Financial analysis report of century synthetic fiber corporation tng investment and trading jsc thanh cong textile garment investment trading jsc song hong garment jsc

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON FINANCIAL ANALYSIS REPORT OF CENTURY SYNTHETIC FIBER CORPORATION TNG INVE

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance

FINANCE DISSERTATION ON

FINANCIAL ANALYSIS REPORT OF CENTURY SYNTHETIC FIBER CORPORATION TNG INVESTMENT AND TRADING JSC THANH CONG TEXTILE GARMENT INVESTMENT TRADING JSC

SONG HONG GARMENT JSC

NGO HUONG THAO

ID No: 21071799 Intake 5

Supervisor: Prof Dr To Kim Ngoc

September 2022

ACKNOWLEDGEMENT

I am honored for becoming a student of the Banking Academy and University of the West of England, and it is a pleasure to encounter committed professors Professors teach us not only knowledge, but also about life, attitudes and multidimensional perceptions of issues They show us the overlooked attractiveness of the economy, especially in Finance I earned a lot

of support and assistance from professors, family and friends during my Master program Therefore, I would like to convey my deepest gratitude to all professors for their insight and commitment to share their expertise with us

Furthermore, I want to thank Ms To Kim Ngoc for having been a great encouragement to

me in finance I have learned and interacted with many esteemed professors but perhaps the most inspired instructor with me is Ms Ngoc, my instructor When anyone has problems, she always sends us sincere guidance So, I also expect that I will have more chances to collaborate with Ms Ngoc in the future

Ngo Huong Thao

EXECUTIVE SUMMARY

This dissertation examines four of Vietnam's leading textile and garment companies: Century Synthetic Fiber Corporation, TNG Investment and Trading JSC, Thanh Cong Textile Garment Investment Trading JSC, and Song Hong Garment JSC It evaluates all factors both internal and external influencing the companies' achievement and prospects in order to provide detailed advice and appropriate investment recommendations to investors For these companies, the competition for market share is becoming increasingly important

As a result, the industry has become more diverse: scale and scope, as well as category growth, have become defining themes for corporate strategies

According to the company analyses, STK and MSH are the industry leaders because they have grown in line with the market in recent years Furthermore, their financial situations are outstanding, with financial ratios that are significantly higher than industry benchmarks However, while STK continues to grow, MSH is declining as all of its financial ratios show weaknesses TCM's financial ratios indicate that the company is in a poor financial state and that its risk of insolvency is high TNG, on the other hand, has a stronger financial state and

is regarded as a prospective company for long-term investment So after the valuation model, the intrinsic values of the four top companies in Textile and Garment Industry are calculated

