Saturday, 6 December 2014

Companies find it difficult to join global footwear production chains

It is estimated that hundreds of millions of pairs of sport shoes bearing Nike and Adidas brands are made in Vietnam every year. However, domestic companies find it hard to compete with foreign enterprises.

Nearly 80 footwear factories in Vietnam outsource for Adidas. However, 90 percent of the factories are South Korean- and Taiwanese-invested, namely Pou Yuen Vietnam and PungKook Saigon III. Most of the factories are located in HCM City and Binh Duong, Dong Nai and Tay Ninh provinces.

Adidas reportedly has 1,200 factories located in 65 countries. Last year, Vietnam was one of five leading producers for the footwear brand in Asia.

In Vietnam, Adidas has nearly 100 shops throughout the country. Meanwhile, Nike has 30. Seventy-five kinds of Nike shoes are made in Vietnam.

Nike has been present in Vietnam since 1995, where it established business relations with 10 factories of South Korean and Taiwanese partners. More than 75 percent of Nike’s labor force is from Asia.

According to Business Journal, in 2013, the factories in Vietnam provided 42 percent of Nike’s products sold worldwide, higher than that of other two suppliers – China and Indonesia.
The Vietnam Leather and Footwear Association (Lefaso) said the giant footwear manufacturers including Nike, Adidas and Puma tend to seek outsourcing partners in Vietnam instead of China and Bangladesh.

However, the new strategy of major footwear makers may not bring benefits to Vietnamese producers.

Nguyen Duc Thuan, chair of Lefaso, said all the footwear producers in Vietnam, both Vietnamese and foreign-invested enterprises, want to use domestically sourced materials to be able to enjoy the preferential tariffs within the framework of free trade agreements (FTAs).

Thuan said the localization ratio of footwear products is about 55-60 percent, but most of the domestically made content is from foreign-invested supply chains.

Economists also commented that Vietnamese enterprises should not expect too much from the big foreign companies’ new strategy on seeking supply sources in Vietnam.
There has been nearly no presence of Vietnamese enterprises in the existing foreign production chains in Vietnam so far.

Ha Duy Hung, chair of Dong Hung Group, a 100 percent Vietnamese owned enterprise, said that when foreign investors come to Vietnam, they usually brings “satellite” enterprises in charge of providing materials to them.

“A footwear producer will come to Vietnam together with textile, sole and shoestring enterprises, thus creating a production complex in Vietnam. Therefore, it is very difficult for Vietnamese enterprises to become the links in production chains,” he noted.
http://english.vietnamnet.vn/fms/business/118063/companies-find-it-difficult-to-join-global-footwear-production-chains.html

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