The competitiveness of textile and garment industry in vietnam

The research tries to find out the factorsaffect competitiveness of textile and garment industry in Vietnam, the strengths andweaknesses of the industry, providing both textile and garme

研 究 生：李萬堂

指導教授 : 鍾從定 博士

中華民國 101 年 6 月

越 南 入 世 後 紡 織 與 成 衣 產 業 競 爭 力 研 究

The Competitiveness of Textile and Garment Industry

In Vietnam after Vietnam’s Accession to the WTO

研 究 生：李萬堂 Le Van Dung 指導教授 : 鍾從定博士 Chung, Tsungting Ph.D.

國立雲林科技大學 國際企業管理研究所碩士班

碩士論文

A Thesis Submitted to Institution of International Business Administration National Yunlin University of Science & Technology

in Partial Fulfillment of the Requirements

for the Degree of Master of Management

In International Business Administration

June 2012 Douliu, Yunlin, Taiwan, Republic of China

中華民國 101 年 6 月

The Competitiveness of Textile and Garment Industry in Vietnam

After Vietnam’s Accession to the WTO

Student: Le Van Dung Advisor: Chung, Tsungting Ph.D

National Yunlin University of Science and TechnologyDepartment of International Business Administration

Master’s Thesis

Abstract

This thesis concentrates on the competitiveness of Vietnam’s textile and garmentindustry after Vietnam’s accession to the WTO The research tries to find out the factorsaffect competitiveness of textile and garment industry in Vietnam, the strengths andweaknesses of the industry, providing both textile and garment management, andgovernment as policy-makers the best alternative resolutions to strengthen thecompetitiveness of textile and garment industry in the future The literature reviewframework about competitiveness and its assessment is based on different theories such

as Porter’s diamond model and Kaplan and Norton’s Balanced Scorecard concept Thecase is analyzed by both primary and secondary data Primary data includes ofquestionnaires that distributed to companies and agencies in Vietnam (most of them inNorthern Vietnam) Last but not least, the thesis concludes that the Vietnam’s textileand garment industry has competitiveness on three levels consist of nation environment,industry environment, and firm environment Nonetheless, the data of thesis is based onpast document and the process of static analysis is subjective, so the results of this casemay not be valuable to all extent of the industry in Vietnam

Key words: Competitiveness, textile and garment industry, WTO, Vietnam

Acknowledgement

First of all, I would like to give my sincerely grateful thanks to my advisor, Prof

Chung Tsungting for his support, encouragement, enthusiasm and time He often helps

and provides opportunities to his student During two years in Taiwan, I learned manythings from his knowledge as well as his experience From the beginning to the end, healways gives me a hand in critical moment

Second, I would like to say thank to my relative who helped me to sendquestionnaires to enterprises and agencies After that he also collected questionnairesand static data from those

Next, I am thankful to all professors, lectures, friends and members of my familywho help me, encourage me during my studying time They always support and make

me feel that I am not alone

I also would like to thank the Thanh Hoa‘s Overseas Scholarship Program andHong Duc University in their financial support so that I could complete master programand had a good chance to discover the different culture in Taiwan

Finally I would like to show my thankfulness to those who participated in thisstudy./

