Manufacturing

Why Australian brands are looking at Vietnam for fashion production

Sorry… the not so interesting topic of… import duties.   Bear with me, it will be short and sweet!  In Australia any parcel received with a declared value of over $1000 is subject to import duties. The year 2018 marked the 45th anniversary of the establishment of diplomatic relations between Vietnam and Australia and since then trade between the countries has grown steadily, exports of Vietnamese goods and services to Australia grew by 17.6 percent year-on-year in 2017, to US$4.9 billion, making Australia is Vietnam’s eighth largest trading partner. 

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Free trade agreements are the major drivers of trade and investment between the two nations. Australia will reduce all of its tariffs to zero percent by 2020, under the tariff schedule of the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA). In addition, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will further strengthen bilateral trade ties.

Now, the part we particularly care about here at Source Studio -  garments in particular, will hugely benefit from CPTPP, with Vietnamese exports to Australia predicted to grow by double digits. Once the CPTPP comes into effect, Australia will reduce import duties to five percent. From the fourth year, it will be reduced to zero percent for almost all the products.

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Vietnam is the ideal place for Australian brands to place their production focus. If they haven´t already.  But what about Australia´s emerging brands, the ones with lower volumes? Is there a place for them as well in Vietnam? Or are they left with an ever bigger chasm between producing in a cottage industry manner in Indonesia, (for many, Bali) and being able to move up the ladder to work with professional factories?

Vietnam has a growing mid to high end sector with volumes as low as 50 MOQ on womens and men´s fashion.  While the factories are few, here at Source Studio we have worked alongside these factories in the past 10 years and both witnessed and guided the growth of this niche market.  The garments are of high quality, shown at international Fashion Weeks and sold in reputable department stores such as the UK´s Selfridges or the iconic Browns, Moda Operandi and many other international retailers.  The notoriously strict quality Japanese retailers are also buying in Vietnam, one factory is producing jumpers retailing in Japan at $500+.

Vietnam – a benefactor of the US-China trade war

As the trade war between the US and China shows no signs of reaching a solution, US brands producing in China, such as Victoria Secret, Abercrombie & Fitch and GAP,  have been seeing their shares drop by up to 5% due to their high reliance on Chinese manufacturing. The expected 25% tariff on all fashion garments imported to the US from China will be passed on directly to the consumer which means a direct rise in retail price on any goods produced in China. Brands who have not diversified their production yet face now the challenge of finding production partners in neighbouring countries.

Credit: readtoolead.com

Credit: readtoolead.com

The average retail price of clothing manufactured in China was US$25.7 per unit back in the second quarter of 2018, only slightly higher than clothing from Vietnam. A year later, China’s cost more than doubled to US$69.5 per unit.  The South China Morning Post cited a report that shows that China’s stranglehold on the garment supply chain continues, despite its price advantage being eroded rapidly.  Why is this and is it true? From a perspective from inside Vietnam we can tell you that the factories are flooded with inquiries, many from Chinese factories moving their production to Vietnam.  Why are the brands themselves not looking at Vietnam directly? These, are the late comers, rushing here now. They should have been doing this already – prices rising in China, trade tariffs or not, was expected.  Just like the neighbouring countries have been expecting a rise in production in all sectors as China loses it´s competitive edge.

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But what can Vietnam produce in terms of garments?  I have repeatedly read that low cost production such as teeshirts and polos is ideally placed in Vietnam, Bangladesh or Cambodia. While the Walmarts and Targets of the world do find in Vietnam an alternative solution with production at competitive prices in the tens or hundreds of thousands, Vietnam´s factories also produce quality, price competitive products in the lower volumes from 500 units.  I know because that´s the niche we ourselves operate in, that and even lower volumes… Vietnam is also very capable in the higher end garments, from just 100 units per style, designs that reach London and Paris and New York fashion week.  An example of styles can be seen here:  https://www.sourcestudio.co/gallery-main

VIETNAM as ASIA'S NEXT BIG SUCCESSFUL STORY

At Source Studio we are often asked why we chose #Vietnam as our #manufacturing base.

Here the #Business of #Fashion lays down some of the reasons we chose to focus on Vietnam for our fashion production:
Like South Korea, Taiwan and China before it, Vietnam is piecing together the right mix of ingredients for rapid, sustained growth.

Vietnam Manufacturing

Vietnam Manufacturing

Vietnam’s workforce is not just young but skilled. In global rankings, 15-year- olds in Vietnam beat those in America and Britain in maths and science. That pays dividends in its factories. At Saitex, a high-end denim manufacturer, workers must handle complex machinery—from lasers to nano-bubble washers—all to produce the worn jeans so popular in the West.

Vietnam is reaping benefits from trade deals. It is set to be the biggest beneficiary of the Trans-Pacific Partnership and a free-trade pact with the EU is in the works for 2017.

Vietnam already has a strong, often underappreciated, record. Since 1990 its growth has averaged nearly 6% a year per person, second only to China.

A relatively young population adds to Vietnam’s appeal. Whereas China’s median age is 36, Vietnam’s is 30.7.

Investors have also taken heart from the stability of Vietnam’s long-term planning.

Like China, it has used five-year plans as rough blueprints for development.

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