Difficulties in vietnam’s export of textiles and clothing to the european union market in the period from 1992 to 2007

Leeds Metropolitan University Faculty of Business & Law DIFFICULTIES IN VIETNAM’S EXPORT OF TEXTILES AND CLOTHING TO THE EUROPEAN UNION MARKET IN THE PERIOD FROM 1992 TO 2007 Nguyen Mai, Chi Student ID: 77119652 In partial fulfilment for the requirements of the Master Degree in International Trade and Finance Dissertation Supervisor: Christine Ngo 2012 – 2013 ACKNOWLEDGEMENTS First and foremost, I would like to say my deepest thanks to my supervisor, Christine Ngo, for her feedbacks and advices From the point of a supervisor, she suggested and encouraged me to complete the thesis My thanks also go to the lecturer of the research method module, Milton Yago, for providing me the background knowledge of how to implement a research Thanks to all the research participants The study would not have been completed without your valuable opinions I would like to thank the staff of international training project-Academy of Finance too for their support and guide Finally, my special thanks go to my family and dear friends for their understanding and encouragement during the researching process They have been by my side whenever I have had stress or tiredness I once more time say my most sincere thanks to all of them ABSTRACT Vietnam is one of less developed countries which depend on export much, especially export of textiles and clothing Among many international markets, the European Union is one of the most potential markets for Vietnamese textiles and clothing export enterprises Beside achievements, these companies got a lot of obstacles The focus of this research is in the area of difficulties in Vietnam’s export of textiles and clothing to the European Union market from 1992 to 2007 Such a study is important in order to enhance the understanding of difficulties and challenges in Vietnamese textiles and clothing export industry in general, the understanding of common weaknesses of Vietnamese companies, barriers originated from the European Union and the competition of China in specific The secondary data and primary data of the thesis, in turn, were collected through the relevant literature and the implementation of interviews The findings from this research provide evidence that the common weaknesses of Vietnamese textiles and clothing export and manufacturing companies were mainly around the factors of labor, raw materials, market knowledge, capital resources, infrastructures, administrative procedure Besides, distribution, competition, technology and exchange rate regimes were the other weaknesses It is also shown that the state of the European Union affected Vietnam’s export of textiles and clothing to the market mainly in terms of the socio-cultural and economic factors Further more, Vietnam had to cope with China’s five competitive aspects; they were labor cost, prices of products, modes of products, raw material inputs and government support The conclusion drawn from this study is obstacles Vietnamese companies got, originated from the lack of government support significantly This dissertation recommends that Vietnamese enterprises need to make efforts in order to enhance their inside potentiality, along with the support of the government to be against external barriers from the protectionism of the European Union, the competition of China, the other competitors as well TABLE OF CONTENTS ACKNOWLEDGEMENTS ABSTRACT TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES LIST OF ABBREVIATIONS CHAPTER 1: INTRODUCTION 1.1 Background of the study 1.2 Significance of the study 11 1.3 Research aims and objectives 12 1.4 Boundary of the study 13 1.5 Research design 13 CHAPTER 2: LITERATURE REVIEW 14 2.1 Introduction .14 2.2 Common weaknesses of Vietnam textiles and clothing export and manufacturing companies 14 2.3 The state of Europe Union affected Vietnam’s export of textiles and clothing to this market .21 2.4 China’s competitive aspects, which Vietnam had to cope with in the export of textiles and clothing to the European Union market 24 CHAPTER 3: RESEARCH METHODOLOGY 29 3.1 Introduction 29 3.2 Research strategy 29 3.3 Data collection 30 3.4 Data Analysis 31 3.5 Limitations 32 CHAPTER 4: FINDINGS AND DISCUSSION 33 4.1 Introduction .33 4.2 Findings and discussion 33 4.2.1 Common weaknesses of Vietnam textiles and clothing export and manufacturing companies 33 4.2.1.1 Human resources: Labor 33 4.2.1.2 Physical resources: Raw materials 35 4.2.1.3 Knowledge resources: Market knowledge .37 4.2.1.4 Capital resources 38 4.2.1.5 Infrastructures 39 4.2.1.6 Procedural 40 4.2.1.7 Other weaknesses 40 4.2.2 The state of the European Union affected Vietnam’s export of textiles and clothing to this market .42 4.2.2.1 Socio-cultural 42 4.2.2.2 Economic 43 4.2.2.3 The on-going Euro Zone crisis .44 4.2.3 China’s competitive aspects, which Vietnam had to cope with in the export of textiles and clothing to the Europe Union market 46 4.2.3.1 Labor 46 