TABLE OF CONTENT

LIST OF FIGURES 10

LIST OF TABLES 11

LIST OF ABBREVIATIONS 13

CHAPTER 1: INTRODUCTION 14

I.Rationales 14

II.Research questions 14

III.Research purposes 14

IV.Objects and scope 15

V.Methodology 15

VI.Thesis structure 15

CHAPTER 2: MACROECONOMIC 16

I.The world 16

II.Regional - APAC 19

1.Political Factor 19

2.Economic Factors 19

3.Social Factors 20

4.Technological Factors 20

III.Viet Nam 21

1.Political 21

2.Economic 22

3.Sociocultural 23

4.Techonology 23

CHAPTER 3: INDUSTRY ANALYSIS 24

I.History 24

1.The world 24

1.1 Before the 19th century 24

1.2.19th century – Early 20th century 24

1.3.20th century 24

2.Viet Nam 25

2.1 Period before 1986 25

2.2 Period from 1986 to 1997 25

2.3 The period from 1998 to present 25

II.Value chain 26

1.Global value chain 26

1.1.Fibers 26

1.1.1 Cottons 28

1.1.2 Polyester 29

1.2 Dyed fabrics 30

1.2.1 Weaving 30

1.2.2 Dyeing 31

1.3 Garment 32

1.3.1 CMT (Cut – Make – Trim) 33

1.3.2 OEM/FOB (Original Equipment Manufacturing/ Free on Board) 33

1.3.3 ODM (Original Design Manufacturing) 34

1.3.4 OBM (Original Brand Manufacturing) 34

1.4.Exporting and marketing 34

2.Viet Nam value chain 34

2.1 Fibers 34

2.1.1 Materials 34

a Cotton 34

b Polyester 35

2.1.2 Manufacturing system 36

2.1.3 Capacity 37

2.1.4 Consumption market 37

2.2.Dyed fabric 38

2.2.1 Materials 38

2.2.2 Manufacturing system 38

2.2.3 Capacity 39

2.2.4 Consumption market 39

2.3.Garment 39

2.3.1 Materials 39

2.3.2 Manufacturing system 40

2.4 Exporting and marketing 44

3.The position of the textile industry in the economy 44

3.1.Scale 44

3.2.Export 44

3.3.FDI 45

3.4.Performance 46

3.4.1.Revenue and Profit margin 46

3.4.2.Growth 47

4.Consumption trends 47

4.1.Online shopping 47

4.2.Human rights protection 48

4.3.Fast-fashion 48

4.4.Zero Discharge of Hazardous Chemicals (Greening) 49

5.SWOT 49

5.1.Strengths 49

5.2.Weaknesses 49

5.3.Opportunities 50

5.4.Threats 51

6.Porter's Five Forces 52

6.1.Threat of new entrants 52

6.2.Bargaining power of suppliers 54

6.3.Bargaining power of customers 56

6.4.Threat of substitutes 58

CHAPTER 4: CORPORATION ANALYST 62

I.Century Synthetic Fiber Corporation (STK) 62

1.Overview 62

1.1.Background 62

1.2.Corpotation position 62

2.Business model 63

2.1.Main activities 63

2.2 Target 63

2.3 Supplier 63

2.4 Customer 64

2.5 Distribution channel 64

2.6 Revenue 65

3.SWOT analysis 66

3.1.Strengths 66

3.2.Weaknesses 66

3.3.Opportunities 67

3.4.Threats 67

4 Financial analysis 68

4.1.Financial ratio 68

4.1.1 Profitability ratio 68

4.1.2.Gearing ratio 69

4.1.3.Liquidity ratio 70

4.1.4.Efficiency ratio 71

4.2 Forecast of business performance 71

5.Valuation 73

5.1 DCF Method 73

5.2.EV/EBITDA method 74

5.3.Suggested target price 75

II.TNG Investment and Trading JSC (TNG) 76

1 Overview 76

1.1.Background 76

1.2.Corpotation position 77

2 Business model 77

2.1 Main activities 77

2.2 Target 77

2.3 Suppliers 78

2.4 Customer 78

2.5 Distribution channel 79

2.6 Revenue 79

3 SWOT analysis 80

3.1.Strengths 80

3.2.Weaknesses 81

3.3.Opportunities 81

4.1.Financial ratio 82

4.1.1 Profitability ratio 82

4.1.2.Gearing ratio 83

4.1.3.Liquidity ratio 83

4.1.4.Efficiency ratio 84

4.2 Forecast of business performance 84

5 Valuation 86

5.1 DCF Model 86

5.2 EV/EBITDA method 87

5.3.Suggested target price 88

III Thanh Cong Textile Garment Investment Trading JSC (TCM) 89

1 Overview 89

1.1.Background 89

1.2.Corpotation position 90

2 Business model 90

2.1 Main activities 90

2.2 Target 90

2.3 Suppliers 91

2.4 Customer 91

2.5 Distribution channel 92

2.6 Revenue 92

3 SWOT analysis 92

3.1.Strengths 92

3.2.Weaknesses 93

3.3.Opportunities 93

3.4.Threats 93

4 Financial analysis 94

4.1.Financial ratio 94

4.1.1 Profitability ratio 94

4.1.2.Gearing ratio 95

4.1.3.Liquidity ratio 96

4.1.4.Efficiency ratio 96

4.2.Forecast of business performance 97

5 Valuation 99

5.1 DCF method 99

5.2 EV/EBITDA method 100

5.3 Suggested target price 101

IV Song Hong Garment JSC (MSH) 102

1 Overview 102

1.1.Background 102

1.2.Corpotation position 102

2 Business model 103

2.1 Main activities 103

2.2 Target 103

2.3 Suppliers 104

2.4 Customer 104

2.5 Distribution channel 104

2.6 Revenue 105

3 SWOT analysis 105

3.1.Strengths 105

3.2.Weaknesses 106

3.3.Opportunities 106

3.4.Threats 106

4 Financial analysis 107

4.1.Financial ratio 107

4.1.1 Profitability ratio 107

4.1.2 Gearing ratio 108

4.1.3.Liquidity ratio 109

4.1.4 Efficiency ratio 109

4.2 Forecast of business performance 110

5 Valuation 111

5.1 DCF method 111

5.2 EV/EBITDA method 112

5.3 Suggested target price 113

CHAPTER 5: CONCLUSION 114

I Recommendation 114

1.1.Comparison with other industries 114

1.1.1.Fishery industry (Seafood industry) 114

1.1.2.Steel industry 115

1.2.Reviews 116

II.Limitations 118

REFERENCES 119

APPENDIX 122

LIST OF FIGURES

Figure 1: Global Textile and Garment Value chain 26

Figure 2: Yarn production – cost structure (2021) 27

Figure 3: Global fiber production (from 1975 to 2030) 27

Figure 4: Cotton price situation (from 2000 to 2022) 28

Figure 5: Polyester price situation (from 2015 to 2020) 29

Figure 6: Fabric exportation by regions (from 2020 to 2021) 30

Figure 7: Fabric importation by regions (from 2020 to 2021) 31

Figure 8: World consumption of dyes by regions (2020) 32

Figure 9: Garment manufacturing process 33

Figure 10: Viet Nam Textile and Garment industry Value chain 34

Figure 11: Viet Nam cotton importation by regions (from 2019 to 2022) 35

Figure 12: Machinary imporation to Viet Nam by region (2020) 36

Figure 13: Fabrics importation to Viet Nam by regions (2021) 40

Figure 14: Sewing machinery and equipment importation to Viet Nam by regions (2020) 41

Figure 15: Vietnam's garment manufacturing structure by products (2020) 42

Figure 16: Timeline for Garment production in Viet Nam (2020) 42

Figure 17: Garment exportation from Viet Nam by regions (2021) 43

Figure 18: Exportation growth of garment and textile products (2021) 45

Figure 19: Textile and Garment industry performance (from 2019 to 2021) 46

Figure 20: STK shareholder structure 2021 62

Figure 21: STK’s international customers 64

Figure 22: STK’s Revenue (from 2018 to 2021) 65

Figure 23: STK’s Revenue structure (2021) 65

Figure 24: TNG's shreholder structure (2021) 76

Figure 25: TNG's suppliers by regions (2021) 78

Figure 26: TNG’s customer (2021) 78

Figure 27: TNG Revenue structure (2021) 79

Figure 28: TNG major export markets (2021) 80

Figure 29: TCM Shareholder structure (2021) 89

Figure 30: MSH shareholder structure (2021) 102

Figure 31: MSH suppliers by regions (2021) 104

LIST OF TABLES

Table 1: Exploited oil projects in Viet Nam 35

Table 2: The comparision between exportation and domestic sales 38

Table 3: Importation and exportation of fabrics in 2021 39

Table 4: Threat of new entrants for Textile and Garment industry in Viet Nam 52

Table 5: Bargaining power of suppliers for Textile and Garment industry in Viet Nam 54

Table 6: Bargaining power of customers for Textile and Garment industry in Viet Nam 56

Table 7: Threat of substitutes for Textile and Garment industry in Viet Nam 58

Table 8: Threat of competitive rivalry for Textile and Garment industry in Viet Nam 59

