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Vietnam revamps as 'world's mask factory' to offset COVID hit

Hanoi expects garment sector to still gain from China migration post-pandemic

With exports plunging, Vietnam's garment makers change course to produce personal protective equipment, including surgical masks, instead.   © Reuters

HO CHI MINH CITY -- Vietnam is pushing garment manufacturers to make personal protective equipment, including face masks, to offset the fall in textile exports and foreign investment in the local supply chain as a result of the coronavirus pandemic.

Clothing and shoe companies had been shifting their production lines to the Southeast Asian country for years, cutting reliance on China and riding on Vietnam's trade deals. The pandemic hit the brakes on that trend, an interruption that the Vietnam Textile and Apparel Association has called its worst crisis. VITAS represents 450 companies.

Foreign direct investment in the country between the start of the year and Aug. 20 fell 13.7% from the same period in 2019. Investment had been rising quickly for years and was up 7% on the year in 2019.

Garment and textile exports also fell 11.6% in the year through August, versus the same period in 2019, after orders from the U.S. and Europe dried up, according to Vietnam's General Statistics Office.

After China and India, Vietnam is the world's third-biggest exporter of textiles, a sector that helped it to manufacture its way out of poverty and become one of the fastest-growing economies on earth. The communist country shipped $32.6 billion in garments and textiles in 2019 under brands as diverse as Walmart and Adidas.

"This spring, the substantial drop in global demand naturally had a significant impact on our order placement with suppliers in all our production markets, including Vietnam," Swedish fashion brand H&M told the Nikkei Asian Review.

"Never before have we in the textile industry in Vietnam undergone such pressure and rapid change," VITAS Chair Vu Duc Giang said Monday. "Each day is different from the next, each week is different from the next."

To survive the COVID-19 crisis, the trade ministry said Vietnam must "become the world's face mask factory."

With less demand for clothing, however, some factories switched focus. At least 50 companies are churning out surgical masks, or plan to do so, according to the trade ministry. One of the biggest companies, TNG, usually supplies to buyers such as Levi's, Tesco and Decathlon. But since the spring, it has exported millions of masks.

"A lot of textile companies moved into mask production, more or less successfully," said Frank Weiand, an adviser on supply chain localization at the U.S. Agency for International Development in Hanoi.

Though masks are small-ticket items, VITAS Chair Giang said they have big export potential because they are becoming mandatory and ubiquitous around the world. Vietnamese textile makers are betting on mask production, assuming that global demand will be sustained because ending the pandemic will take time.

Another way that Vietnamese companies can adapt in this environment is to adopt new technology, such as liaising with partners digitally, he said.

For the first time, for example, Vietnamese textile companies are conducting entire business deals via WeChat, from introducing products, to negotiating prices, Giang said.

The Asian Development Bank expects Vietnam's economy to expand 1.8% this year, one of only a few countries where it expects growth. Yet, that forecast is far below the 7% growth it recorded in 2019 and Hanoi is seeking ways out of the downturn and to cut dependence on China for raw materials.

VITAS estimates its members rely on foreign sourcing for 60% of their supplies, mostly from China, a number it hopes to push down to 30% by developing the domestic supply chain. One of the association's strategies is to offer consultancy services to foreign companies, advising them to invest in all stages of production, not just sewing.

A second strategy is to lobby textile companies to clean up production, such as treating water that had been contaminated with dyes, said VITAS Vice General Secretary Nguyen Thi Tuyet Mai. She told Nikkei a cleaner production process will allow more advanced manufacturers to set up in local industrial parks.

Businesses and analysts say foreign investment would increase if Vietnam had a bigger and more developed supply chain, which remains smaller than China's.

But when textile and apparel companies regain their investment appetite, they will continue to move away from China, as well as Taiwan and South Korea, to save costs, Giang said. The minimum wage is roughly $140 a month in Vietnam, less than half the cost in China, for example.

Vietnam also has the most trade deals of all Southeast Asian countries, including the revamped Trans-Pacific Partnership and the EU-Vietnam Free Trade Agreement.

H&M said it had to be "flexible because of uncertainties" in the pandemic but Vietnam remains an "important" long-term partner. "That said, we have no plans to change our sourcing strategy going forward," it stressed.

The pandemic is making global companies realize they need to diversify, including by shifting to Vietnam, Giang said.

"Even without this [pandemic], they would still want to migrate," he said at a press conference in Ho Chi Minh City, "but with it, the pressure will be to move faster."

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