Vietnam Footwear Industry Sees Growth Ahead of TPP

November 13, 2014 Posted by Vietnam Briefing Reading Time: 4 minutes

HCMC – The upcoming Trans-Pacific Partnership (TPP), a US-led free trade agreement, is expected to have strong positive effects on Vietnam’s footwear industry. Once implemented, the TPP will reduce tariffs on most Vietnamese exports to the US to zero.

Vietnam is one of the ten largest exporters of leather products. In fact, the Vietnam Industry and Trade Information Centre (VITIC) predicts that the country will reach US$12 billion in leather-product exports for 2014. In the first nine months of this year, Vietnam exported US$7.4 billion in footwear (up 24 percent YoY) and US$1.9 billion in handbags (up 37 percent YoY).

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In terms of revenue, footwear is Vietnam’s third most productive export industry, generating US$8.5 billion in 2013. Government records show that around 600 businesses are engaged in the footwear industry and are employing over one million workers in direct and supporting sectors. The country produces 800 million pairs of shoes per year.

Footwear is but one of the many products that manufacturers are increasingly exporting from Vietnam. The American Chamber of Commerce (AmCham) predicts that Vietnam will become the largest ASEAN supplier to the United States by the end of 2014 – with a net export value of around US$29.4 billion. Additional statistics indicate that bilateral trade with the United States will surge to US$57 billion by 2020, cementing Vietnam’s prominence as a valuable hub for foreign investment and trade. Collectively, ASEAN represents a market of some 600 million people, with a combined GDP of about US$2.5 trillion and upwards of US$1.5 trillion in trade flowing throughout the region.

Additionally, recent trends show that the number of orders shifting from China to Vietnam has seen a significant increase. With its rising costs, China is no longer the go to destination for many manufacturers – Vietnam has arisen as a serious competitor.

Besides the TPP, Vietnam is attractive to footwear manufacturers for a number of reasons, including:

A stable currency
Low wages (about 38 percent those paid in China for the same industry)
Highly skilled workers
The country’s advantageous location in the ASEAN region and proximity to China
Additional free trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), the ASEAN Economic Community (AEC), and the EU-Vietnam FTA

However, local Vietnamese industries still have some catching up to do if they wish to remain competitive after the implementation of the TPP. In particular, the industry will have to develop a better material base and local businesses will need to strengthen their business skills, such as marketing and product development.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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