Research objectives On the basis of clarifying the basic theoretical issues on industrial clusters and on characteristics of the textile industry, the thesis analyzes the necessity and c
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INTRODUCTION
Research rationale
It is an objective propensity of the industrial development towards modernization that several
enterprises having mutual relationships with each other in economic and technical terms in one
specific area/territory form industrial clusters
The textile industry plays a crucial role in the economy of our country Although this industry
does not have a complex production, its enterprises’ production specialization is demonstrated
comparatively clearly The formation and development of textile industrial clusters will facilitate
the production chain; thereby increasing the productivity and competitiveness of textile
products Being located in a certain territory of the industrial clusters, companies manufacturing
products, raw and auxiliary materials will be able to minimize the transaction and transportation
costs, and share information market at the same time
Recognizing the essential role of industrial clusters in the development of the textile industry,
the Government has spreaded out a policy to develop a bunch of textile industrial clusters in
different localities The strategic development of Vietnamese textile industry driven from 2015
until 2020 has defined its mission as ‘Building specialized textile industrial clusters which are
qualified for power and water supply, wastewater treatment in order to meet the environmental
standards prescribed by the Government It is necessary to implement the residential relocation
and construct new dyeing plants in these industrial clusters so as to upgrade the wastewater
treatment conditions and solve the problem of environmental pollution, etc.’ Under this policy,
the Northern economic focal region is potential for building some textile industrial clusters
Nevertheless, due to some problems of cognition, policies and implementation so far, the textile
industrial clusters in this area have not yet to be formed markedly
In the coming years, the international integration will be of much more importance since the
agreement on the Free Trade Agreement (FTA) and Trans-Pacific Partnership (TPP), which
creates handsome opportunities and also poses severe challenges for Vietnam's garment sector
Along with the companies’ restructuring in the industry, a full development of the textile
supporting industry (SI) and the formation and development of textile industrial clusters has
been becoming an urgent need
For the reasons stated above, it could be confirmed that the research topic “Developing textile
industrial clusters in the Northern delta economic focal region" is based on significant
theoretical and practical reality
Research objectives
On the basis of clarifying the basic theoretical issues on industrial clusters and on characteristics
of the textile industry, the thesis analyzes the necessity and conditions for development of textile
industrial clusters in the Northern delta economic focal region; thereby contributing to effective
and sustainable advancement of textile enterprises in the process of international integration
2
In order to achieve that goal, the thesis has focused on the following tasks:
- To systemize and develop basic theoretical issues of industrial clusters
- To introduce some experiences of developing industrial clusters of several countries, from which gaining precious lessons for Vietnam
- To analyze the situation of formation and development of textile industrial clusters in the Northern delta economic focal region; to identify favorable preconditions and difficulties hindering the formation and development of textile industrial clusters in the region
- To propose measures and solutions to promote the formation and development of textile industrial clusters in the Northern delta economic focal region
Research object and research scope
Research object: industrial clusters and factors affecting the formation and development of textile industrial clusters, the needed conditions for the formation and development of textile industrial clusters in the Northern delta economic focal region
Research scope:
Research content: the general content of the nature and characteristics of industrial clusters, the factors affecting the formation and development of industrial clusters, this thesis evaluates the need, ability and precondition upon benefits and constraints impeding the formation of textile industrial clusters in the Northern delta economic focal region As a consequence, the thesis clarifies the scientific foundation involving in the orientation and development of industrial clusters in this economic region then the solutions for the orientation
Geography and location: Textile enterprises and concerning organizations working in the Northern delta economic focal region
Time scope:
o The secondary data: will be collected mainly from 2011 to 2014
o The primary data: will be collected from in–depth interviews of some enterprises managers and experts in 2014
Research methodology Research approach
In order to fit the specialized nature of Business Administration, the author decided to do research on the textile industrial clusters formation and development in the Northern delta economic focal region from the angle of enterprises and their businesses To be more specific, the author does some more research on the formation and development of the textile industrial clusters in this region through the process of production agglomeration and concentration of companies in the territory so as to organize more effectively the affiliate relations in the value chain of textile products Some contents related to state agencies were studied so that some roles and responsibilities in ensuring conditions for the development of affiliate relations between
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enterprises in the textile industrial clusters would be clarified, from which requirements for the
development of market economy and international integration could be met
Data collection and data analysis
