP takes effect, exports and imports among member countries will enjoy preferential tariffs, which may be reduced to zero in the long term. This advantage will help Vietnamese footwear edge up its competitiveness against products from some rivals like China and India. They are the world-leading exporters of leather, footwear and bags but they are not TPP members.
The FTAs between Vietnam and the EU and between Vietnam and the Russia Customs of Union - Belarus - Kazakhstan, which are under negotiation, also present great opportunities. These are important trading partners and traditional markets of Vietnam and the big importers of Vietnamese leather and footwear. Compared with other exporters in the region, Vietnam holds considerable advantage in footwear export to the EU market. The FTA with the EU will substantially support Vietnam. If the FTA negotiations with the EU and the Customs Union of Russia - Belarus - Kazakhstan are concluded, the Vietnamese leather - footwear industry will have competitive advantages over other countries.
Besides, many foreign manufacturers will locate their projects in Vietnam and this is another plus for the leather - footwear industry. US and EU footwear and handbag firms will relocate their production bases from China to Vietnam to enjoy TPP treatments. If Vietnam misses this tremendous opportunity, it will be unable to address its inherent weakness: Reliance on foreign inputs.
*What are the weak points of Vietnamese leather - footwear companies when they join these joint markets?
For years, leather, footwear and handbag are key exports of Vietnam. In 2013, this sector fetched 10.32 billion USD from exports, up 18 percent over 2012 and exceeding the full-year target by 3 percent. Strong growths are expected when the above FTAs take effect. Nevertheless, in reality, Vietnamese leather - footwear enterprises still have a lot of weakness and face with numerous difficulties.
The biggest challenge for Vietnamese leather, footwear and handbag firms is how to approach TPP countries when inputs are mainly imported from non-TPP members. According to statistics, the localisation ratio of this sector is just 50 - 55 percent and the rest is offset by imports.
The sector will encounter difficulties in production mode because many companies are offshore contractors for foreign partners. Many take on low-value stages in the global supply chain.
In addition, they will see difficulties with non-tariff barriers because their competitiveness, technical competence and designing capacity are weak while importers always demand strict quality, delivery, technical specifications. To penetrate into developed markets like the US and Japan, they cannot limit themselves with average products but they must look to higher grade product lines.
Besides, they lack experience in building independent brands. This is very important when branding and intellectual property are of deep concern as now.
*So, what is your advice to them?
According to the master plan on Vietnam leather - footwear industry development to 2020, with a vision to 2025, the leather - footwear industry will become a spearhead export sector of the economy. Its annual production value was forecast to expand 9.4 percent in the 2011 - 2015 period, and 8.8 percent in 2016 - 2020 and the localisation ratio is expected to be raised to 60-65 percent by 2015 and 75-80 percent by 2020. To achieve these objectives, they need to change business methods and sensibly approach markets.
First of all, they must form internal supply chains with organic interconnectivity among stages. A complete supply chain, from design, input, accessory, production and distribution must be established by TPP signatories because one of conditions to be granted tariff preference in TPP member countries is Vietnamese companies have to show the proof that their products use materials from TPP countries and are made by TPP countries.
In addition, they must understand market tastes to have appropriate approaches.
For technical barriers or non-tariff barriers, they must actively invest in technological innovation, enhance product competitiveness in TPP countries, and apply certified technical and quality standards to pass all requirements imposed by importing countries. Besides, they should step up market research and trade promotion and build long-term business plans to improve export quality and competitiveness.
They also have to take into account other factors like rules of origin, intellectual property, technical barriers, and sanitary-VNA
