Textiles Firms Head to Vietnam

Since China’s reform and opening up began in the early 1980s， textiles have been a vital part of the country’s massive goods production industry. However， as workers’ wages in China continue to grow and the country’s economy matures， large producers have been turning to ASEAN countries to seek opportunities by taking advantage of their complementarities. Of all areas explored and investigated by companies and governments， textiles production cooperation between China and Vietnam shows the most promise.

Cross-Border Cooperation Zones

Mong Cai is one of the four areas that Vietnam has chosen to construct cross-border economic cooperation zones in partnership with China’s Guangxi Zhuang Autonomous Region. The purpose of the move is to build four economic zones along the China-Vietnam border for exchanges and cooperation in economics， trade and tourism. Building the cross-border economic cooperation zones is also an important part of China’s Belt and Road Initiative， serving as a link between the Initiative and Vietnam’s strategy of “Two Corridors and One Economic Circle”. The cooperation zones are considered demonstration projects for production capacity cooperation between the two countries.

Vietnamese statistics show that Mong Cai port’s total imports and exports of goods amounted to more than US$23 billion between 2010 and 2015， a 1.8-fold increase compared to the previous five years. From 2010 to 2015， total services and retail sales were nearly US$1.6 billion， representing an average annual increase of 5.3 percent.

Texhong Yinlong Technology Company （Texhong） specializes in yarn production. Wang Yiyong， the company’s chairman of the board of directors， said that in 2006， Texhong’s leaders investigated the Southeast Asian market and made the decision to make Vietnam their first stop in their efforts to globalize operations.

“To be more specific， Mong Cai has the following advantages for us，” Wang said. “First， as part of the cross-border economic cooperation zone， it is only 800 kilometers from Guangzhou in southern China and 1，200 kilometers from Xiamen in southeastern China. Its proximity to the major textile and apparel markets means that it can promptly respond to the market， which is helpful for our market share.”

Policies instituted by the Vietnamese government have also had a positive effect.

“Quang Ninh province has considered Texhong a strategic investor which can enjoy preferential policies and assistance， including tax exemption after four years and a 50 percent tax deduction in nine years. That’s very important for manufacturing enterprises like Texhong， ” Wang added.

So far， Texhong has built five factories in Mong Cai， with a capacity of 150，000-180，000 tons of yarn per year， employing 5，000 workers. In Hai Ha county， the company has built two factories， with a capacity of 80，000 tons of yarn per year， employing 2，500 workers. With its first plants built in Dong Nai province in 2006 also included， Texhong’s yarn production in Vietnam has reached 300，000 tons annually， 43 percent of Vietnam’s total.

Wang explained that much of Texhong’s yarn production is being transferred from China to Vietnam. This is not a simple transfer of production capacity， but a move for mutual benefit and complementarity. As a result， the interaction between the domestic market and the foreign market determines where the production is carried out. This kind of interaction is exactly the production capacity cooperation advocated by the Belt and Road Initiative. Additionally， most of Texhong’s production equipment used in Vietnam is advanced machinery from China.

“To go global， it’s not good to use your company’s aging equipment，” Wang said. “Instead， you should bring the most advanced equipment and models available in your own domestic market to develop high-quality products to boost competitiveness.”

Mutual Complementarity

Like Texhong， efforts made by the Shengtai Group in Vietnam have also paid off.

Wang Libing is the manager of Shengtai’s industry group in Vietnam. Shengtai began garment production in Vietnam in 2009， and in 2012， the company built a cotton spinning mill in Vietnam. With the development of the mill and garment production， the company has continued its research and found an imbalance in Vietnam’s textile development. With a huge garment production capacity and a large volume of trade with Europe and the United States， it has been forced to depend on imports for fabrics， especially from China. Therefore， Shengtai built a fabrics factory in Vietnam， which went into operation in June 2014 as Vietnam’s first large-scale yarn dyed fabrics manufacturer.

Shengtai has developed rapidly in Vietnam， with factories built in industrial parks in Nam Dinh， Hung Yen and Bac Giang provinces. The factories cover a total area of nearly 450，000 square meters， employing 12，000 workers. The largest factory is in the industrial park in Nam Dinh， which covers 330，000 square meters of land with a construction area of 200，000 square meters. Employing 140 technology and management specialists from different countries， the factory has formed an integrated industrial chain from cotton spinning to fabrics and garments.

Wang Libing explained that Shengtai’s success in Vietnam can be attributed to the following strategies：

First， identify local economic growth points. Wang believes that at this point， it’s a bit too late for cotton spinning enterprises to enter Vietnam， since the market is already being shared by several firms. For fabric processing enterprises， however， now is the right time. Therefore， Shengtai is planning to further improve processing operations in Vietnam， with the production of clothing add-ons （such as buttons and labels）. That will be a beneficial supplement to their main business. This method is also advocated by the Vietnamese government.

Second， cooperate with local industry associations and enterprises. Wang said that Shengtai’s rapid development in Vietnam is due to the management teams’ accurate assessments and timely decisions， and the full support of local industry associations. During Shengtai’s preliminary investigation， the Vietnam Textile and Apparel Association offered considerable assistance. The association provided them with a list of potential geographical locations and introduced them to the overall trend of Vietnam’s textile market as well as its five-year plan.

Third， make full use of the opportunities brought by the Belt and Road Initiative， and strengthen distribution of logistics and textile accessories in the context of connectivity. The Initiative has done much to improve interaction and cooperation between governments， leading to improved communication among international companies as well， which represents an opportunity for global firms.