The thesis used a combination of data collection methods, both secondary and primary ones,
at-desk research methods, survey using in-depth interviews with some leaders and experts of
enterprises
Secondary data were collected from the Statistical Yearbooks of the General Department of
Statistics, Statistical Yearbooks of the provinces/cities in the Northern delta economic focal
region, Reports of a number of textile enterprises in the region, websites of Vietnam Textile and
Garment Group (VINATEX), Vietnam Textile and Apparel Association (VITAS), Textile
Research Institute and a number of other textile corporations and companies
Primary data were collected from surveys, in-depth interviews with 5 management staff of state
agencies, 15 leaders of the textile enterprises in the region and the research on the current
development of Ha Dong silk export industrial cluster and Pho Noi B textile industrial zone The
content of the interview focused primarily on issues related to the needs, capabilities,
advantages, disadvantages and conditions for formation and development of textile industrial
clusters in the Northern delta economic focal region
Research theoretical framework
Conditions: Accumulation
of production; Affiliation;
Support Industry;
Infrastructure; Policies, etc
Policy mechanisms…
Solutions for the development of textile industrial clusters
Current situation of textile industry in the Northern delta economic focal region
Advantages Disadvantages
The nature and characteristics of textile industrial clusters
The needs for textile industrial clusters development: Relations
in the value chain;
Effectiveness;
Competition; Innovations, etc
4
Research process
Expected results
Theoretical results
Based on the theoretical framework of business agglomeration and centralization in different territories and vertical and horizontal affiliate relations among the stages in the product value chain, the thesis clarifies the nature and basic characteristics of industrial clusters’ role in the sustainable and efficient development of enterprises in the product value chain The thesis also mentions five basic factors affecting directly the formation and development of industrial clusters: the agglomeration and centralization of territorial enterprises; the featured product value chain and the affiliate relations among businesses in the value chain; the development of supporting industry; the level of infrastructure development; concerning mechanisms and policies of the Government
Practical results
Applying the basic theories on industrial clusters which matches the characteristics of the textile industry, the thesis first analyzes the current development of textile industry in the Northern delta economic focal region, then it digs deeper into the current situation of business agglomeration and centralization in different territories and vertical and horizontal affiliate relations among businesses and organizations in the value chain of textile products Therefore, the thesis has assessed the needs, favorable preconditions and difficulties hindering the development of textile industrial clusters in the Northern delta economic focal region
Data collection on the development of textile industrial clusters in the Northern delta economic focal region
Overview theories of the formation and development
of textile industrial clusters
Analyze and evaluate the current developing situation
of textile industrial clusters
in the Northern delta economic focal region
Assess the needs, favorable conditions and difficulties in the formation and development of textile industrial clusters in the Northern delta
economic focal region
Recommendations and solutions for the development of textile industrial clusters in the Northern delta economic focal region
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On the basis of SWOT matrix analysis, the thesis clarifies scientific orientation of the formation
and development of textile industrial clusters in the Northern delta economic focal region This
orientation starts from the leading companies of the regional industry which are capable of
widely developing the affiliate relations in the textile value chain, at the same time utilizes the
advantages of Pho Noi B Textile Industrial Complex and clusters of textile traditional craft
villages in each locality
The thesis also proposes five main solutions to implement the identified orientation They are:
To build up the regional textile industrial clusters planning; To promote the development of
affiliate relations among businesses and regional concerning organizations; To promote the
investment into the regional textile supporting industry; To synchronously renovate, upgrade
and construct modern infrastructure in the region; To promote the role of the State management
agencies and the Vietnam Textile and Apparel Association
The research results of the thesis will be a source of useful references for textile enterprise
managers and policy makers to develop the textile industry in the study of the textile industrial
clusters development, promoting the advancement of effective and sustainable development of
textile enterprises and contributing positively to the socio-economic development of the
Northern delta economic focal region
General conclusion of the thesis
Besides the introduction, conclusion, references and appendices, the content of the thesis is
divided into four chapters:
Chapter 1: Literature review
Chapter 2: Theoretical and practical rationales of the industrial clusters development
Chapter 3: The situation of formation and development of textile industrial clusters in the
Northern delta economic focal region
Chapter 4: Recommendations and solutions to the formation and development of textile industry
in the Northern delta economic focal region
CHAPTER 1: LITERATURE REVIEW
Overseas research
Domestic research
Conlusions withdrawn from the literature review
Similarities in the works related to the thesis
It can be seen from the overview of the study that the research on industrial clusters has been
conducted for quite a long time The study comes from the requirement of associated
relationships among economic entities within each region, each country which has formed