Table 9: STK suppliers by regions in 2021 64

Table 10: Profitability ratio of STK from 2018 to 2021 68

Table 11: Gearing ratio of STK from 2018 to 2021 69

Table 12: Liquidity ratio of STK from 2018 to 2021 70

Table 13: Efficiency ratio of STK from 2018 to 2021 71

Table 14: Forecasting performance of STK in 2022 72

Table 15: DCF model of STK 73

Table 16: EV/EBITDA model of STK 74

Table 17: Suggested target price of STK 75

Table 18: Profitability ratio of TNG from 2018 to 2021 82

Table 21: Efficiency ratio of TNG from 2018 to 2021 84

Table 22: TNG Forcasting performance in 2022 85

Table 23: DCF model of TNG 86

Table 24: EV/EBITDA model of TNG 87

Table 25: Suggested target price of TNG 88

Table 26: TCM customers by regions in 2021 91

Table 27: TCM Revenue structure by products in 2021 92

Table 28: Profitability ratio of TCM from 2018 to 2021 94

Table 29: Gearing ratio of TCM from 2018 to 2021 95

Table 30: Liquidity ratio of TCM from 2018 to 2021 96

Table 31: Efficiency ratio of TCM from 2018 to 2021 96

Table 32: TCM forecasting performance in 2022 98

Table 33: DCF model of TCM 99

Table 34: EV/EBITDA model of TCM 100

Table 35: Suggested target price of TCM 101

Table 36: Profitability ratio of MSH from 2018 to 2021 107

Table 37: Gearing ratio of MSH from 2018 to 2021 108

Table 38: Liquidity ratio of MSH from 2018 to 2021 109

Table 39: Efficiency ratio of MSH from 2018 to 2021 109

Table 40: MSH forecasting performance in 2022 110

Table 41: DCF model of MSH 111

Table 43: EV/EBITDA model of MSH 112

Table 44: Suggested target price of MSH 113

Table 45: Recommendations 116

LIST OF ABBREVIATIONS

UNCTDA The United Nations Conference on Trade and Development

TCM Thanh Cong Textile Garment Investment Trading JSC

VGT Vietnam National Textile & Garment Group

VITAS Vietnam Textile and Apparel Association

VCOSA Vietnam Cotton and Spinning Association

CHAPTER 1: INTRODUCTION

I Rationales

After the 20th Century, the Viet Nam Textile and Garment industry became a large-scale manufacturing industry There have been breakthroughs, from expensive, custom-tailored clothing to low-cost, mass-market production Nowadays, it is one of the key production industries of the economy, accounting for 12 - 16% of the total export turnover of the country (GSO, 2022) In addition, in the past 10 years, this industry has maintained a growth rate of 12-20%/year, even higher than GDP growth (around 6%/year) (FPTS, 2021)

Based on this data, the textile and garment industry seem to have very positive results; and textile stocks are classified as value stocks However, in reality, the business results of textile companies are not uniform, there are enterprises with great performances, but most of them have small profit margins

Due to the disparity in business results, I wrote this research paper to uncover stage differences in an industry value chain; through four leading companies, which also represent big stages of the industry value chain in Vietnam: Century Synthetic Fiber Corporation, TNG Investment and Trading JSC, Thanh Cong Textile Garment Investment Trading JSC, and Song Hong Garment JSC

II Research questions

- How the macroeconomic affect the textile and garment industry?

- What is the current situation of the textile and garment industry in the world in general and in Vietnam in particular?

- What is the financial status and intrinsic value of textile and garment enterprises in the Viet Nam industry value chain?

- What are the recommendations for investors?

III Research purposes

The study is designated to achieve following objectives:

- Providing general background of the Textile and Garment industry

- Analyzing the current situation of Viet Nam’s Textile and Garment industry

- Examining the performance and intrinsic values of four leading companies in the Textile and Garment industry: Century Synthetic Fiber Corporation, TNG

Investment and Trading JSC, Thanh Cong Textile Garment Investment Trading JSC, and Song Hong Garment JSC

- Providing investment recommendations for investors based on the above-mentioned analyses

IV Objects and scope

- Objects: There are three companies listed on Ho Chi Minh Stock Exchange including: Century Synthetic Fiber Corporation, Thanh Cong Textile Garment Investment Trading JSC, and Song Hong Garment JSC; and a company listed on Ha Noi Stock Exchange is TNG Investment and Trading JSC

The reason for choosing these 4 businesses is because the standard of listing on these above exchanges is very high, all information about the business is clear and transparent In addition, there are four industry leaders, operating at different steps of the value chain

VI Thesis structure

The research comprises 5 chapter

Chapter 1: Introduction

Chapter 2: Macroeconomic analysis

Chapter 3: Industry analysis

Chapter 4: Corporation analysis and valuation

Chapter 5: Conclusion

CHAPTER 2: MACROECONOMIC

I The world

Global merchandise trade declined in the first half of 2022

The World Trade Organization (WTO) merchandise trade measure for May 2022 shows that the conflict in Ukraine and recent pandemic-related blockades in China are increasing depresses global merchandise trade in the first half of 2022 (WTO, 2022)

Global trade growth is forecast to slow down to 4% in 2022 as the conflict in Ukraine continues to disrupt global value chains Global activity is gradually shifting back to the service sector, which is less linked to international trade and movement Cargo trade growth slowed in the first half of 2022 as supply chains continued to be impacted by the lingering effects of the pandemic, including disruptions to major Asian ports and lockdowns in big cities of China (Bank, 2022) In addition, the conflict between Russia and Ukraine has led to serious disturbances in production and logistics activities While Russia and Ukraine account for less than 3% of global exports, many global industries depend on the supply of vital goods produced in these two countries, especially in Russia (WTO, 2022)

This has a great impact on the textile and garment industry because we have been through the peak of the epidemic and the industry had many difficulties with supply chain disruption such as the decrease in export turnover Moreover, the current concern of textile and garment enterprises is the unstable production capacity, causing partners to shift orders, affecting production in the coming years

