More challenges facing textile and garment sector.

What challenges will Vietnam’s textile and garment sector face in 2024?

There will be many challenges and obstacles in 2024. Firstly, political relations between major countries continue to face instability and unpredictability. The standardization requirements of importing countries for the textile and garment sector, such as creating sustainable fashion products, recyclable products, and circular-oriented products, will also be an issue.

Additionally, in the context of Vietnam becoming a more deeply-integrated economy since it entered into many of its bilateral and multilateral free trade agreements, not only the garment and textile sector but also all others have faced greater global competition, and this is an issue that the sector must overcome.

One noteworthy challenge comes from within Vietnam’s textile and garment businesses, which currently lack three key resources: administrative technology, industrial fashion design capabilities, and a marketing workforce capable of seeking and selecting suitable suppliers to reach agreements and sign contracts with and identify sources of raw materials.

Next is the challenge of linking chains and developing a strong business community. We cannot have an environment where only a few strong businesses exist. We need a strong textile and garment community, to promote the development of businesses that meet requirements from such sub-sectors in the garment sector as spinning, dyeing, and textiles.

Vietnam’s fashion industry also faces a severe shortage of domestically-supplied raw materials and has done so for many years. Though the government issued a decision approving the strategy to develop garments, textiles, and footwear by 2030 with a vision to 2035, some localities have, however, unintentionally imposed barriers while calling for investment in the textile and dyeing sub-sectors due to low awareness. This presents a major challenge, because if the textile and garment sector does not have domestic raw materials and relies solely on imports, it will miss huge opportunities from trade agreements offering zero tariffs as there is no locally-made fabric.

Solutions for environmental management, firefighting and prevention, and measurement standards, among other matters, also pose significant challenges. Vietnam has joined the global playing field, so regulations must be in line with international standards without imposing excessive pressure on businesses.

What specific measures would the textile and garment sector need to take to address these challenges?

It is necessary to focus on developing domestic raw material sources following green and circular trends, on meeting stricter requirements for identifying origin, and on additional taxes that may be imposed in the future, such as Extended Producer Responsibility (EPR) and the EU’s Carbon Border Adjustment Mechanism (CBAM).

Focus must also be on a strategy to attract investment in fixing supply shortages under the textile and garment development strategy approved by the government. To achieve this requires supporting mechanisms and policies on land and investment in clusters and industrial parks for spinning, weaving, and dyeing, etc., to create the conditions for the industry’s development.

The Ministry of Industry and Trade needs to work with localities to prepare development planning for industrial parks that comply with environmental regulations, and to attract investment in textile and dyeing projects, especially high-end dyeing and weaving and knitting projects.

There should be a tax mechanism for the textile and garment sector, such as on-the-spot exports and input value-added taxes, because businesses currently face significant pressure from bank loans, wages, and payment delays.

Solutions to protect the environment are also needed. The notion of a “green” environment goes beyond just trees, and requires investment in solutions relating to technology, equipment, resources, and workforce.

Developing Vietnam’s textile and garment brand in the global market is also an important solution. It is therefore necessary to develop fashion industry development centers in Hanoi and Ho Chi Minh City, which will serve as a playground and stage for designers. However, we need to decide which brands of which businesses we should choose to develop in the global market and via what distribution channels. This requires strategic planning at a national level from the government and relevant State agencies to register exclusive trademarks globally. This is a critical task that cannot be delayed.

You mentioned the green transition for textiles and garments. Can you elaborate on that?

Green growth is now an inexorable trend and is the only path to follow, including for the textile and garment sector. Apart from the challenges and difficulties facing the global and Vietnamese economy this year, the textile and garment sector will also face numerous obstacles in implementing the EPR mechanism and the CBAM, in “sustainable fashion” replacing “fast fashion”, in the Organization for Economic Cooperation and Development (OECD)’s Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector, and in the German Supply Chain Due Diligence Act.

Specifically, issues related to green growth and sustainable development have become important competitive criteria that major markets such as the US, the EU, and Japan require from suppliers, in addition to factors like price, product quality, and delivery time. For example, textile and garment products exported to Europe must be manufactured using cotton or polyester fiber mixed with recycled fiber made from natural products, waste materials, or surplus textile and garment products. This means that major importers are focusing on sustainable development indicators such as environmental, social, governance (ESG) and Leadership in Energy and Environmental Design (LEED) standards. Suppliers who possess advantages in these will have a competitive edge and receive more orders.

Therefore, to develop sustainably, from now to 2030, the textile and garment sector will gradually shift its focus from rapid development to sustainable development and a circular trading model. From 2031 to 2035, it aims for effective and sustainable growth based on a circular economic model to complete the domestic value chain and play a pivotal role in global supply chains. Home-made textile and garment products must reach the same quality standards as those of regional and global brands in order to meet requirements for export and domestic consumption.

Key solutions for the textile and garment industry will come from investment in sustainable development and the promotion of science and technology and human resources. These include attracting dyeing and weaving projects with high technology to industrial parks, investing in making new products from natural and environmentally-friendly materials, and promoting digital transformation and the development of the fashion industry.

I want to stress again that green transition is an inexorable trend in the textile and garment sector. It is absolutely necessary to integrate circular products into textile and garment products. Therefore, the government must accompany businesses to build a “green transition strategy”, and invest in factories to ensure there is infrastructure that meets the evaluation standards of brands, such as in workplace environment, wastewater treatment, air pollution control, and renewable energy using rooftop solar power.

In particular, it is necessary to establish a natural resources and environment fund to help enterprises boost green growth, with a preferential interest rate of 0-2 per cent per annum to encourage them to comply with Vietnam’s commitments to net-zero emissions made at COP26. This requires that the government makes funds available for this strategy.