certain theories, such as theories of industrial clusters and and M Porter’s competitive strategies,
6
new trade theory and geography of P Krugman, etc Domestically, related studies mainly systemize the idea of industrial clusters of foreign scholars, introduce international experience and suggest application orientation for the formation and development of industrial clusters in several economic sectors of our country
From the results of the review, the following similarities can be shown as:
The overseas and domestic works raised the basic aspects of the nature of industrial clusters Despite the different wording, the general idea of these authors are referring to the most critical characteristics of an industrial cluster which is: the agglomeration of industrial enterprises and organizations involved in a certain region; vertical or horizontal affiliate relations among entities; aims to ensure the effectiveness of each entity and contribute to improving the overall efficiency of the sector and the region
These works clearly state that the product value chain is the primary premise of the formation and development of industrial clusters When entities of the sector are located in the same region, the affiliate relations will be created and transportation as well as transaction costs will
be reduced Along with this, the agglomeration of relevant entities in a region is also a significant factor affecting the formation and development of industrial clusters The studies also point out the role of structural factors and of the Government, especially the local authorities to the formation and development industrial clusters
Internal studies have focused on introducing foreign experience of the formation and development of industrial clusters in various sectors From which the studies introduced some valuable referencing lessons to Vietnam The lessons learned aimed at reviewing the role of the government and local authorities in the strategic planning and development planning of industrial clusters, supporting policies to promote the formation and development of industrial clusters in different sectors and regions
These similarities in industrial clusters is the basis for the author to inherit and develop his research in clarifying issues of industrial clusters theory It also is the basis for the use in the process of formation and development of industrial clusters so that it could match the characteristics of textile industry and characteristics of the Northern delta economic focal region Research gap and directions
There have been some studies of domestic authors and foreign experts referring to the recommendations and solutions to the formation and development of industrial clusters in some economic sectors in Vietnam The selected research sectors are electronics, textiles, footwear, wood processing, mechanical, seafood processing, etc However, the new studies offered solely general and overall suggestions
There have been a number of studies directly focusing on the formation and development of Vietnam's textile industrial clusters Nevertheless, these studies have only outlined the general idea of the need and role of textile industrial clusters in enhancing the efficiency and competitiveness of each company and the textile industry These studies have not clarified how
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the textile industry affects the formation and development of industrial clusters They have not
yet evaluated the preconditions and difficulties hindering the formation and development of
textile industrial clusters either None of recommendations and practical solutions to the
formation and development of the textile industrial clusters in specific areas have been proposed
No study has been done on the development of textile industrial clusters in the Northern delta
economic focal region That means no study has clarified the needs, favorable conditions and
difficulties of the region and of the textile enterprises in the region along with the formation and
development of textile industrial clusters Since then, no research has been able to clarify any
scientific foundation to determine the direction of the solution to the formation and development
of textile industrial clusters in the Northern delta economic focal region
It can be seen from the conclusions above that the study on “Developing textile industrial
clusters in the Northern delta economic focal region” is necessary which has its significant
theoretical and practical rationales and it does not coincide with any previous study published in
Vietnam
The author has carried out the research to:
Inherite selectively previous studies to systemize and develop the basic theoretical issues on
industrial clusters which are mainly the nature, role and characteristics of industrial clusters and
the factors affecting the formation, development of industrial clusters
Identify the the needs, favorable preconditions and difficulties hindering the formation and
development of the textile industrial clusters this economic region after having studied the
characteristics and location of the Northern delta economic focal region, characteristics and role
of the textile industry, the current situation and development of the textile industry in the region
Suggest some scientific foundations to determine the direction of the formation and
development of textile industrial clusters in the Northern delta economic focal region, the
solutions that the textile enterprises and relevant entities and the Government management
agencies, textile associations should take to promote the formation and development of textile
industrial clusters in the Northern delta economic focal region
CHAPTER 2: THEORETICAL AND PRACTICAL RATIONALE ON THE DEVELOPMENT
OF INDUSTRIAL CLUSTERS
2.1 Concept, characteristics and roles of industrial cluster
2.1.1 Concept of industrial cluster
After analyzing the concepts of industrial cluster of several overseas and domestic authors, the
author stated that the concept of M Porter showed the most nature of the industrial cluster The
concepts introduced by domestic authors were basically based on the concept of M Porter
Therefore, in this thesis, the author has applied the concept of M Porter which is: "An industrial