Le Van Dung

June 2012

Table of Contents

Abstract……… i

Acknowledge……… ii

Table of Contents……… …………iii

List of Appendix……….v

List of Tables……… vi

List of Figures……… vii

Glossary of Acronyms ……….viii

1.1 Background 1

1.2 Statement of the Problems 2

1.3 Purpose 2

1.4 Research Questions 3

1.5 Organization of the Study 3

Chapter Two – Literatures Review 5

2.1 Competitiveness Assessment 5

2.2 The Factors Affect to the Competitiveness of Textile and Garment Industry 7

2.2.1 Nation Environment 8

2.2.2 Industry Environment 9

2.2.3 The Firm Environment 11

2.3 SWOT Analysis 15

2.4 Overview of Textile and Garment Industry in the World and Vietnam 16

2.4.1 Overview of Global Textiles and Garment Trade 16

2.4.2 Overview of Textile and Garment Industry in Vietnam 19

Chapter Three – Research Methodology 25

3.1 Mode of procedure 25

3.2 Research Approach 25

3.3 Conceptual Framework 26

3.4 Source of Data 27

3.4.1 Primary Data 27

3.4.2 Secondary Data 28

3.5 Population, Sampling, Design and Measurement of Questionnaire 28

3.5.1 Population and Sampling 28

3.5.2 Questionnaire design 28

3.5.2 Questionnaire Measurement 29

3.6 Data Analysis Method 30

Chapter Four – Data Analysis and Research Findings 34

4.1 Analysis on the performance of external factors 34

4.1.1 Nation Environment 34

4.1.2 Industry Environment 36

4.2 Analysis on the performance firm competitive factors 44

4.2.1 Financial Measure Factor 44

4.2.2 Customer Measure Factors 45

4.2.3 Internal Business Measure Factor 47

4.2.4 Learning and Growth Measurement Factor 48

4.3 Discussion 50

4.4 SWOT Analysis on Vietnam’s textile and garment industry 51

Chapter five – Conclusion and Recommendation 53

5.1 Conclusion 53

5.2 Recommendations 56

5.2.1 Recommendations to the enterprises 57

5.2.2 Recommendations to Vietnam’s government 57

References 60

List of Appendix

Appendix 1 - Industrial zones of Vietnam ……… 64Appendix 2 – Questionnaires……….65

List of Table

Table 2.1 The twelve Pillars in three Groups 7

Table 2.2 World Top Exporters of T&C during 2010 (USD billion) 17

Table 2.3 Announced Targets of the Vietnamese Textile & Garment Sector 22

Table 3.1 the criteria to measure the variable in 7 levels 30

Table 3.2: Important rank calculation 31

Table 3.3: Favorable rank calculation 32

Table 4.1 The Importance Score of Nation Environment Factors 35

Table 4.2 The Favorability Score of Nation Environment Factors 35

Table 4.3 The Importance Score of Industry Environment Factors 40

Table 4.4 The Favorability Score of Industry Environment Factors 42

Table 4.5 The Importance Score of Financial Measurement Factors 44

Table 4.6 The Favorability Score of Financial Measurement Factors 45

Table 4.7 The Importance Score of Customer Measurement Factors 46

Table 4.8 The Favorability Score of Customer Measure Factor 46

Table 4.9 The Important Score of Internal Business Measurement Factors 47

Table 4.10 The Favorability Score of Internal Business Measurement Factors 48

Table 4.11 The Importance Score of Learning and Growth Measurement Factors.49 Table 4.12 The Favorability Score of Learning and Growth Measurement Factors 50

Table 4.13 SWOT Analysis of Vietnam’s Textiles & Garments Industry 51

List of Figure

Figure 2.1 Porter’s Diamond Theory 10

Figure 2.2 The Balanced Scorecard translating Strategy into Action 12

Figure 2.3 Annual Export Turnover of Vietnamese Textiles and Garments 23

Figure 2.4 Market share in percentage of export turnover 23 Figure 3.1 The conceptual Framework, formulated base on literature review 27

Glossary of Acronyms

ATC: Agreement on Textile and Clothing

CSR: Corporate Social Responsibility

EU: European Union

FTA: The free trade agreements

GATT: General Agreement on Tariff and Trade

GSO: General Statistics Office

MFA: Multi-Fiber Agreement

TPP: Trans-Pacific Economic Partnership

VITAS: Vietnam Textile and Apparel Association

WTO: World Trade Organization

Chapter 1 Introduction 1.1 Background

The term of competitiveness becomes quite similar with economists, politiciansand decision-makers in economic scale around the world While competitiveness hasoften been the central attention of business enterprises, during long period of time theword has been progressively used in combination with the economic presentation ofentire industries or nations In fact, many studies of researchers such as Dwarfs andGiants Maintaining the Competitive edge: the Italian and Textile Clothing Industry in1990s of Bulussi, F (1997); Textile and Apparel in the Global Economy of Dickerson,

K (1995); Spatial Clustering and Industrial Competitiveness of Lundequist, P (2002)make sure and gain comparative advantage at different levels of firm, industry andnation

In Vietnam, the concept of competitiveness is also used broadly and regularly Particularly, when Vietnam joins in the WTO and further global economicintegration, competition between different regions and diverse industries has becomefiercer and fiercer In order to obtain a further maintainable improvement of theireconomies, the system of government, public organizations and firms are eagerly trying

high-to analyze and measure competitiveness high-to find out their weaknesses and strengths After searching and consulting relative references, there are two theories includeDiamond model of Porter (1985) and The Balance Scorecard translating Strategy intoAction of Kaplan and Norton (1996) are used to interpret the competitiveness of anindustry and firms In Vietnam, the textile and garment industry is one of the mostimportant mainstay industries (the second largest industry after petroleum industry) in

my country, is an appropriate research subject aiming at investigating the level of thecompetitiveness, strengths and weaknesses by analyzing factors affect to thedevelopment of textile and garment industry in Vietnam.