Rising prices and inflation

Commodity prices continued to soar in the first half of 2022 after the upward momentum since mid-2020 due to the recovery in demand amid limited production of some commodities as well as the impact of the conflict between Russia and Ukraine- na leads to major disruptions to production and trade, especially oil Prices of oil products rose around 30% due to insufficient refining capacity and disruptions to Russia's exports of refined oil products (Bank, 2022) And agricultural prices are forecast to increase by 18% in 2022, higher than previous forecasts, due to reduced grain production in Ukraine as well as high input costs (Bank, 2022)

Vietnam's textile and garment industry is not yet self-sufficient in supply Rising oil and agricultural prices will lead to an increase in the price of input materials such as polyester

According to the IMF, due to the impact of the conflict in Ukraine and increasing price pressures, inflation is expected to continue to rise higher than previously forecast The conflict is likely to have a protracted impact on commodity prices, with more severe effects

on oil and gas prices in 2022 and food prices in 2023 (IMF, 2022)

Global financial conditions tend to tighten

According to the World Bank, rising inflation leads to expectations of faster monetary policy tightening worldwide Bond yields in advanced economies have risen markedly and measures of equity volatility have steadily increased, affecting valuations of risky assets Since the start of the year, US and euro area stocks have fallen about 13% and 12% respectively The Russian-Ukrainian conflict has increased the value of the US dollar against currencies of emerging markets and developing economies, leading to rising global debt settlement costs (Bank, 2022)

Tight monetary policy is one solution to control inflation, but it will have some negative effects on global businesses First of all, businesses will find it difficult to access credit, or finance costs will increase This will change the capital structure of many global enterprises, including suppliers and customers of Vietnamese textile and garment enterprises

Working hours have been reduced

The International Labor Organization (ILO) said that the number of working hours in the world decreased in the first quarter of 2022 and was 3.8% lower than in the fourth quarter of

2019 (pre-crisis level), equivalent to the level of trade deficit There are 112 million time job losses, indicating a significant slowdown in the global economic recovery Recent lockdown measures in China are responsible for the decline in global working hours The conflict in Ukraine not only has a regional impact but also affects the global economy by increasing inflation, especially food and energy prices, and disrupting global supply chains (ILO, 2022)

full-Now, working hours are down, but labor costs are increasing (Bank, 2022) This will affect the profitability of the business In recent years, in the balance sheet of textile and garment enterprises, wage costs are gradually increasing

Global FDI inflows in 2022 are forecast to decrease or stay flat compared to 2021

The United Nations Conference on Trade and Development (UNCTAD) estimated that global foreign direct investment (FDI) inflows in 2021 was USD 1.58 trillion, up 64% from

the first year of epidemic The main drivers of FDI inflows come from a boom in mergers and acquisitions, rapid growth in the international project finance sector due to financial easing and massive infrastructure stimulus packages (UNCTAD, 2022)

The FDI factor is very important to Vietnam's textile and garment industry, because currently garment export turnover is more than 60% from FDI enterprises FDI not only affects exports, but they also bring with them many modern machines and qualified human resources

II Regional - APAC

1 Political Factor

When assessing the political climate of the Asia-Pacific region, there are several factors to consider

Political instability in Thailand and Myanmar

Strict Intellectual Property Rights protection laws with civil actions against trademark infringements ( Asia Pacific Intellectual Property Guides, n.d.)

Rise in Non-tariff regulations in Pacific trade (Non-tariff regulations rise in Pacific trade, 2019)

Asia-Transfer pricing developments particularly in India, China and Japan (Vishweshwar Mudigonda, 2016)

Flexible taxation policy, reducing tax burdens on foreign businesses, particularly in Singapore (Litsareva,2018)

In fact, these political factors are favorable to Vietnam, especially with the political instability factor in other countries Currently, Myanmar and Cambodia are gradually increasing orders from China's factories, and are direct competitors of Vietnam in Southeast Asia However, the two countries frequently encounter political tension; Cambodia is the period 2013-2016, Myanmar is the present For this reason, production was interrupted Meanwhile, under the guidance of the Party and State, Vietnam avoids this problem

2 Economic Factors

Currently, 62% of the growth in global GDP is accounted for by Asia's economy India in particular saw a boost in economic growth in the entire Asia region However, the performance of international commerce affects the economic situation The trade negotiation between China and the United States creates uncertainty that may have an impact on the region's economy (PELTIER, 2019) Following points were considered while evaluating economic factors for APAC region:

Singapore, Malaysia and Thailand are promoting efforts on a variety of investments and providing safeguard against discrimination through special treaties

An expected economic growth of 5.6% in Asia is forecasted by 2019 (Asia Pacific Good Times, Uncertain Times: A Time to Prepare, 2018)

Asian economies now benefit from high-quality public education and rising living standards thanks to digital transformation

The growing middle class and rising incomes may cause Asia to overtake North America in terms of overall consumer spending by 2023 (Hodgson, 2018)

The gradually positive Asian economies will be a support point for the textile and garment industry in Vietnam Because the fashion industry in the region is also very developed, especially Thailand; so this is a potential customer

3 Social Factors

It is crucial to take into account the common attitudes and beliefs of your target market's consumers We were able to assess the following factors to gain a better knowledge of the social dynamics that govern the South Asian market:

The Asia Pacific region has a diversified population with a wide range of cultures and ethnicities

By 2030, the population is anticipated to exceed 4.5 billion (Asia Pacific in 2030: The Future Demographic, 2017)

Per capita income is rising and the market consists of vibrant and dynamic communities that are being early adopters of new technology (Christensen, 2014)

The APAC area accounts for 44% of all internet users worldwide

Emerging middle class group earning between $2-$20/day

A huge consumer base owning smartphone and engaging in m-commerce (Digital in Asia Pacific: Four things you need to know, 2017)

With the growth rate of population, middle class, and income, this is an opportunity for Vietnamese businesses in general, and for textile and garment enterprises who want to expand the value chain in particular These three factors have caused the demand for apparel products to increase

In addition, recently, most Vietnamese businesses have invested in ERP systems, as well as websites and social networks The reason is because the population using social networks is very large, and this is the place to quickly reach out to young people - who are the easiest to spend on clothes (GSO, 2022)

4 Technological Factors

Given how quickly technology is disrupting many businesses, it is essential to take into

Presence of tech Giants like China’s Alibaba and Baidu that are changing Asia’s digital landscape

With the majority of people adopting new technologies and mobile internet, business opportunities are easier to acquire and more lucrative

The countries that are leading in adopting digital transformation are Australia, New Zealand, and India

About 60% of APAC organizations are moving towards automation and integrated solutions (Asia Pacific is setting the trend in digital adoption – Here’s why, n.d.)