cluster is a group of related companies and institutions supporting one another in a specific field,
8
gathered in a geographic area and are connected by similarities and interdependencies The geographic scope of an industrial cluster could be a city or a single state, or a national or even a network of neighboring countries
An industrial cluster takes many forms depending on its depth and the complexity, but it mostly includes several companies creating the last products or services; and suppliers of specialized inputs, components, machinery and service; financial institutions and businesses in related industries An industrial cluster also includes enterprises in the downstream sector; manufacturers of supplementary products; suppliers of dedicated infrastructure; the government and other organizations providing specialized technical training, education, information, research and assistance In addtion, one part of an industrial cluster could be seen as the state agencies which have a great influence Finally, many industrial clusters also include trade associations and other collective organizations of the private sector to support members in the clusters"
2.1.2 Basic characteristics of industrial clusters
- The agglomeration of industrial enterprises and related organizations in a certain territory
- Industrial enterprises and member organizations of industrial clusters having mutual relationship in terms of content and level to some extent
- The diversity of entities in the industrial clusters
- The impact of the Government in the process of forming the operation mechanism of industrial clusters
2.1.3 Roles of industrial clusters
- To create a favorable investment environment for enterprises and relevant organizations
- To enhance the technology capacity of enterprises, their access to technology market and technology transfer and innovation
- Industrial clusters help companies to enhance their business image, branding and promotion
- Industrial clusters support businesses to optimize their value chain and supply chain
2.1.4 Development evaluation of industrial clusters The analysis of the Location Quotient - LQ allows the author to evaluate the formation possibility of industrial clusters based on the level of an industry’s concentration in the area This method assumes that if the more the labor and production of an industry are concentrated, the higher the ability of industrial clusters formation and development will be
The degree of regional labour similarity is calculated by using the following formula:
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In which, ei is the number of workers in the industry i in the area; e is the number of workers in
all industries in the area; Ei is the number of workers in the industry in the country; E is the
number of workers in all industries in the country; LQLD is the degree of regional labour
similarity
If LQLD > 1: the area has a higher level of labour concentration than the national average level,
meaning that the region is capable of developing the industrial cluster I and vice versa
Besides LQLD, the LQ is also calculated based on the production value (LQGTSX) The formula is:
In which, oi is the industrial production value of industry i in the area; o is the industrial
production value of the whole industry in the area; Oi is the industrial production value of the
industry in the country; O is the industrial production value of the whole industry in the country;
LQGTSX is the degree of the similarity on industrial production value in the area
If LQGTSX > 1: the area having higher level of the industrial production value of the industry i
than the national average level, meaning that the region is likely to develop its industrial cluster
and vice versa
2.2 Factors affecting the formation and development of industrial clusters
The study of factors affecting the formation and development of industrial clusters in fact is to
identify the motivating factors and hindering factors the oinfluencing the formation and
development of this form of territorial production Therefore, the author has identified five
groups of the following factors that influences the formation and development of industrial
clusters
2.2.1 The complexity of the industrial product value chain
Product value chain is the set of values that are generated from the stages of the manufacturing
process of a product or service, from the development research, design, input supply,
production, marketing and distribution to the final consumers If the value chain of a product is
made in many countries on a global scale, then it is called the global value chain
Product value chain requires both vertical and horizontal affiliate relations among organizations
If the subject is distributed in a limited geographical space, the the relationships among
organizations will be established more effectively
2.2.2 Development strategies for supporting industry
Following of the process of technology production, companies in the supporting industry of the
upstream sector and companies using the products of supporting enterprises to continue
processing or to get them assembled into the final products the downstream sector During the
development process, countries are paying attention to the development of supporting industries
in the country and to the participation in global production networks
10
The development of supporting industries in the region will provide the basis to develop affiliate relations among organizations In contrast, the development of industrial clusters is the favorable factors promoting the development of the supporting industry due to the advantages of the connection between the upstream areas to the downstream sector in the territory
2.2.3 Level of territorial industrial production agglomeration Agglomeration is the process of concentrating production activities in a certain geographical area The new geographical theory of P Krugman is regarded as the theoretical basis to explain the distribution of industrial activities, in which the transportation cost factors and economic benefits of scale play important roles The proper production management and production increase to optimal levels, etc help enterprises reduce costs, improve quality and improve competitiveness This effect is called the intrinsic economic benefits of scale (Internal Economies of Scale) At the same time, the development of the related external activities has and impact on enterprises and help them to operate smoothly and effectively This effect is called the peripheral economic benefits of scale (External Economies of Scale)
