Converting production activities to adapt new situation
Regarding this issue, Ms. Phan Thi Thanh Xuan, an expert from the project on promoting reform and enhancing connectivity of small and medium-sized enterprises funded by the US Agency for International Development, said that the leather and footwear industry had been negatively affected last year since the outbreak of the pandemic. At that time, most enterprises merely had enough materials for production until the first week of March. From March onwards, the pandemic spread from Italy to all countries in Europe and the US, shutting down this market. Almost all stores from Europe to the US were closed, and sales fell freely.
Another problem is that prolonged pandemic has changed the trends, as well as the habits of consumers in the market. More than 60 percent of consumers have cut down expenses on fashion products. About 65 percent of consumers have switched from fast fashion to basic and durable fashion products, and 67 percent care about the quality of the working environment of manufacturing enterprises. Up to now, enterprises encounter difficulties because they cannot find the market for their products and have not changed production in time to meet the new market changes.
To minimize the above difficulties, enterprises have no other choice but to convert production activities, such as increasing the investment in automation, increasing productivity to help reduce costs, building a closed production chain, and gaining independence in raw materials. However, according to Ms. Nguyen Thi Xuan Thuy, Head of the Department of Integration Strategy and Policy under the Institute of Industrial and Trade Policy and Strategy, out of 3,000 footwear producers, only 17 have designing activities, 400 process intermediate stages or produce auxiliary materials and accessories, and 20 percent of them use automation equipment.
Supporting the establishment of chains
Economic experts said that it is time for Vietnam to look directly at the shortcomings of the domestic footwear industry. First of all, most enterprises produce under the cut, make, and trim (CMT) manufacturing. Because they export through foreign intermediaries, they have not built brands. Enterprises have also failed to grasp information about the trends of markets and customers, so they remain passive in production. Most enterprises only produce upon the orders given by partners.
As for the value chain, domestic enterprises are losing the balance between stages. Particularly, they focus more on the processing of footwear and bag products but less on designing, producing raw materials and auxiliary materials, and branding. The source of input materials is heavily dependent on imports, so it does not meet the requirements of rules of origin of new-generation free trade agreements. Just a few Vietnamese enterprises with big brands play a leading role in establishing the domestic supply chain.
From another perspective, the fashion industry has not received adequate attention and lacked linkage to form a chain. Regarding sustainability, the appraisal of manufacturing enterprises according to sustainability criteria has not been fully implemented. Activities related to traceability and transparency have not been methodically built and fully carried out. Authorities have not had specific criteria to monitor, evaluate, and use them as a foundation to develop policies to support the green and sustainable development of enterprises.
Quickly overcoming the above disadvantages will create conditions for enterprises to accelerate development. Mr. Nguyen Duc Thuan, Chairman of the Vietnam Leather, Footwear, and Handbag Association (Lefaso), said that on average, the world produces 20 billion pairs of shoes annually. Of which, China accounts for 60 percent. Vietnam accounts for a modest percentage of about 5 percent. However, in the context that orders from China are pouring heavily into Vietnam, the opportunity to expand the market share of the Vietnamese leather and footwear industry is great. From the end of last year up to now, long-term orders have returned steadily. Enterprises have actively made production plans until the end of this year.