To compare in terms of technology development to pursue online sales on social networking platforms, Vietnam does not have many reputable websites However, we have shortened the development time down and also started to build our own, outstanding shopping software like Tiki It can be seen that Tiki is operated similarly to Shopee, or Lazada - the two most downloaded e-commerce sites in Vietnam; and we can see the development of foreign technology factors also pull us along

Although e-commerce sites are growing, the most popular stores are mainly small fashion brands or order goods If you look at the online stores of listed businesses, you will see the same feature: quite outdated, and do not update new items in the store Therefore, in order to take advantage of high-value-added stages in the value chain, Vietnamese textile and garment enterprises need to focus on promoting this segment

III Viet Nam

The world has been severely impacted by the Covid-19 pandemic Vietnam is not an exception, and learning more about domestic and international situations will help businesses survive and advance

1 Political

The Communist Party of Vietnam is the only party in Vietnam that holds total authority Vietnam is demonstrating its political stability with a one-party system, which is always a huge advantage compared to other nations in the world Vietnam did a great job of infection prevention, maintaining positive economic growth despite adversity

As for diplomacy, Vietnam has currently established diplomatic ties with more than 178 nations worldwide We have joined and developed alliances such as World Trade Organization (WTO), APEC forum, ASEAN, Non-Aligned Movement Historically,

Vietnam and the United States have had conflicts in politics and war, but in the past two decades, we have all noticed the situation has changed

However, Vietnamese politics still have certain limitations According to a Human Rights Watch (HRW) report in 2020, human rights and freedom of expression issues in the country are still a problem

Corruption is also a serious problem in Vietnam But since 2016, the government has been implementing several strategic options into action to improve the situation

The stable political situation in Vietnam is a premise for FDI enterprises who want to move their supply chains from other unstable countries in Southeast Asia, as well as China

2 Economic

The estimate of the International Monetary Fund (IMF) showed that Vietnam's nominal GDP 2020 reached USD 340,602 billion, ranking 35th in the world However, our average per capita income is USD 3,498, ranking 115 in the world (IMF, 2022) According to the General Statistics Office of Vietnam, the gap between rich and poor is increasing markedly and rapidly (GSO, 2022)

Regarding imports and exports, Vietnam's top exports in recent years have been phones & components, computers, machinery and equipment, tools and spare parts, textile products, footwear, Currently, these products are mainly exported to Germany, Korea, Japan, China and the US The main imported products are computers, electronic products, components, machinery and equipment, telephones, fabrics, iron and steel of all kinds, etc We mainly import from Singapore, Hong Kong, Korea, Japan and China (FPTS, 2021)

The Covid-19 pandemic has been having a heavy impact on the world economy in general and Vietnam in particular In 2020 and 2021, many large and small businesses have had to suspend their business operations or even dissolve (Bank, 2022)

After experiencing the credit liquidity shock in 2012, the Vietnamese economy operated quite smoothly Currently, even after experiencing the pandemic, Vietnam is still the most developed economy in Southeast Asia This will be an attractive factor that makes many foreign businesses want to invest in Vietnam Textile and garment enterprises need to take advantage of this opportunity

funds; state insurance funds; and national resources, other assets owned by the state can rely

on the economic cycle (Vietnambiz, 2019) Therefore, state-owned enterprises will be favored, especially in large-scale export fields such as textiles and garments This will be a problem for businesses with a private element only They need to soon complete the value chain, boost production capacity, product quality, etc to attract more orders

3 Sociocultural

Currently, the population of Vietnam is about 97 million people The General Statistics Office reports that the Vietnamese population's average life expectancy has been rising in recent years, reaching 73.7 years on average in 2020 (GSO, 2021)

Thus, looking at the economic and socio-cultural aspects, we can see that Vietnam is facing some notable problems: Population aging; The gap between rich and poor increases Economic growth cannot close the gap between rich and poor The Covid-19 pandemic affected people's psychology, culture and habits However, on the other hand, this will help people invest in personal for example, high-end fashion brand, health care, beauty, insurance, healthcare, etc

On the positive side, Vietnam is absorbing a lot of new cultures in the world, so learning a lot of good knowledge to apply to the business model in Vietnam For instance, online shopping, fast fashion is also a new culture, positively affecting the textile industry

4 Techonology

In recent years, Vietnam has been focusing on technology development, creating a technology workforce, policies to attract foreign investors, and encouraging people to start a business According to the by 2020, the information technology sector has attracted 700 companies, of which 220 are foreign, mainly focusing on big cities It can be said that Vietnam is providing information technology services such as educational technology, software outsourcing, e-commerce, artificial intelligence, etc However, many companies are currently facing difficulties challenge of a limited skilled, inexperienced workforce (Technology, 2021)

CHAPTER 3: INDUSTRY ANALYSIS

I History

1 The world

1.1 Before the 19th century: The Silk Road was the first place to trade textile products

Weaving is one of the oldest human activities After the primitive period, using animal skins

to cover their bodies, since they knew how to cultivate, humans have imitated nature, knitting plants and trees to make materials According to archaeologists, flax is the first human textile material Then wool appeared in Mesopotamia and cotton in the river Indus (India) (Appendix 1) (FPTS, 2021)

1.2 19th century – Early 20th century: Advancement in science and technology is the premise for the massification of garment products

The introduction of chemical fibers in the textile industry (Appendix 2)