The competitiveness of Vietnam’s textile and garment industry is analyzed byusing and applying existing model and theory to point out competitive terms and valuatethem by meaning of scoring the factors through testing in a quantitative method, it isinnovative and interesting Many research articles and papers related to competitivenessand the textile and garment industry, which will be useful to my research

1.2 Statement of the Problems

The competitiveness notion in three levels of nation, industry and firm is different,but the definitions of competitiveness among them are not very clear in some extentsand objectives There are many theories that can definite the competitiveness atdifferent levels and its outcome depends on the method used Thus, when it comes tothe textile and garment cluster in a country, there are no specific theories or modelsaimed at finding out its competitiveness even if many researchers and experts havefound many explanatory factors The problem is whether finding the main factorsinfluencing the competitiveness of the textile and garment industry from existingtheories and materials, and whether finding or establishing an appropriate strategy foruse to evaluate the field of the Vietnam’s textile and garment industry Will the resultdevelop in the thesis have useful suggestion on the whole textile and garment industry

or whole system of government in Vietnam?

1.3 Purpose

The purpose of the thesis is to find which factors impact to the competitiveness ofthe textile and garment industry in Vietnam by using and applying the appropriateexisting theories to analyze its competitiveness Therefore, after analyzing the theories,the factors affect to competitiveness of the textile and garment firms in Vietnam will beconsidered following the different environments as external factors and internal factors.After that the research will point out what factors are its strengths and what factors areits weaknesses and SWOT analysis is needed to use in this case Other purposes of thethesis are to better understand and accumulate the knowledge of how to use thesetheories to evaluate the competitiveness at the three levels Finally, the thesis will putforward several inferences about how to maintain strong points and improve theunfavorable aspects in order that the Vietnam’s textile and garment industry willdevelop sustainably and long-term in the future

1.5 Organization of the Study

This thesis is structured in five chapters The first chapter describes about thebackground and statement of problems, objectives, research questions and organization

of this study The second chapter reviews the underpinning and underlying the theoriesfrom the relevant literature include overviews of Vietnam textile and garment industryand the role of garment industry The third chapter focuses on the explanation of thecontent of conceptual framework, hypothesis, and the research methodology The fourthchapter targets the results of analyses The conclusions, discussions andrecommendations are in chapter five

Chapter 2 Literatures Review

2.1 Competitiveness Assessment

The term “competitiveness” is one of the magic expressions used by economists,politicians, and business people in different contexts It can be defined at the level ofnation, industries and individual companies However, different definitions ofcompetitiveness need a clear concept of what will be measured and explained

The nation level, McCulloh (1988) in his working paper – International

competition in service stated that competitiveness as the degree to which an economy,under a free market regime It could produce goods and services and that survive the testinternational markets, while at the same time maintaining and expanding the realincome level of its citizen

Industry level is another level were detailed analysis for individual industries

can be studied In this research, an industry is defined as a group of companies located

in a nation - regardless of ownership - that produce products that are regarded as closesubstitutes by consumers A nation’s industry consists of a group of companiescompeting not only among themselves, but also as an aggregate against the sameindustries in other countries Industrial competitiveness is applied in many aspects andthe level of textile and garment industry is considered by the characteristics

In this level, the competitiveness primarily mentions to overall quality ofproducts or services that is better than similar industries in other countries It is alsorelated to total allocations of natural resources, infrastructure and market of a country or

region

At the level of individual firms, competitiveness is understood as the ability of a

firm to survive and thrive, given the competition of other firms for the same profits Itmeans that the competitiveness is the result of a competitive advantage relative to otherfirms Porter (1985) defined competitive advantage as the ability of a company to makeproducts that provide more value to the customer than rival products, leading to highersales and higher profits for that company However, the concept has a restriction is thatcompetitors will be quick and easy to copy either the products or production processes

to make profits and catch up with a firm

Markusen (1992) defined competitiveness as the ability of the firm to gain andsustain a level of productivity that is equal to or higher than level accomplished bycompetitors In addition, in term of cost of competitiveness defined as the ability of firm

to produce and market product at equal or lower unit costs relative to that ofcompetitors