The concentration of some businesses, including the leading ones, in a certain geographical area will attract companies and organizations to invest in this area due to the benefits from reducing shipping expenditure, from which ensuring the inputs is much more convenient, etc This will promote the formation and development of industrial clusters
2.2.4 The development level of territorial infrastructure The economic and technical infrastructure system including the transportation networks, power supply networks, water and sewage networks, communications networks, waste treatment networks, etc is considered the basic precondition for the development of each company, each region and each country It was an opportunity to connect the country's economy with the economies in the region and with the global economy as well
In the formation and development of industrial clusters, the development of economic and technical infrastructure system will create favorable conditions for the connection between businesses within a region and among regions with at the lowest cost
2.2.5 Government policies on the development of industrial clusters
In order to become consistent with the Government’s role in the market economy, many policies
on the development industrial clusters are widely ranging, such as the development-oriented policies in the planning of territotial industrial development, mechanisms and policies on investment and development of economic and technical infrastructure, policies to attract investment incentives, policies to promote investment in developing industrial clusters
2.3 International experience in the development of industrial clusters and lesson learned for Vietnam
After introducing the experience of Malaysia, South Korea and China in the formation and development of industrial clusters, the author has drawn some lessons referring to the following:
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Firstly, the role of industrial clusters needs being understood correctly as one of the solutions to
develop effectively and sustainably the country’s industry in each region, each locality
Secondly, the autonomy of enterprises needs improving in promoting the agglomeration and
concentration of production, the establishment of mutual relationship The role of the
Government is shown through: planning of industrial clusters network within the country and in
each territory; promulgation of policie supporting the development of industrial clusters;
encouragement and support to the establishment and development of affiliate relations among
economic entities in each territory
Thirdly, the role and creativity of local government should be actively promoted and so do the
regional affiliate relations in the development of industrial clusters and their connections
Fourth, the development policies of industrial clusters is linked with the support industry
development policy That is one of the effective measures to develop the supporting industry
CHAPTER 3: THE SITUATION OF FORMATION AND DEVELOPMENT OF TEXTILE
INDUSTRIAL CLUSTERS IN THE NORTHERN DELTA ECONOMIC FOCAL REGION
3.1 Overview on the Northern delta economic focal region
Table 3.1 The main economic indicators of the Northern delta economic focal region
Population 1000 người 14.501 14.707 14.910 15.089
GDP value
By economic sectors
- Government
- Non-government
- Areas enjoyging direct
foreign investment
By industries
- Agriculture, Forestry
and fishery
- Construction industry
- Service
Billion dong
439.799
154.440 186.481
83.843
35.850 201.436 191.535
584.957
203.348 242.105
120.265
46.321 276.283 248.069
686.851
240.816 284.720
142.009
50.259 318.648 305.314
809.648
274.422 327.046
188.242
52.875 384.779 335.855 The structure of
economic activities
- Agriculture, Forestry
and fishery
- Construction industry
- Service
%
100,00 8,15 45,80 46,05
100,00 7,92 47,23 44,85
100,00 7,32 46,39 46,29
100,00 6,53 47,52 45,95
GDP/person/year Million
VND
USD 16.885,43 25.056,50 32.859,79 44.996,47
Source: Collected from Statistical Yearbook
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With the promotion of inherent comparative advantages, the Northern delta economic focal region has made great contributions to the development of the entire national economy
3.2 Current situation of the formation and development of textile industrial clustes in the Northern delta economic focal region
3.2.1 Overview of textile organizations in the Northern delta economic focal region The textile enterprises in the region from all the economic sectors, from the state-owned enterprise VINATEX to the domestic private enterprises and enterprises with foreign investment The number of textile companies in the region accounts for over 26% of the country's textile enterprises and is widely located in all provinces, especially Hanoi, Hai Duong and Hung Yen (table 3.2)
Table 3.2 The number of textile enterprises in localities
Apparel production 420 540 565 635
Apparel production 690 912 955 1.044
Source: Collected from Statistical Yearbook The development of the industry has helped create more jobs for laborers The number of employees in the textile industry continued to increase (Table 3.3)
Table 3.3: The number of workers in the regional textile industry (person)
Apparel production 166.416 186.841 199.102 220.153
Source: Collected from Statistical Yearbook Textile industry has been identified as one of the key industries of the region with a high level of contribution in the total GDP of the region In 2011, the total production value of textile industry reached 33,683 billion VND, including textile production value reached 16,446 billion VND,
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garment production value reached 17,237 billion VND; In 2014, the textile production value
