Two years ago global buying office Indochine International, which has its headquarters in China, strategically decided to substantially expand its operations in Vietnam after establishing its presence firmly in Bangladesh and Cambodia – the other two hubs of cost-effective apparel manufacturer in South-east Asia – along with presence extended into Myanmar, Sri Lanka and Ethiopia in recent years. Majorly sourcing for Newlook and other top UK retailers, the buying office is also sourcing garments for well-known retailers in Australia, South Africa and Middle East, besides its own high-end retail venture with 330 stores across the globe, aggressively looking to enter the US retail sourcing space. Heading the Vietnam operations is Karthik Sunjey Arya, who earlier worked with the Bangladesh operations and is well-versed with what the customers of Indochine are looking for. “I was in Dhaka for 8-9 years, right from the time operations of Indochine began there, before relocating here. The changing business climate in Vietnam demanded that we expand the setup here to prepare for the coming TPP which will be a game changer,” says the Country Manager. Speaking to Apparel Resources, Karthik shares why it is important for the buying office to be in Vietnam today…
Vietnam is not new to Indochine, as they had been sourcing through a smaller office for some time, but as the country suddenly became the focal point of many trade agreements that augur well for the future of the textile and garment business in the country, it became important to expand operations. “There is no comparison between what we can do in Bangladesh and what is available here, the product categories are totally different, Vietnam is a fashion hub with low MOQ’s making it perfect for quick high-end fashion as lead time is also shorter being close to China for fabric imports, whereas Bangladesh is the cheapest to produce volumes/mass product lines and basic stuff. If you want quality, come to Vietnam or else if you just want value for money, then Bangladesh is the place,” says Karthik candidly. He adds, “Bangladesh is a monster and it’s very competitive. Vietnam is fashion- and specialty-based, so it comes with a price.” The buying office sources fashion products, ladies blazers, tops, blouses, formal suits, office wear and more of structured, tailored wear from the country.
The relatively low cost of production, Government stability, large and young population, with 70 per cent under the age of 40, and average age being 27, makes Vietnam a low-risk option from which global brands are able to source textile end-products.
It is also uniquely positioned in relation to a series of free trade negotiations that are set to dramatically shift the landscape of global trading. A million-and-a-half people enter the work force every year and they want to learn more, wish to be more compliant and need to be safer which makes the country an ideal place for investment. And the Government is also supporting investments, trying to make it easier to do business here.
“Vietnam is much more expensive compared to Bangladesh or Cambodia, yet it is appealing to the buyer due to its high quality, lower MOQ’s, shorter lead-times, timely delivery and reasonably good compliance vis-à-vis other countries in Southeast Asia,” says Karthik, pointing out that the country was not always popular with the buyers, but they have slowly overcome that and now have made a place for themselves in specialized product categories for which alternatives are limited globally, giving them the edge. The country mostly does high-value structured clothing, fashion blouses/dresses and complicated products like lined/quilted/down jackets and specialized workwear and jersey products, which are also now picking up. Karthik rightly analyses the historical context of the scenario, suggesting that if they can survive the hardship of 10 years of war, they can handle complicated situations and items easily. “The country and its people love challenges,” he says, adding, “I have tried offering million pieces programmes of basic jeans, but the companies are not interested. They want the high-end product, which are complicated and of higher SMV which gives them more value.” Also, since the country consists of primarily Buddhist people, they are generally content with their lives and the urge to earn more and over-working is countered with a philosophy of ‘balanced life’ that Buddhism preaches.
The workers do not want to work under pressure and are gratified inherently with what they have and live happily. They do what has to be done so that they can go back home in the evenings and chill themselves.
Yet, despite this relaxed attitude, workers are much disciplined, and are sincere and skilled too, and meet targets set for working hours. And for this Karthik again gives the Government credit. “Workers get their salaries on time and also get relevant increase every year; so why will a worker agitate? Workers concentrate on their work and go back home happily, and thus have no time for creating trouble unless their needs are not met, or they are being exploited. Government has a clear policy of basic salary application based on zones which are devised, founded on distance from the main city and cost of living for that zone. This clarity helps eradicate confusion and imparts faith in the system.
Karthik further adds that workers in Vietnam are also very secure because the country has a socialist approach and the Government of the day wants to give back to its people. Besides their salaries, social security, insurance and medical facilities are also added… So after a minimum salary of US $ 180, there is around 27 per cent social insurance, i.e. a worker makes around US $ 225 in the outskirts and US $ 265-270 in the main city. The price of products that are sourced from Vietnam, range from US $ 20-50 and even up to US $ 100, because they have a lot of top retailers like Armani, Gucci, Parada, Hugo Boss and Zara working for them. Besides garments, footwear market is also huge; bags too are sourced from this country.
Factories in Vietnam are comfortable in manufacturing 500 to 5,000 pieces and anything below 3,000 pieces has an upcharge for covering the line costs.
Since fabric is still a constraint, a lot of the fabric being used by factories working for Indochine comes from Turkey, Spain, Taiwan, China and also India, depending upon what the product demands and what the buyer wants specifically in price range, etc. “Things are changing and a lot of big mills have come up in the past 3-4 years. I believe Taiwan has recently decided to do US $ 500 million investment in textile sector in export zones (weaving & dyeing), and even the Vietnamese Government has invited companies from all over the world to set up mills with complete support from the authorities,” shares Karthik.
One of the biggest local groups VINATEX has plans to invest close to a US $ 1 billion over the next decade into textile capacity expansion as they feel it’s the only bottleneck for Vietnam in reaching to the next level in global standing and to fully use the opportunity that TPP and other trade pacts will provide. Indian cotton textile export promotion council also plans a US $ 300 million investment into a dedicated industrial park besides many other countries, like Hong Kong, are also showing keen interest in investing into textile sector in Vietnam. “So the developments are looking promising and the next few years will be interesting,” says Karthik.
In recent times many Chinese and Korean companies have set up factories in Vietnam, making the sourcing destination even more interesting. “Lots of companies are coming in and that is where we are looking at growth because the TPP has encouraged investment in weaving, spinning and dyeing. Even the FTA with EU may come through by 2017,” avers Karthik. Yet Karthik believes that more than the cost advantage it is the product mix that the country does which is intriguing for the buyers.
“As on date Vietnam is a little cheaper than China in price and it can do all the programmes that China handles, which Bangladesh and Cambodia cannot do. There is a product-specific market here. And when TPP comes here, this place is going to drop down in price, while China will remain where it is. Though my FOB and China’s FOB will not change but buyer will get that benefit of duty and the ease of doing business and better transparency vis-á-vis China that will make them come here rather than go to China,” concludes Karthik.