4.2.3.2 Prices and modes of products 48 4.2.3.3 Raw material inputs 48 4.2.3.4 Import Quotas 49 4.2.3.5 Government support .50 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 52 5.1 Introduction .52 5.2 Research objectives: Summary of Findings and Conclusions 52 5.2.1 Research Objective 1: Common weaknesses of Vietnam textiles and clothing export and manufacturing companies 52 5.2.2 Research Objective 2: The state of the European Union affected Vietnam’s export of textiles and clothing to this market 54 5.2.3 Research Objective 3: China’s competitive aspects, which Vietnam had to cope with in the export of textiles and clothing to the European Union market 54 5.3 Recommendations 55 5.3.1 Vietnamese companies .55 5.3.2 Vietnamese government 56 APPENDIX 58 Appendix 1: Learning Statement 58 Appendix 2: Top 20 less developed countries with a high dependence on clothing exports 62 Appendix 3: Some main goods for exportation .63 Appendix 4: Vietnam’s textiles and clothing export turnover to the Europe Union market 67 Appendix : Interview form 68 Appendix 6: Statement of originality and authenticity 74 Appendix 7: Local Level Approval: Postgraduate Research Project .75 Appendix 8: Dissertation Proposal 77 REFERENCES 85 LIST OF TABLES Table 1: Major steps in textiles and clothing production process Table 2: Skill requirements in garmenting Table 3: Hourly wage costs in the textile industry, selected countries, 1993 (US$) Table 4: Market share of clothing retailers in main EU countries - Percentages (EG-Studies KSA / Texco, 1990) Table 5: Data analysis approach Table 6: Structure of Imported T&G Commodities of Vietnam (%) Table 7: Ceiling Interest Rates for Working Capital LIST OF FIGURES Figure 1: Textiles and Clothing Exports of Cambodia and Vietnam, 19972001 (in millions of US$) Figure 2: Hourly costs in the textile and clothing industry, 1998 (US$) Figure 3: Foreign investment in Vietnam’s textiles and garment industry: Foreign Investors in Vietnam by Origin (1997) Figure 4: The earnings of workers in China (1992-2001) Figure 5: China’s exports and FDI LIST OF ABBREVIATIONS ABIT: Brazilian Textile and Apparel Industry Association APEC: Asia-Pacific Economic Cooperation ASEAN: Association of Southeast Asian Nations ATC: Agreement on Textile and Clothing C/O: Certificate of Origin EU: European Union FDI: Foreign Direct Investment GATT: General Agreement on Tariffs and Trade GDP: Gross Domestic Product GSP: Generalized System of Preferences HACCP: Hazard Analysis and Critical Control Points MFA: Multi Fibre Arrangement MFN: Most Favored Nation NSDC: National Skill Development Corporation SOEs: State-owned Enterprises T/C: Textiles and Clothing UNCTAD: United Nations Conference on Trade and Development USITC: United States International Trade Commission VITAS: Vietnam Textile and Apparel Association WTO: World Trade Organization CHAPTER 1: INTRODUCTION In the first chapter, the researcher would like to present the background of the study, the reasons why this topic is selected and the significance of this research The aim and objectives are also going to be identified specifically 1.1 Background of the study Globalization has been much concerned by the whole world for a long time, meanwhile international trade has played a very important role in socioeconomic development Especially, exports have significant impacts on the economic growth of a nation; therefore, many developing countries have the trend of pursuing industrialization on exports Vietnam is also not out of this trend Export activity has had great influences on Vietnam’s economic growth for many years It has affected Vietnam’s Gross Domestic Product (GDP) considerably “Goods and services exports now constitute around 70 per cent of Vietnam's GDP up from a 30 per cent share recorded in the mid 1990s” (Department of foreign affairs and trade - Australia, 2012) According to Ho Chi Minh city department of industry and trade (Feb 2005), the export turnover of Vietnam reached over $ 26 billion in 2004; it was 28.9% over the previous year, which made the GDP growth rate of Vietnam ranked first in the region in 2004, higher than that in 2003 Jodie Keane and Dirk Willem te Velde (2008, quoted in UNCTAD, 2005 and WTO, 2006) stated that Vietnam belonged to the top 20 less developed nations with a high dependence on the export of clothing See appendix 2: Top 20 less developed countries with a high dependence on clothing exports Strong competitions on export market among countries indirectly improve the quality of merchandise in the global, as well as products produced by Vietnamese enterprises Vietnam is a member of WTO, APEC etc So that, it forces this nation to produce better products in order to create competitive advantages This is essential because Vietnam’s manufacturing capacity and technology are worse than many other countries too Exportation, besides, changes the economic structures of nations Previously being an inward economy, Vietnam has become an outward one Further more, export promotion