reached 56,150 billion, increasing 1.67 times, of which the textile one reached 23,243 billion
VND, increasing 1.41 times, reaching 32,907 billion VND of garments, increasing by 1.91
times
Products of the textile industry is one of the main export items of the region Currently, this item
is ranking the second on the export value, followed by the phone items
Table 3.5 Situation of textiles exports in the region (US $ million, %)
The total value of regional exports (US $ million) 16.885 25.056 32.859 44.996
Textile export value (US $ million) 2.533 2.994 3.122 3.654
The proportion of textile exports (%) 15,01 11,95 9,51 8,12
3.2.1 Current situation of the formation and development of textile industrial clusters in the
Northern delta economic focal region
The actual research shows that, textile industrial clusters have not yet built up in the Northern
delta economic focal region, but there are only signs only which show the possibility of this kind
of regional production Therefore, in this section, the author will focus on 2 great contents:
potential formation and development of regional textile industrial clusters; current relationship
among textile entities On that basis, favorable preconditions and difficulties hindering the
formation and development of textile industrial clusters in the Northern delta economic focal
region will be shown
3.2.2.1 Assessing the potential formation and development of textile cluster in the Northern
delta economic focal region
Coming from the characteristics of the textile industry and basing on the factors affecting the
formation and development of industrial clusters mentioned in Chapter 2, in this section the
author will focus on presenting two fundamental elements showing potential development of
industrial clusters at the local textiles in this area: (1) the agglomeration degree of local
businesses in the territory through LQ criteria analysis; (2) The relationship among textile
enterprises, the concerning regional organizations by analyzing the relationship among relevant
entities in the implementation of the textile value chain
The location quotient indicator (LQ)
LQ LĐ indicators: Based on labor figures of industrial enterprises of textile and industrial labor,
LQ LĐ indicators calculation results are summarized in the table 3.6
Table 3.6 LQ LĐ index of provinces and cities in the region in 2012
14
Source: Calculations were based on data from the statistics of provinces or cities
LQ GTSX indicators: Using the same basis as shown in the calculation of the LQLĐ indicator, the
LQ GTSX indicators calculation results for the textile industry of the city in the Northern delta economic focal region demonstrated in table 3.7
Table 3.7 LQ GTSX index of provinces and cities in the region in 2012
Source: Calculations were based on data from the statistics of provinces or cities
It can be shown from the two indicators of LQLĐ and LQGTSX that the textile industry in the Northern delta economic focal region has achieved the certain level of agglomeration It is an important prerequisite for the establishment and development of the textile industrial clusters in the upcoming time Especially the high concentration of textile industry in the two provinces of Hung Yen and Hai Duong has created the basis of the formation and development of textile industrial clusters in these two provinces for the time ahead In comparison with Hanoi, the number of textile enterprisese of the two provinces is lower, though there are more favorable conditions to ensure the production sites and the distance to the port of Haiphong which is the commodities export gateway of the province in the North Moreover, in the future, Hanoi has advocated focusing on developing high-tech industries and shift the textile enterprises to neighboring provinces Consequently, the textile industry of this province will be growing stronger in the future
It could be assumed that the formation of textile industrial clusters in the Northern delta economic focal region has had supportive premise due to the increasingly powerful process of production agglomeration and concentration However, the increase in the level of textile production agglomeration and concentration and other related activities is just the required prerequisite The more important thing is how to organize collaborative relationship and connection between the textile enterprises and concerning organisations
3.2.2.2 The affiliate relations among textile busineses in the Northern delta economic focal region
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In the Northern delta economic focal region, various stages of textile value chain are performed
by different industrial enterprises and other entities The thesis presents the essential level of the
links among other entities in the textile value chain
Product design, product manufaturing technology and of labour resources training
Product design and product manufaturing technology is the starting point/stage which plays the
most important role in the textile value chain Its mission is designing styles and appearance for
the new product and new materials in order to meet the changing tastes of different customer
types in different markets In fact, due to the limited capacity of the Textile Institute (directly
under VINATEX) and other big textile enterprises, they are unable to take care of the product
design product manufaturing technology Moreover, since the main method applied is the
outward processing due to mainly perform export machining methods (Cut-Make-Trim and
Freight-on-board), then the design of the products and technology deployed are mainly
externally imported
Materials production
The rapid development of the textile industry in the Northern delta economic focal region posed
a huge demand for raw materials and textile accessories Although the Government has
promulgated some mechanisms and policies to encourage the development of textile supporting
industries, however their performance has been still unsound The local textile enterprises still
mainly rely on raw and auxiliary materials imported, the majority of which are from China
Chart 3.4: Total textile exports and fabrics imports in the Northern delta economic focal
region (Billion USD).