Besides three competitiveness levels that mentions earlier, The GlobalCompetitiveness Report 2010-2011 of World Economic Forum defines competitiveness

is “the set of institutions, policies, and factors that determine the level of productivity of

a country” (p4) The level of productivity, in turn, sets the sustainable level of

prosperity that can be earned by an economy In other words, more competitiveeconomies tend to be able to produce higher levels of income for their citizens Theproductivity level also determines the rates of return obtained by investments (physical,human, and technological) in an economy Because the rates of return are the

fundamental drivers of the growth rates of the economy, a more competitive economy isone that is likely to grow faster in the medium to long run.

In order to understand the definition clearly and practicably, there are differentaspects of competitiveness are generated These components are grouped into 12 pillars

of economic competitiveness as follow Table 2.1

Table 2.1 The twelve Pillars in three Groups

• Higher education and training

• Goods market efficiency

• Labor market efficiency

• Financial market development

external factors and internal factors over which external factors are terms relate tonation and industry environment Meanwhile, internal factors are terms relate to firmenvironment All of external factors constitute source of opportunities and threats for acompany, and firm factors are the source of strengths and weaknesses of the enterprise.

2.2.1 Nation Environment

In general, a company’s nation environment contains all related factors andinfluences outside of the company’s boundaries and they are essential enough to have abearing on the final decisions of the company about its direction, objectives, strategies,and business models

Nation environment factors concern to PEST analysis that terms relate to political

changes, economy changes, social factors and technological changes in a country orregion First of all, political factors can be defined the legal and regulatory parameterssuch as government budget balance, national saving rate, government debt and stablepolitical regime Second perspective is the nature of economy in which a firm operates,

it includes such terms as obtainability of credit, the level of disposable income, interestrate spread, inflation rate, and the propensity of people to spend Then, social factorscomprise of the beliefs, values, attitudes, opinions, and lifestyles in the firmenvironment as develop cultural, religious, educational, and ethnic condition Anotherperspective associates with technological factors such as technological changes andpromoting innovation In addition, ecological factors is also important aspect relates tonation environment, consist of specific concerns regarding air, water, land pollution,global warming, loss of habitat, and biodiversity

However, in shape of the research only mentions to some main indicators that themost possibly impact to textile and garment industry such as economic growth, interestrate, inflation rate, technology transfer, stable political regime, and environmentalissues.

2.2.2 Industry Environment

According to Porter (1990) used two factors to value competitiveness: First onecomes from the nation where the industry/firm exist so-called national competitiveadvantage and another one is ability of industry or firm to process the nationenvironment through competitive strategy He also classified these factors into fourbroad attributes - diamond model: (1) factor conditions; (2) demand conditions; (3)related and supporting industries; (4) firm’s strategy, structure, and rivalry Moreover,there are two factors more - the chance and government that are linked through abovefour factors and cannot be ignored Analysis on the factors reveals that why someindustries are more competitive than others within a nation or other countries So-called

Porter’s Diamond Theory as illustrate following figure:

Figure 2.1 Porter’s Diamond Theory

Source: Adapted from Porter.E (1990)

Factors conditions are elements that similar to standard economy theory such as

human resources, natural resources, knowledge resources, capital resources andinfrastructure These general factors lead to firms have competitive advantages to othercompetitors A firm located in a certain region or country need to know which factor isweak, which one is strong to build a appreciate strategy overcome the shortages

For instance, in order to resolve problems of labor shortage in watch industry,Switzerland concentrated on innovative and high-end market In Japan, land is limitedfor manufacturing, so this led to just-in-time inventory techniques focus on high qualityelectronic and car such as Sony, Panasonic, Toyota, Honda, and so on

Demand conditions: Porter (1990) stated that demand is shaped by three features

including their mixture - the mix of customer needs and wants, their scope and growthrate, and the mechanisms that transmit domestic preferences to foreign market Basing

on the characteristics, a firm will understand customer’s needs and desires better Inother word, industrial advantage need a more demanding local market that help localfirms take part in global trends.