In 1889, Mr Chardonnet exhibited at the Paris World's Fair a man-made spinning machine and the first man-made silks The following year, he inaugurated a man-made fiber factory, which began production in 1892 But at that time the methods were incomplete and the cost was high, so it was not until the beginning of the 20th century that the production of clothes started on a large scale, and succeeded by the discovery of Nylon (1930) and Polyester (1940) (FPTS, 2021)

The introduction of sewing machines in the field of garment production

Sewing machines are the first technological innovation in garment manufacturing In 1846 Elias Howe invented the first sewing machine, then generations of sewing machines were improved by Nathan Wheeler and Allen B Wilson (Appendix 3)

1.3.20th century: The textile and garment industry becomes a large-scale manufacturing industry

The production stage is constantly moving to a place where production costs are low

The global textile and garment industry has undergone production shifts (CMT - Cut, make, trim) since the 1950s The first was the shift of production from North America and Western Europe to Japan in the 1950s and early 1960s The second shift was from Japan to three manufacturing plants in Asia (Hongkong, Taiwan and Korea), between 1970 and 1980 This was followed by a third shift to less developed Asian countries and the Americas During the

After the process of formation and development, the global textile and garment industry has undergone significant changes: from clothes that are sewn according to individual measurements at an expensive cost, to production for mass demand with low cost; From designs, models, materials, colors to time of use and the development of new products are also constantly changing, requiring countries to always update and affirm their brands and positions in the value chain (FPTS, 2021)

2 Viet Nam

2.1 Period before 1986

In 1954, after peace was restored, the North was completely liberated and had conditions for economic development to support the South to fight against the imperialists and reunify the country During this period, Vietnam's textile and garment industry was interested in creating favorable conditions for investment and development by the Party and Government

In 1975, after the country was completely reunified, the textile and garment industry had more opportunities to develop when it was supplemented with a team of skilled workers from craft villages stretching from the Central to the South However, in this period, there are still limitations due to the general mechanism of the whole economy (GSO, 2022)

2.2 Period from 1986 to 1997

Before 1990, because Vietnam only had relations with socialist countries, most of the textile products were consumed domestically and exported to Eastern European countries When the socialist market in Eastern European countries collapsed, as well as Vietnam's economic transition from centrally planned, bureaucratic subsidies to a market economy, businesses (mostly state-owned enterprises) encountered many difficulties (GSO, 2022)

2.3 The period from 1998 to present

If the period before 1998 was the process of forming and shaping Vietnam's textile and garment industry, this period is the development stage Vietnam expands to markets around the world In November 1998, Vietnam was admitted to APEC, the bilateral trade agreement with the United States took effect in 2001 and joined the Agreement establishing the WTO (2006) marking a remarkable growth in exporting According to statistics in 2001, the whole industry had 1,031 enterprises, by 2016, the number of enterprises in the industry was about 8,000 enterprises The average growth rate reached 17%/year in the period from 1998 to present (GSO, 2022)

II Value chain

1 Global value chain

Figure 1: Global Textile and Garment Value chain

Source: TCM 2018 The global textile value chain consists of 5 basic stages: one is the input material (including natural and man-made fibers); two are the factors of production (including fabrics of natural fibers and fabrics of synthetic fibers) provided by yarn companies; the third is the production system consisting of garment manufacturing companies; four is an export system consisting of trade intermediaries, garment companies with their own brands; and five is the Marketing system including retailers and stores that distribute products to consumers (TCM, 2018)

1.1.Fibers

Raw materials (Cotton/Polyester) account for the largest proportion in the cost structure of yarn production (approximately 60%) In addition, depreciation expense also accounts for a very large proportion (10%), larger than the labor cost because the yarn manufacturing industry mainly uses machines in the production process In general, input materials (cotton and polyester) determine the price of yarn products (VITAS, 2022)

Figure 2: Yarn production – cost structure (2021)

Source: VITAS 2022 Natural fibers are derived from Cotton, jute, flax, silk, silk Iin which, cotton accounts for the highest proportion China, India, USA, Pakistan, Brazil, Uzbekistan, Turkey, Australia are the countries with the largest cotton production in the world (VITAS, 2022)

Artificial fibers are derived from petroleum, gas, through the polymerization process to create PTA, MEG Major producing regions are: Europe and ASEAN (produced from crude oil), USA, Canada and the Middle East (produced from natural gas) and China (produced from coal) Major synthetic fiber producing countries include China, India, Korea, USA, Indonesia (Appendix 4)

Figure 3: Global fiber production (from 1975 to 2030)

Source: Golden Gate

Raw materials, 58%

Depreciation expense, 10%

Electric expense, 8%

1.1.1 Cottons

Cotton is the main raw material to create cotton fabric - the most used fabric in the world today This is also a material that plays an important role in the industrial chain supporting the textile and garment industry Cotton fabric is created from cotton fibers by the cotton plant combined with natural materials and some other mixtures Along with the widespread demand for cotton, the world has researched and created many types of cotton fibers such as poly cotton, satin cotton, silk cotton, velvet cotton, Egyptian cotton, 35/65 cotton or 100% cotton (VITAS, 2022)

Demand and supply for cotton (Appendix 5)

Cotton price situation

Figure 4: Cotton price situation (from 2000 to 2022)

Source: Trading Economics The price of cotton in the world market depends on the size of the world cotton inventory and cotton consumption situation

Cotton prices continued to return to an average price of 70-80 cents/pound as cotton area increased to about 34 million hectares in 2014/2015 Also from this time, the price of synthetic fiber and oil fell due to the technology of shale oil production in the US, leading to

a strong increase in demand for synthetic fiber in the market Cotton growing area shrunk to about 30 million hectares (down 20%) enough to meet the demand for cotton at a price of

about 80-85 cents/pound However, in 2020/2021, cotton prices increased sharply because Covid 19 disrupted the global supply chain, causing a shortage of supply (VITAS, 2022)