Source: General Statistics Office of Vietnam
Generally, affiliate relations among enterprises producing garments materials are still unsteady
There are three basic causes leading to this situation: (1) The domestic scale of fabrics
manufacturing and other garment accessories production is lower than the demand of garment
enterprises; (2) Domestic raw materials’ types, quality and production costs can not meet the
needs of garment enterprises; (3) The majority of garment export enterprises deploy the
processing method for foreign firms
Cutting and sewing
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Currently, a lot of garment enterprises of different various economic sectors are developing rigorously in the Northern delta economic focal region currently Large garment enterprises in the region under VINATEX are equitized and transformed into joint stock companies under the Government which possess 50% of charter capital and have been operating as affiliate companies of VINATEX The local textile enterprises in the region have completely been equitized Many domestic and overseas private investors are attracted into the apparel industry, however unfortunately the majority of them are still small and medium-scale ones
With the implementation of CMT and FOB methods, the affiliate relations among garment enterprises in the region are not only horizontal but also even more competitive in order to win orders from abroad The vertical affiliate relations among enterprises producing raw materials are also very limited due to orders coming or designated from foreign firms
Product commercialization
In recent years, textile companies have paid more attention to the domestic market The consumption of these products are made according to 2 main channels: 1/ Direct sales to consumers through showrooms and product consumption in enterprises and in big cities; 2/ Indirect sales to consumers through the dealers and networks with supermarkets and commercial centers Over the past few years, May 10 Corporation, Duc Giang Corporation and Dap Cau Garment Joint Stock Company, etc are units which achieved the most positive results in the consumption of products in the domestic market
The export market of the regional textile enterprises is primarily EU, USA and Japan However, most of these enterprises are still mainly applying the CMT method to export and are gradually converting to FOB level 1 and level 2 Due to the limitations on the international marketing ability, they have not yet built up strong brands themselves, therefore the proportion of garments export using the ODM method of these companies is lower than of other enterprises in the Northern delta economic focal region
Thus, in the product commercialization in the domestic market, the affiliate relations between garment enterprises and trade organizations in the country are also sluggish; In the international market, the relations between these organizations and large distribution companies has almost not established yet
The analyzed content above on the affliliate relations between businesses and concerning organizations in the implementation of the various stages of value chain in the textile industry in the Northern delta economic focal region is summarized in the diagram 3.6
According to the diagram, the textile companies and other concerning organizations in the Northern delta economic focal region are likely to establish their affiliate relations in the product value chain However, due to the unequal and heterogeneous capacity of value chain and the processing method, the level of association among the stages are divided unequally
3.3 General assessment of favorable preconditions and limitations in the formation and development of textile industrial clusters in the Northern delta economic focal region
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3.3.1 Favorable preconditions
Firstly, the technology process of textile production requires entities to be formed to develop
towards specialization, following by the need of their affiliate relations development Despite the
simple structure of the textile product and simple technology process, they include several stages
in which each stage has its own complex and multiple manufacturing processes
Textile businesses in this industry are often organization in the form of specialized technology,
which means each company will implement one or several stages of the garment production
technology process (a chain or some chains of product value chain will be made) Vertical or
horizontal affiliation relations are indispensable requirements of every business Therefore, the
formation and development of regional textile industrial clusters will create favorable conditions
for the establishment of affiliate relational between textile enterprises and concerning entities
Chart 3.6: Relations between businesses and organizations in the textile value chain of the
Northern delta economic focal region
Source: Designed by the author
Secondly, almost entities (units) in the textile value chain are formed synchronously in the
Northern delta economic focal region
That includes the product designing and technology manufacturing units; materials producing
units (cotton, woven fabrics, zipper, thread, mex and packaging, etc.), garment units, scientific
research and specialized human resources training units In this system, the units taking care of
Materials production (Supporting enterprises) -
- Spinning, weaving
- Accessories
- Packaging
Research and training
(Institute/
University)
-
- Technology and product
research
- Human resources
training
Product commercialization -
- Domestic market (direct, indirect)
- Exporting market (CMT, FOB, ODM, OBM)
Product commercialization - Consumers Sewing (garments
companies) -
- Clothes
- Jackets
- Vests
- Knitted garments, etc
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tailoring has the strongest capacity and units being responsible for product design and technology manufacturing has the weakest capacity Moreover, the agglomeration of units in the region reached a comparatively high level, especially in Hanoi, Hai Duong and Hung Yen These are favorable preconditions for the formation of textile industrial clusters, promoting the development of vertical and horizontal affiliate relations among these economic entities
Thirdly, the Northern delta economic focal region possesses a synchronized infrastructure systems which is being developed in the modernization direction
Despite its low level of development compared to the general requirements, the infrastructure system in the Northern delta economic focal region is considered more developed than other economic regions The system of roads, railways, deep-sea ports, international airports is being renovated and upgraded towards modernization in the area The electricity supply networks, telecommunication infrastructure and irrigation as well as water supply system are also invested
in order to meet the requirements of the production development and people’s living standards raising
The development of infrastructure system create positive conditions for the development of affiliate relational among economic enterprises in the textile industry of the region, which is an indispensable premise for the establishment and development of textile industrial clusters Fourthly, the sprout of establishment of territorial production organization is the nature of the textile industrial clusters