Related and supporting industries: According to Porter, industries that are strong

related and supporting is important to the competitiveness of firms This is because theycan supply important inputs and services for the innovation and commercialization offirms in the sector They can also interact together to make close working relationshipsand through the relationships, firms can gain a quick and easy access to newtechnologies, new ideas and related information

According to Singleton (1997), the most important things relate and support to thetextile and garment industries are the production of machinery, materials the fashionsector and relevant services and facilities Rather, the benefits of clustering arise fromopportunities for cooperation between firms engaging in related activities Cooperationamong these industries is an important factor to support textile and garment industryand enhance the competitiveness

Firm strategy, structure and rivalry: In order to improve competitiveness, firms

need to base on each factor of firm strategy, structure and rivalry to create and establishtheir objectives and type of administration which is indispensable for their success.Basing on this model, detail industry environment factors are pointed out asAppendix 2 (questionnaires)

2.2.3 The Firm Environment

The level of firm is the last of three abroad competitive sources From this level, acompany can identify the strengths and the weaknesses in order to shape an appropriate

strategy There are some approaches to assess company’s competitiveness and one ofthem is Balanced-Scorecard method.

This theory was published firstly by Kaplan and Norton in 1996 and its model hasbecome an alternative of outcome measure and performance driver

Figure 2.2 The Balanced Scorecard translating Strategy into Action

Source: Kaplan and Norton (1996) Balanced Scorecard: Translating Strategy into Action.

Following this model, a framework for strategic management is outlined into anintegrated collection of objectives and the performance of terms that separated into fourperspectives: financial, customer, internal business process, and learning and growth

Financial Perspective

This measure contributes to the improvement of the company’s strategy, operation,and execution The objectives can vary substantially from each stage of a business’slifecycle Depending target of each strategy, an enterprise can follow, range fromaggressive market share growth down to consolidation, exit, and liquidation (Hofer andSchendel, 1978, MacMilan, 1982) For simplification purposes, Norton and Kaplan(1996) identify just three stages, consist of growths, sustain, and harvest According tothe stages, in this research, the perspective is driven by seven factors, namely total sales,share price, revenue growth, profit from operation, return on investment, cost of longterm investment, and capital investment

Customer Perspective

According to Kaplan and Norton (1996), the value of the perspective is created forcustomers to know that how customer demands for value of a product as well ascustomer’s satisfaction, and attitude for the product In addition, the field also helpsmanagers find out appropriate market segment and compete their measures of businessperformances of firms in the targeted segment The importance of this section like ascore of all process

Regarding to Olve, Roy & Wetter (1999), if the company is unsuccessful to distributethe right product and service for cost-effectively satisfying customers need in both theshort and long run, revenue will not be generated, and the business will wither and die.The core measurement of this perspective is detailed in several factors includesmeasures of market share, customer retention, new customer acquisition, customersatisfaction, and responsiveness.

Internal Business Perspective

In this part, author mentions to internal processes in which the organizationoperates with purpose is to reach the meet of customers and shareholders A firm wants

to stand out others, it should concentrate on the internal process that has the greatestimportance to the customer’s satisfaction and get firm’s financial objective In order tomeasure this sector in quantitative way, there are several terms are considered as factorsthat are the most relative to internal business, namely managerial skill, productionequipment, product quality, capability utilization, worker & production motivation andefficiency improvement

Learning and Growth Perspective

In this perspective, the activities of maintaining and developing the knowledge andskill, that require to reach to customer’s satisfactions and needs Along with the action,the firm also needs to know how to sustain necessary efficiency and productivity of theprocesses, which presently create value for the customers Moreover, the firms mustcreate and shape long-term growth and improvement to identify its infrastructure Following Kaplan and Norton, there are three principal kind of learning andgrowth perspective consist of employee capabilities, information system capabilities,and motivation From those basic categories, some indicators are pointed out such as

employee productivity, employee retention, employee motivation, investmentdevelopment, and human resource development