1.1.2 Polyester

Synthetic fibers used in the textile industry include yarns from Polyester, Nylon, and other fibers Polyester is a type of plastic derived from petroleum, gas, through the process of polymerization

Thanks to its advantages over traditional fabrics such as cotton; and the cheapest cost compared to other competing fibers, polyester is used in many industries such as clothing, furniture, industrial fabrics, computers, audio tapes and insulating materials

According to data from research firm IHS, polyester is the most commonly used synthetic fiber in the world In the last 10 years, the global polyester yarn market has grown at an average of 6% per year (IHS, 2022)

Demand and supply for Polyester (Appendix 6)

Polyester price situation

Figure 5: Polyester price situation (from 2015 to 2020)

Source: ICIS 2020

Polyester and cotton are both input materials in the yarn production process The price of polyester in 2017 is about 1,100 - 1,200 USD/ton while cotton price is about 1,800 - 1,900 USD/ton However, from March 2022, when the Russian-Ukrainian conflict occurred, oil

prices increased sharply due to the embargo issues to punish Russia of the West; The price

of polyester increased sharply because oil is the main material to make polyester (IHS, 2022)

1.2 Dyed fabrics

1.2.1 Weaving

The process of transforming yarn into raw cloth is known as weaving It is very significant

in the textile industry Two unique sets of yarns are intertwined at right angles in basic weaving to make a fabric known as Grey Cloth

Figure 6: Fabric exportation by regions (from 2020 to 2021)

Source: ICT 2022 (Unit: Million USD) China, Taiwan, Korea, Hong Kong are the world's largest fabric exporting countries (accounting for 64% of total global exports) These are countries with a long-standing development of textile dyeing technology and a large consumer of fabric products (FPTS, 2021)

China Taiwan Korea, Republic of

Türkiye Hong Kong, China

Viet Nam

Italy United States of America

Germany

India

Fabric exportation by regions (from 2020 to 2021)

FY2021 FY2020

Figure 7: Fabric importation by regions (from 2020 to 2021)

Source: ICT 2022 (Unit: Million USD) Vietnam has been the world's largest fabric importer since 2014 In particular, the trend of fabric import in Vietnam continuously increases in the period 2012 - 2021; Because Vietnam is one of the largest garment manufacturers in the world, it needs fabric as an input material On the other hand, fabric production capacity in Vietnam is still lacking and weak,

so it relies heavily on imported sources (FPTS, 2021)

1.2.2 Dyeing

In the process of fabric production, dyeing plays the most important role in determining the selling price of the fabric If the production of raw fabrics only brings an average gross profit of 10%, the production of dyed fabrics can achieve an average profit of 20-25% This shows that although dyes have a small share of the total cost of production, they bring a large added value and are an important component in the field of textile dyeing

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 Viet Nam

United States of America

Morocco

Italy

Fabric importation by regions (from 2020 to 2021)

FY2021 FY2020

Figure 8: World consumption of dyes by regions (2020)

Source: HIS market 2021

Demand and supply of dyes (Appendix 7)

1.3 Garment

Sewing at garment companies is considered to be labor intensive Garment companies include apparel companies in the US and in Asia However, since the NAFTA agreement, garment companies in the US have conducted outsourcing contracts with manufacturers in Mexico Companies from Asian countries often participate in the value chain at the outsourcing stage Product research and design (which accounts for higher added value) is usually carried out in developed countries such as the US, EU, and Japan (FPTS, 2021)

Figure 9: Garment manufacturing process

Source: FPTS 2019 Garment manufacturing enterprises follow 4 main methods: CMT, FOB, ODM and OBM

1.3.1 CMT (Cut – Make – Trim)

This is the simplest production method with the lowest added value Normally, the unit price

of CMT is 25% of the export value and the profit after tax of CMT enterprises only reaches 1-3% of the processing unit price When manufacturing by this method, the ordering party/buyer will provide the enterprise with materials, designs and specific requirements, and the manufacturer will only cut, sew and finish the product Finished products will be collected and distributed by buyers (GSO, 2022)

1.3.2 OEM/FOB (Original Equipment Manufacturing/ Free on Board)

This is a higher method of production than CMT, also known as purchase of raw materials, semi -finished products For FOB orders, businesses are responsible for importing raw materials and producing orders, businesses are entitled to about 30% of export value and profit after tax reached about 3-5% of net revenue When producing in this method, businesses will take the initiative to add input materials to produce products Accordingly, there are two forms of FOB: level 1 FOB (buy materials from the supplier designed by the order party) and FOB level 2 (the enterprise is responsible for finding the source of raw materials) (GSO, 2022)

1.3.3 ODM (Original Design Manufacturing)

This is a production method that businesses are responsible for designing products

themselves, importing raw materials, sewing, and transportation For ODM orders,

businesses have profit after tax of 5-7% or more (FPTS, 2021)

1.3.4 OBM (Original Brand Manufacturing)

This is a production method that businesses are responsible for designing their own brand

products, importing raw materials, cutting sewing, and transportation For ODM orders,

Businesses will create marketing strategies and sell their products to consumers, so the profit

after tax is higher (FPTS, 2021)

1.4.Exporting and marketing

Export systems and marketing systems can be summarized including 3 large buyers of the

value chain: Retailers, garment companies with their own brands and trade companies

2 Viet Nam value chain

Figure 10: Viet Nam Textile and Garment industry Value chain

Source: VITAS 2019

2.1 Fibers

2.1.1 Materials

a Cotton

Cotton production has not met 1% of domestic demand According to the VCOSA Cotton

Association, in 2000, the country's cotton production reached 12,000 tons, until 2020, it was

only 1,000 tons - or 8.3% of the output in 2000 (VCOSA, 2022)

The growing cotton in our country does not have a competitive because cotton growing is

often the advantage of scale And cotton has no competitive advantage compared to other

agricultural products such as coffee, cashew, rubber because these agricultural products

have higher price

Cotton

Moreover, regarding cotton fiber production technology, fiber businesses in Vietnam can

produce CD fibers and piles to meet the world market demand However, at present,

domestic fiber machinery has not been upgraded synchronously

Mostly cotton in the country are imported

Figure 11: Viet Nam cotton importation by regions (from 2019 to 2022)

