Vietnam's Competitive Edge in Global Textile Value Chains: A Growing Force

Leading Competitive Advantages

Vietnam has established itself as a strong contender in the global textile-exporting market, outpacing competitors like China and Bangladesh in several areas. According to the United States Fashion Industry Association (USFIA)’s recent survey, Vietnam’s ability to produce a diverse range of high-value products swiftly is a key differentiator. This success is attributed to significant investments in state-of-the-art machinery and the development of a skilled labor force, enabling the country to cater to a wide variety of market demands efficiently.

Vietnam’s textile industry has a significant role in the global value chain (GVC), with nearly 50% participation. This high level of involvement indicates that Vietnam is a key player in supplying global markets with textile and garment products.

According to the Vietnam Textile and Apparel Association (VITAS), Vietnam’s textile and garment exports in 2024 are expected to reach 44 billion US, reflecting an 11.26% increase from 2023. Imports are estimated at 25 billion USD, a 14.79% rise, while the trade surplus is expected to grow by 6.93%, reaching 19 billion USD (Ngoc, 2024).

Challenges in Maintaining Leadership

While Vietnam currently enjoys a competitive edge, the survey cautions that other countries, such as China and Bangladesh, are gradually closing the gap. Their advancements in production capabilities and technology may challenge Vietnam’s leadership in the long term. This presents an urgent need for Vietnamese businesses to proactively address potential challenges to retain their stronghold in the global textile market.

The EU is currently one of Vietnam's largest export markets, with rapidly increasing growth rates driven by the positive impacts of the EU-Vietnam Free Trade Agreement (EVFTA). However, the EU's Circular Economy Action Plan (CEAP) introduces new requirements for manufacturers and exporters, compelling businesses to quickly transform and adapt.

The key regulation in focus is the Ecodesign for Sustainable Products Regulation (ESPR), a regulation related to eco-design and sustainable products, which took effect from July 2024. These regulations may impact several major export sectors of Vietnam, including textiles and footwear. The ESPR includes provisions to prevent or limit the disposal of textile products and stipulates that in the future, products will need to have a Digital Product Passport (DPP). The DPP is a digital file that provides comprehensive information about the product and its entire value chain. It will include essential details such as a unique product identifier, compliance documentation, and information about substances of concern.

In order to invest in technological transformation for production, significant financial resources are required. This is a limitation for most small and medium-sized enterprises. However, the demands for a green economy and circular economy are irreversible trends, forcing businesses to comply in order to enhance their competitiveness in demanding markets.

Strategic Directions for Sustained Growth

To maintain and expand their competitive advantage, Vietnamese textile companies are encouraged to adopt a multi-faceted strategy:

Technology Investments: Further integrate advanced technologies such as automation, AI-driven manufacturing, and sustainable practices to stay ahead of competitors.

Process Optimization: Streamline production and supply chain operations to enhance efficiency and reduce costs.

Higher Value Chain Integration: Shift towards Original Brand Manufacturer (OBM) or Original Design Manufacturer (ODM) roles, enabling businesses to command higher value and improve brand identity.

Leveraging on Opportunities in the Global Textile Market

By embracing these strategies, Vietnamese textile businesses can not only secure their position as leaders in high-value production but also open doors to new opportunities in the global textile market. The country’s focus on innovation, sustainability, and deeper integration into production value chains will be crucial for long-term success. Vietnam can leverage on these strengths to help ensure that the country remains a preferred destination for textile sourcing in an increasingly competitive global landscape:

1.?? Political stability

Political stability of the country is one of the factors that foreign investors are interested in when making investments.

2.?? Strategic Location and Market Access

Vietnam’s proximity to major markets like China, Japan, and the ASEAN region make it a hub for connecting global textile supply chains

Trade agreements (e.g., CPTPP, EVFTA, RCEP) that reduce tariffs and improve export opportunities, especially to the EU and North America (VNA, 2024b).

3.?? Cost Efficiency and Skilled Workforce

Competitive labor costs compared to other textile-producing countries like China or India.

A skilled workforce with expertise in garment manufacturing and textile finishing (VOV, 2024).

Productivity gains through investments in workforce training and modernization.

4.?? Innovation and Technology Adoption

Increasing adoption of advanced machinery, automation, and digital tools in production processes (VNA, 2024a).

Use of AI and IoT for supply chain optimization and efficiency.

Trends in tech-driven manufacturing, such as 3D printing for garments or smart textiles.

5.?? Development policies

The Government has issued Decision No. 1643/QD-TTg: "Development strategy of Vietnam's textile and garment and footwear industry to 2030, vision to 2035. This policy sets a clear direction for the sector, aiming to:

“Develop the Textile, Garment and Footwear industry as the key export industry of the economy; promoting the production of high-quality products with high competitiveness in the international market, meeting the needs of the domestic market; maintaining a position in the group of leading textile, garment and footwear producing and exporting countries in the world.”

By prioritizing high-quality production and global competitiveness, this policy presents new opportunities for investment and development within Vietnam’s textile and garment sector. Furthermore, the emphasis placed on upgrading technology, enhancing product quality, and adhering to international standards encourages businesses to modernize their operations and remain competitive in the dynamic global market.

Additionally, this strategic focus strengthens Vietnam’s appeal to foreign investors, particularly those seeking sustainable and high-efficiency supply chains. With an increasing demand for environmentally responsible manufacturing, international brands are more likely to invest in Vietnam as it continues to align with global sustainability trends.

Beyond attracting investment, this policy also supports industry-wide innovation, job creation, and economic growth. By implementing this policy, Vietnam fosters a more resilient and future-ready textile sector to reinforce its position as a leading global manufacturing hub ensuring long-term success in an increasingly competitive landscape.

Conclusion

Vietnam's textile industry is positioned for sustained growth due to its competitive advantages in high-value production, strategic location, and a skilled workforce. While challenges from other countries may arise, adopting advanced technologies, optimizing production processes, and integrating higher up the value chain will help Vietnam maintain its leadership in the global textile market. If you wish to explore this promising sector, Viettonkin Consulting offers a full-service package for you to penetrate the Vietnam market and establish your business with ease.

References:

Ngoc, T. (2024, December 14). Xu?t kh?u d?t may cán ?ích 44 t? USD. https://ttdn.vn/hoi-nhap-va-phat-trien/kinh-te-dau-tu/xuat-khau-det-may-can-dich-44-ty-usd-112746

VNA. (2024a, July 17). Vietnam’s textile industry gains edge with high-value production capabilities. Vietnam+ (VietnamPlus). https://en.vietnamplus.vn/vietnams-textile-industry-gains-edge-with-high-value-production-capabilities-post290336.vnp#:~:text=The%20survey%20shows%20that%20Vietnam,in%20machinery%20and%20skilled%20labour.

VNA. (2024b, September 18). Vietnam an important link in global value chains: Int’l observer. Vietnam+ (VietnamPlus). https://en.vietnamplus.vn/vietnam-an-important-link-in-global-value-chains-intl-observer-post296820.vnp

VOV. (2024, July 18). Vietnam’s textile industry gains edge with high-value production capabilities: USFIA. THE VOICE OF VIETNAM. https://vovworld.vn/en-US/content/MTE0NDcwNA==.vov