Stitching together modern Vietnam

Than Duc Viet smiles as he surveys the quality of a newly manufactured shirt; the steady hum of the sewing machines behind him will continue to power throughout the day. At Garment Company 10, business is thriving.

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This company, like many others across Vietnam, personifies the great transformation that the Vietnamese economy has undergone in recent years.

Today, growing trade and a stronger manufacturing industry are the driving forces behind the country.

Improving trade flows

In southern Vietnam, APM Terminal’s facility, the Cai Mep International Terminal (CMIT), connects important manufacturing centres with East-West global trade routes.

As Vietnam’s exports are expected to continue to rise and the need for larger ships to grow, this deep-water port has the ability to facilitate the transportation of greater quantities of cargo, leading to important economies of scale for Vietnamese companies.

According to the World Bank, gross domestic product has increased from USD 46 billion in 2002, to USD 87 billion in 2012. A rise that looks set to continue, in part due to positive economic forecasts for the country’s most important exports – electronic goods and clothing. Vietnam is now the second largest supplier of clothing and footwear to the US, after China.

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The perfect fit

Garment Company 10, the country’s biggest garment manufacturer, exports clothing as far as America, Europe and Japan. In the last 15 years it has grown five-fold in terms of turnover and capacity. Such success has meant that since the turn of the millennium, the number of employees has increased from just 2,000 to around 9,000 in 2012. The manufacturing industry is thriving, and companies like Garment Company 10 are becoming increasingly reliant on sophisticated transport infrastructure and supply chains services to connect with customers all over the world.

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Ngo Thi Thu Phuong of Maersk Line in Haiphong, explains how Maersk is able to help companies looking to export overseas, “Maersk plays a critical role in maintaining and growing trade flows in Vietnam in two ways: By connecting Vietnamese companies with trading partners all over the world, and by enabling reliable and efficient transport of goods within Vietnam.” 

For Than Duc Viet, CEO of Garment Company 10, reliability is a major factor in facilitating export growth: It provides his international customers with assurances that their goods will be delivered on schedule and increases the company’s competitiveness by lowering transportation costs. Partnering with Maersk for inland transport, port services and shipping, means door-to-door delivery of goods – from the factory floor to the retailer warehouse, efficiently and on time.

We take care of all the goods, all the way from the producer to the consumer.
Ngo Thi Thu Phuong, Maersk Line, Haiphong
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Association of Southeast Asian Nations (ASEAN)

  • A political and economic organisation of 10 countries in Southeast Asia, namely Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Lao PDR, Myanmar and Cambodia.
  • ASEAN aims to accelerate economic growth, social progress and cultural development within the region, as well as promoting stability and active collaboration.

Trade and Transport - Free trade agreements

Source: Association of Southeast Asian Nations

Strengthening regional trade

According to Damco, there’s been an increase in cross-border trucking between Vietnam and neighbouring countries, as a consequence of growing trade within and outside of ASEAN. Damco has experienced 37% growth in trucking volumes between Vietnam and Cambodia over the past 2 years and these volumes are only expected to increase as the intra-Asia economy continues to integrate. Economic integration is a good indicator of how trade is growing and moving within the continent. It influences the development of South East Asia countries, increasing access to local markets and supporting growth in the local economies. 

Maersk in Vietnam

  • Active since 1991.
  • 4 Business Units: Maersk Line, Damco, MCC Transport, APM Terminals.

To Trade and Transport

Vietnam’s exports to the rest of Asia, excluding Japan, are expected to grow by more than 15% every year between now and 2020 (Source: “The emergence of Vietnam”, HSBC). By 2030, China is predicted to overtake the US in becoming Vietnam’s most important export market.

On the shipping front, intra-Asian routes represent the fastest growing container trade market in the world and within that, Vietnam has one of the highest growth rates for the intra-Asia export trade. MCC Transport is a significant player in the Vietnam-Intra-Asia market. The carrier handles all containerized cargo in the region for the Maersk Group. Operating around 60 vessels, ranging from 600 TEU to 3,000 TEU, the company offers an extensive feeder network in 14 countries throughout Asia, and has doubled its market share in Vietnam over the past two years.

Trans Pacific Partnerhip

The Trans Pacific Partnership (TPP) free trade agreement will account for 800 million people, a third of world trade, and nearly 40% of the global economy. It will offer unprecedented access to multiple markets, eliminate tariffs and tackle a range of non-tariff barriers that restrict trade growth.

Trade and Transport hub - section on Trade Agreements

Source: Maersk Vietnam Trade Report

Finding the right balance

The next phase of Vietnam’s economic development revolves around a 12-country multi-lateral trade agreement known as the Trans Pacific Partnership (TPP).

“The TPP is a great opportunity for Vietnam to increase its global competitiveness, especially in the textile and garment industry which will enjoy zero percent tax compared to the 17-35% tax today,” says Nguyen Thi Ngoc Bich, General Director of Maersk Line Vietnam & Cambodia.

The partnership means that as well as benefitting from Vietnam’s low production costs, textile and garment manufacturers will also enjoy preferential tariffs on imports. This has already led to an increase in foreign investment from textile manufactures in countries including China, Japan, South Korea, and Taiwan, eager to take advantage of the anticipated TPP benefits.

While the Trans Pacific Partnership creates many opportunities for Vietnam, when it comes to reducing dependence on imported materials, the trade agreement potentially causes limitations. For preferential tariffs to be in place and costs reduced, imported materials must originate from TPP nations.

Yarn forward rule of origin

All processes from the yarn forward for the production and manufacturing of garments and textiles must originate from TPP member nations in order to qualify for preferential tariffs.

“Vietnam is heavily dependent on imported materials to produce its exported goods, and currently close to 90% of its raw materials and machinery are imported from other countries,” said Marco Civardi, Managing Director of Damco, Vietnam & Cambodia, “The ‘yarn forward rule’ will be a significant challenge for Vietnam and has the potential to mitigate most TPP benefits to the textile industry – the industry that has the most to gain from the agreement. The country’s dependence on imported materials for production not only reduces the end product’s added value, limiting the benefits of trade, but also highlights one of the weaknesses Vietnam has to overcome for the next stage of the country’s development.”

However, Marco Civardi pointed out this is an opportunity for Vietnam’s domestic small and medium enterprises (SMEs) to innovate and stay competitive in the global market. The TPP allows for a three-year grace period where members can continue to source from non-partner countries while building their domestic industries. He added, “If Vietnam can utilise this time wisely to develop its support industries and reinforce its infrastructure, this will help the country reap the full benefits of the TPP.”

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The Cai Mep International Terminal offers shipping lines and their clients fast and direct access to Asia, Europe and the Americas.
Vietnam continues to be an attractive sourcing destination with competitive advantages…
Nguyen Thi Ngoc Bich, General Director of Maersk Line Vietnam & Cambodia

“Vietnam continues to be an attractive sourcing destination with competitive advantages in low labour costs, a strategic geographical location, strong deep water port infrastructure, leading positions within agricultural exports, high GDP growth, long term political stability, and a government committed to enhancing economic stability and development,” said Nguyen Thi Ngoc Bich. “We are confident that despite the challenges of the current global economy, there are still great opportunities for Vietnam.”

For Than Duc Viet and his employees at Garment Company 10, this means business will continue to grow, with opportunities that will bring long-term social and economic benefits to Vietnam.

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