2.3 SWOT Analysis

SWOT analysis is one of the most renowned instruments for analysis of the overallstrategic position of the business and its environment By definition, Strengths (S) andWeaknesses (W) are considered to be internal factors include firm’s resources; culture;systems; staffing practices; and the personal values of the firm’s managers over whichthe organization has more control Meanwhile, Opportunities (O) and Threats (T) areconsidered to be external factors include among others, overall demand, the degree ofmarket saturation, government policies, economic condition, social, cultural, and ethicaldevelopments; technological developments; ecological developments over which theorganization has lesser relative control Each of these elements is described as below:

1 Strengths: Strengths are what an organization gets more competitive than itscompetitors These are also things that a company is good at doing or a characteristicthat gives it enhanced to the competition and can be used effectively to gain itsperformance objectives

2 Weaknesses: Weakness is factor such as a limitation, fault, or defect within theorganization that puts it at a disadvantage leaded to company becomes poorly or inferiorcapabilities to its

3 Opportunities: Opportunities are any favorable situations in a firm’senvironment, such as a trend, market, change or overlooked need that supports the

demand for a product or service and permits the organization to enhance its competitiveposition, particularly in the future.

4 Threats: A threat is major unfavorable factor in organization’s environment such

as trend or impending change that is currently or potentially damaging or threatening toits ability of competition and enterprises are harmed by the problems

Sources: http://www.ventureline.com and http://www.managementstudyguide.com

2.4 Overview of Textile and Garment Industry in the World and Vietnam

2.4.1 Overview of Global Textiles and Garment Trade

Textile and garment trade is one of the most significant segments of globalcommodity trade Because of the employability and foreign exchange earnings it createsfor the country, the trade becomes one of the highly competitive sections According tosome research, statistics data shows that within the period of time from 2005 to 2009,the trade of textile and garment has grown by 2%, of which garment has grown by 3%.China is the top most exporter of garment in the international garment market, followed

by India, Bangladesh and Vietnam

According to Table 2.6, global apparel and textile exports grew 14.62% from

$525.3 billion in 2009 to $602.12 billion in 2010 For the decade ending in 2010,compound annual growth averaged 5.5% worldwide Among the fastest growingcountries in that period of time were Vietnam, China, Bangladesh, Turkey and India China’s textile and clothing exports soared from $16.89 billion in 1990 to $206.74billion in 2010 India is a distant second in this category, at $24.12 billion in 2010 (up

from $4.71 billion in 1990) Other nations in the top ten for global apparel and textiles

exports in 2010 included Turkey ($21.72 billion), Bangladesh ($16.92 billion), the

United States ($16.96 billion), Vietnam ($13.50 billion), the Republic of Korea ($12.58

billion), Pakistan ($11.78 billion) and Indonesia ($10.97 billion)

In China, before joining in the WTO, the textile and garment industry had few

barriers to entry, needed little capital investment and involved a high level of

low-skilled labor When low-cost labor was highest, China had a clear advantage in the

industry, particularly in light of its tendency to cluster factories near shipping ports and

logistics centers so that goods can be sent to customers with minimal delay After

becoming WTO membership, however, labor cost has increased very quickly as

workers who live in urban have many choices for their work, demand for workers has

become high, and employees could demand much higher pay than those in

less-developed countries

United States is one of big markets in textile and garment sector According to U.S

International Trade Administration, during 2011, U.S exported $22.3 billion and

imported $102.0 billion in textile and garment

In EU (European Union), the textile and garment segment is quite large, commonly

in countries that enjoy lower operating costs, such as Eastern European States and Baltic

States Nearby, in Turkey, the industry plays an important role of the economy

However, Africa, South America and Central America remain minor roles in world

garment trade

Table 2.2 World Top Exporters of T&C during 2010 (USD billion)

Rank Country 1990 2000 2008 2009 2010 % Ch % share

in 2010/09 in 2010

7

167.10

**

352.2 612.0 525.3 602.1

2 14.62 100

Source: WTO report 2011

The WTO Agreement on Textiles and Clothing

The Agreement on Textile and Clothing (ATC) replaced Multi-Fiber Arrangement(MFA) and it governed the world trade in textiles and garments from 1994 through

2004, imposing quotas on the amount developing countries could export to developedcountries It expired on 1 January 2005

The basic purpose of the ATC is to secure the elimination of limitations at thattime applied by some developed nations to imports of textiles and clothing To the endthe ATC sets out processes for integrating the trade in textiles and clothing fully into theGATT system by requiring nations to take out the quotas and tax boundaries in fourstages over a period of 10 years