Source: ICT Domestic cotton demand for the textile industry is more than 1.7 million tons of cotton

Therefore, the address meets less than 1% of the demand, and almost all cotton is imported

entirely from the US, Brazil (VCOSA, 2022)

b Polyester

Polyester is mainly imported from abroad

Polyester is a preparation from petroleum Currently, Vietnam has projects to exploit oil

However, the products are mainly crude oil and do not focus on producing preparations such

as PET plastic seeds, so the entire polyester input is imported, mainly from China Every

year, Vietnam's textile and garment industry must import about 250,000 - 300,000 tons of

polyester fiber from Taiwan (China) and some Southeast Asian countries (VITAS, 2022)

Table 1: Exploited oil projects in Viet Nam

Name of projects Production capacity (million ton/year)

Dinh Vu General Polyester Fiber Factory is the first high quality fiber factory and the largest scale of Vietnam However, since the start of exploitation (2012), the factory has been constantly suffering from losses and products that have not been of good quality; At the same time, the price of products is always higher than the price of the same product, so it is almost impossible to meet the input materials for the domestic fiber industry (VCOSA, 2022)

2.1.2 Manufacturing system

Machinery of the fiber industry is not synchronized with a small production scale Machinery includes: woven preparation machine, coarse brush machine, careful brush machine, grafting machine, fiber tractor, etc., mainly imported from China, Japan, Switzerland, India, Germany, Taiwan and Korea (VITAS, 2022)

Figure 12: Machinary imporation to Viet Nam by region (2020)

Source: VITAS 2021 Regarding the technology of producing synthetic fibers, there are currently only 4 enterprises in Vietnam producing filament fiber from plastic beads (Chips Spinning technology) are Century Synthetic Fiber Corp, Dong Thien, Hualon and Hung Nghiep Formosa

2.1.3 Capacity

The Vietnamese fiber spinning industry has about 96 enterprises with about 10 million piles,

of which the FDI block accounts for 60%, the private sector accounts for 30%and the state owned joint stock companies account for 10% (VITAS, 2022)

-According to the Vietnam Textile and Apparel Association, in the first 6 months of 2022, fiber exports are expected to reach approximately US $ 3 billion; While the export turnover

of this item in 2021 was 5.6 billion USD (VITAS, 2022) With this result, VCOSA said Vietnam has first surpassed Korea to become the world's 6th largest fiber exporting country (VCOSA, 2022)

Thus, the yarn industry still has a contradiction that the majority of domestic yarns are exported while textile dyeing enterprises have to import yarns from abroad The reason is due to:

Firstly, exporting yarn to foreign countries is more profitable than selling yarn domestically For example, a yarn enterprise in the North, if exporting yarn to China, will save costs and transport time than selling yarn to Saigon market Specifically:

Table 2: The comparision between exportation and domestic sales

Exporting to China Domestic sales

Source: FPTS 2020 Secondly, the characteristics of our country's textile and garment industry are mainly CMT, the selection of raw materials is at the discretion of the ordering party; garment manufacturing enterprises do not actively order fabrics to produce domestically, causing difficulties for the textile and dyeing industry, thereby leading to a negative impact on the output of the domestic yarn industry

2.2.Dyed fabric

2.2.1 Materials

As mentioned above, Vietnam's yarn industry is in a situation of both surplus and shortage The textile and garment industry annually still has to import half of its consumption demand Therefore, in 2021, fabric imports of all kinds reached $14.32 billion, up 20.6%, while fabric exports were worth $3.55 billion, up 31.4% (FPTS, 2021)

2.2.2 Manufacturing system

Textile machinery and equipment of Vietnamese enterprises are still outdated Vietnam's weaving, dyeing, printing and finishing process is assessed to be 20% slower than other countries in the region; especially the dyeing stage with 30% of machinery and equipment that need to be restored and modernized because it has been used for over 20 years These limitations make Vietnam's textile productivity very low, compared to China, the capacity is only 30% (FPTS, 2021)

Fortunately, machinery and equipment are being upgraded, mainly from FDI projects in the textile and dyeing sector In recent years, textile machinery and equipment have been upgraded through the operation of FDI textile and dyeing projects and the import of machinery mainly from China, Germany, Taiwan and Korea However, machinery imported from these countries is mainly traditional technology, although with cheaper import costs but higher environmental impact

2.2.3 Capacity

Assume that the growth rate of the textile and garment industry will continue to reach 7-8% (lower than the annual growth rate in the current period); then by 2030 the size of the industry will double, if so, the amount of fabric Vietnam needs will double to 18 billion meters If Vietnam does not invest in fabric production, it will depend on 15 billion meters

of imported fabric, so it is difficult for Vietnam to escape the CMT method (FPTS, 2021)(Appendix 9)

The second reason is that Vietnamese fabrics are still lacking and weak in design and printing, making it difficult to participate in the global value chain Domestic fabrics are mainly produced according to designs from other countries, lacking initiative and creativity Therefore, when firms order garments in Vietnam, they implicitly choose a certain business from China or Korea (FPTS, 2021)

2.2.4 Consumption market

Domestically produced fabrics are mainly consumed domestically and a small amount is exported As mentioned above, Vietnam needs to import 65-70% of the fabric demand for domestic consumption Regarding domestic fabrics, the situation of supply is not enough to meet the ongoing demand because our country has a garment production stage that requires

a very large input of fabric (FPTS, 2021)

Table 3: Importation and exportation of fabrics in 2021

Source: ICT Besides imported fabrics, Vietnam exports cotton fabrics mainly to Korea, China, Sri Lanka, Indonesia and Bangladesh However, the amount of fabric exported is not significant

2.3.Garment

2.3.1 Materials

Despite being a major garment producer, domestic fabric consumption is largely dependent

on imports Vietnam can only meet about 40% of the fabric demand for the domestic; and