In addition to the small industrial clusters in the traditional textile craft villages, typically the industrial complex of Van Phuc Silk (Ha Dong district, Hanoi), and the most obvious example
of the "infancy" of textile industrial clusters in this economic region is Pho Noi B textile industrial zone Having a synchronous infrastructure system, this industrial zone have attracted a series of textile enterprises and supporting enterprises of textile industry internally and externally Initially, these businesses have established affiliate relations with the textile enterprises in the region It might be seen that this industrial zone is the fundamental nucleus for the formation of textile industrial clusters in the near future
Lastly, guidelines and policies of the Government on the formation and development of industrial clusters in general and textile industrial clusters are being determined more clearly Following the general guidelines outlined in the document which was stated in the Eleventh Party Congress (2011) about the strategy and planning development of textile industry dated 01.13.2015, the Prime Minister issued Decision No 32/QD-TTg approving "The program of synchronously developing and upgrading industrial clusters and value chains of products with competitive advantages such as electronics and information technology, textiles, food processing, agricultural machinery, tourism and related services." The decision has precisely stated the objectives, tasks and solutions of the program
In summary, the Northern delta economic focal region had experienced the predisposing factors contributing to the formation and development of textile industrial clusters However, those
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factors have not really been comprehensive and synchronous as the development process should
be a continuing process which complements for this premise so as to meet the utmost
requirements for establishing and developing textile industrial clusters
3.3.2 Limitations and main reasons
Firstly, there is no unity in people’s awareness of industrial clusters in general and textile
industrial clusters in particular
In our country, the study of new industrial clusters has only really began in the early 2000s and
in the actual implementation is still in the pilot stage of research In such conditions, the absence
of unity in cognition, even without understanding, about industrial clusters is inevitable There
have been different explanations from many experts of research institutions and policymaking
bodies about the nature, characteristics, impacting factors and conditions for the formation of
industrial clusters At the micro level, the form of industrial clusters is completely considered
new for the majority of enterprise management However even without a full knowledge or
incomplete understanding about industrial clusters, administrators of businesses are still aware
of the connection in the value chain and the selection of partners in the same territorial space
will be more favorable and more effective Nevertheless, due to some objective and subjective
reasons, the affiliate relations between businesses and organizations have not been established
Secondly, the partnerships and affiliate relations among textile enterprises and between them
with relevant organizations are still fragmented and ineffective
The vertical affiliate relations between the units of the downstream sector (garment companies)
with units of the upstream sector (Supporting companies) are underdeveloped due to the
weakness of the upstream sector in meeting requirements of the downstream region on types,
quantity, quality, price and time supplying all kinds of materials
The horizontal affiliate relations between the businesses operating in the same field, mainly
cutting and sewing, have almost not been established, because these enterprises primarily
implement processing methods for foreign firms (using CMT, FOB level 1 and level 2) These
companies even compete with one another to win overseas orders Currently, Vietnam's garment
enterprises are carrying out the production stage with the lowest value added in the global textile
value chain (Chart 3.8)
Source: Designed by the author basing on the Smile Curve Theory of Stan Shih
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Thirdly, the textile supporting industry has not yet developed
The root causes of this weakness stems from the mechanism of the Government policy which has not offered enough motivation to attract both domestic and overseas investments Although the Government policies strongly advocate the development of supporting industries to develop effectively and sustainably the country’s industry, the relevant policies are not yet clearly expressed in the investment incentives, and difficulties are also found in securing for investors access to these incentives That not only prevents the development of textile supporting industry from commensurating with the requirements, but also leads to the development imbalance between the downstream sector enterprises (garment companies) and the upstream enterprises in the region (textile supporting industry) In current conditions, standing from the perspectives of investors, the investment in the garment field is more attractive than in the supporting industry sector: total investment, low investment, the complex in production technology and business risks are lower
This situation has led to limited ability to establish textile industrial clusters as it lessens the ability to establish the vertical affiliate relations in the textile value chain
Fourthly, there are no specific mechanisms and policies to encourage and support the development of textile industrial clusters
The policy of forming industrial zones in some sectors and a number of economic areas is newly stated in Decision No 32/QD-TTg dated 13/01/2015 by the Prime Minister It is an important precondition for the formation and development of regional textile industrial clusters in the Northern delta economic focal region But, as mentioned above, from the promulgation of mechanisms and policies to their implementation in our country there is often quite a big gap Yet Decision stipulates the responsibilities of the Ministry of Industry and Trade in collaboration with the Ministry of Finance, Ministry of Planning and Investment and the People's Committees
of provinces and cities, however from the provisions of this mechanism to the development of common policies implemented in each sector, each economic area and each locality is too much
to do and to coordinate between relevant agencies That's what can not be done in a short time
CHAPTER 4: RECOMMENDATIONS AND SOLUTIONS TO THE FORMATION AND DEVELOPMENT OF TEXTILE INDUSTRY IN THE NORTHERN DELTA ECONOMIC FOCAL REGION
4.1 Recommendations for the development of textile industry and textile industrial clusters in the Northern delta economic focal region
4.1.1 Development context 4.1.1.1 International context
- Tendency of the textile industries movement from industrialized countries to developing countries, including Vietnam