However, the restrictions had been removed in two phases The first two stagesonly on a limited number of products Next was expected when the third-stageintegration takes placed (on 1 January 2002), in this stage the bulk of the restrictionswould be withdrawn in the last phase, when the transition period ended and the ATCexpired

The ATC has considerably created impacts to global textile and garment trade.First of all, the Agreement was not negative for all developing countries For examplethe European Union (EU) imposed no restrictions or duties on imports from the verypoorest countries, such as Bangladesh, leading to a massive expansion of the industrythere Second, textile and clothing industries in exporting countries would have to usethe remaining transition period to prepare themselves to meet heightened competition It

is good opportunities for developing countries such as Vietnam, Bangladesh expand andpenetrate in markets in developed countries like US, EU, and Japan.

2.4.2 Overview of Textile and Garment Industry in Vietnam

(Source: European Union economic and commercial counselors – Report on Vietnam

2011)

In 2010, the textile and garment industry has a strong development in Vietnam.The sector significantly plays its role in the domestic and foreign markets whenVietnam’s largest foreign currency earner Following The Free Trade Agreements(FTA), Vietnam and other ASEAN members have signed have benefited the country,leading to a rise in export earnings Vietnam is expanding to several important markets

in the near future, including an FTA with the European Union Vietnam has alsodecided to join the negotiations for a Trans-Pacific Economic Partnership (TPP)Agreement as a full negotiating partner

According to the Vietnam Garment and Textile Group (Vinatex), several garmentand textile enterprises, primarily located in Northern Vietnam, have recently expandedtheir production capacities Furthermore, Vietnamese textile companies began to paymore attention to Corporate Social Responsibility (CSR) guidelines Whereas CSR wasinitially only practiced by foreign investors, WTO accession in 2007 and the resultingstronger integration into the world market increased the interest in certifications toprove the application of social standards However, political enforcement and a well-defined legal basis are still absent

Domestic/import market:

Vietnamese manufacturers faced difficulties in 2010 as prices for importedmaterial rose by 30-40% over 2009 Vietnam currently imports up to 80% of thematerials needed by the garment sector According to the General Statistics Office(GSO), imports of textile fabrics rose from US$4.3 billion in 2009 to US$5.4 billion in

2010 According to VITAS (Vietnam Textile and Apparel Association, a governmental and non-profit organization representing the interests of textile andapparel firms in Vietnam), there are about 2,400 garment and textile manufacturers inVietnam The sector employs almost 2 million people In April 2010, labor unions andtextile associations signed a contract establishing different levels of minimum wages,depending on the factories’ geographic location The agreement is obligatory to alltextile and garment firms and the level of wages shall be controlled every 6 months.However, not all firms currently respect the guidelines, provoking strikes by workers in2010

non-In line with the campaign “Vietnamese people use Vietnamese goods”, textile andgarment firms also tackled the domestic market Vinatex and other companies expandedtheir domestic sales networks Vietnamese brands primarily concentrate on middle-priced segments, while high-price segments are served by western brands Chinese massgoods target the low-price segments

According to the Thai Nguyen Investment and Trade Company (TNG), globalgarment and textile suppliers are shifting their attention from China to Vietnam; withinVietnam the sector is moving from the south to the north due to lower labour-cost

Overseas/ Export Market:

Vietnam’s garment and textile sector rose to US$ 13.5 billion in total export

turnover in 2010 The US remains the biggest market for Vietnamese textile andgarment products In total, textiles and garments worth US$ 6 billion were exportedfrom Vietnam to the US market in 2010, an increase of 22% over 2009 Although theEU’s textile demand was negatively affected by the sovereign debt crisis in somecountries, Vietnam was still able to maintain its market share in the EU textile marketand the country’s garment and textile exports to the EU grew by 14% Vietnam’s totalexport to the EU market amounted to US$ 1.8 billion in 2010 Vietnam is the seventhlargest textile supplier to the EU textile market.

Vietnam’s garment and textile exports to Japan amounted to US$ 1.2 billion in

2010, an increase of 20% compared to 2009 Currently, Vietnam accounts for 2.5% ofthe total global garment market share and is the fifth largest garment and textile supplier

in the world

According to Vinatex, Vietnam’s textile and garment industry targets exportearnings of US$ 18 billion in export turnover in 2015 Moreover, experts expectinvestors to focus on garments rather than on textile dyeing this year

Table 2.3 Announced Targets of the Vietnamese Textile & Garment Sector

Export Revenue US$ 14 – 16 billion US$ 20 – 22 billion

Fiber Production 0.5 million tons 0.65 million tons

Figure 2.3 Annual Export Turnover of Vietnamese Textile and Garment (US$ billion)

Source: WTO report 2011 and VIIAS

Figure 2.4 Market share in percentage of export turnover

Source: Vitas and Handbook 2011

Challenges and Opportunities

According to Vinatex, the Vietnamese textile and garment sector needsrestructuring to keep up with its competitors’ development Many countries that importVietnamese textiles and garments have strict environmental and health standards forimports Therefore, investment in quality, environmental friendliness and productiontechnology modernization will be necessary In the context, Vinatex aims for a moreefficient use of energy, improvement of the general working environment and arestricting towards e-commerce promotion

According to VITAS, the soaring demand for garments and textiles in the globalmarket will provide an excellent opportunity for Vietnamese exports to improve.Vietnam is a member of the ASEAN-China Free Trade Area (ACFTA), reducing tariffs

on 90% of the imported goods in this area to zero The agreement has already takeneffect in China and some ASEAN members, while Vietnam will follow suit in 2015.This is likely to significantly boost the country’s exports and trade Furthermore, localfarmers are encouraged to grow more cotton to reduce reliance on imported rawmaterials Vinatex has built four weaving and dyeing industrial zones to attract domesticand foreign investors The Ministry of Industry and Trade plans to develop a materialand a dyeing zone in southern Dong Nai Province by 2015

Chapter 3 Research Methodology

3.1 Mode of procedure

In general, there are two stages in the methodology Finding the related theories isthe first step to reach the target of the thesis From previous researches, there are twoappropriate models for this case are Porter’s Diamond model and The BalancedScorecard translating Strategy into Action model These models could explain thecompetitiveness of an industry in a region or a nation A long with finding the models,some related theories concerning the field of the garment industry is needed After that,based on these theories and models to put forward factors and apply them to measurethe competitiveness of Vietnamese textile and garment industry

In order to deal with topic of interest, searching and studying a number ofpublished articles is a proper academic way The useful articles are about the definition

of competitiveness put forward by different politicians or economists in different times.Some articles mention how existing models and how analyzing and applying in apractical case studies In addition, examining other available sources and materials is amethod to gain a better understanding of how to professionally compose and outline athesis

3.2 Research Approach

In Research Methods for Business Students of Saunders, Lewis and Thornhill

(2009) mentions two fundamental perspectives in research approach, namely

empiricism and rationalism The empirical method that is convenient to use when notheory exists within the research area In other, the rationalistic is the deductive method,which means the researcher starts from an existing theory The theory creates a groundfor a hypothesis that thereafter is testified through empirical studies

Basing on existing theories to analyze and point out factors that affect thecompetitiveness of textile and garment industry in Vietnam is one of purposes of thesis.However, the goal of the research is not to create a theory that can value thecompetitiveness in the field of textile and garment industry The purpose was that bringout a case study research by applying the existing theories and analyze the certainindustry rather than to improve or develop existing theories When designingquestionnaires, some factors that have an effect on Vietnamese textile and garmentindustry These factors are similar to hypothesis often used in the inductive method Allabove explaining, an inductive case study is tendency of the approach of the thesis.Answers to the questions: “Why?”, “What?”, and “How?” is indispensable in anycase study and the research is one of them, it is measured from many perspectives in on

or several reality situations The collection of data comes from questionnaires,observations and documentary analysis By collecting the relevant data through thereality in its context of textile and garment industry in Vietnam is also a method toconduct the thesis in two ways description and explanation

3.3 Conceptual Framework

Based on theories which discussed in chapter two, a conceptual framework isformed for this research By analyzing on the framework, factors or indicators weredefined and clarify in different groups logically The factors will represent the

competitiveness as well as opportunities and threats of the firms.

Finally, SWOT analysis will be used as a formulation of the competitive strategy The conceptual framework of this study is illustrated as below

External Competitive Factor Firm Competitive Factor

Nation Environment Financial Perspective

Customer Perspective

Learning & Growth

Figure 3.1 The conceptual Framework, formulated base on literature review