Entering Textile Industry in Vietnam

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2. PEST Analysis

It is generally accepted that when a company becomes successful in its local country, it puts a further objective of expanding its business globally. This is extremely beneficial to the particular company in terms of profits, as well as global networks which enhance reputation and global rank. Doing business in a foreign country is not an easy task. Before entering the business industry of a country, one must consider PEST (Political, Economic, Social, and Technological) environment of that country.

In Political environment section, author of this report discusses political stability of Vietnam, main regulatory bodies of the textile industry, policies in this industry, as well as trade agreements. All the relevant data and figures in relation to the political-legal environment of Vietnam is provided.

Economic part analyses market size of the textile industry. This section contains the latest updates about the market share for textile industry. The patterns are thoroughly examined which allow investors or companies to make decisions regarding whether to enter the industry or not.

Demographics of Vietnam, corruption patterns, and unemployment rate are elaborated in the Social environment section of the report, while Technological part provides an information about cutting-edge technologies that help to enhance the operations in the textile industry.

2.1 Political Environment

2.1.1 Political regime and stability

Vietnam practices communistic approach in ruling the country. According to Ashwill, & Ngoc (2004) Vietnam is considered as one party communist country; provincial and national government together with other agencies are the ones who make the decisions which resulted in slow and cautious method ruling of the country. The top authority called Politburo are held responsible for enacting different policies such as social, economics, labour, defence, et cetera.

This could create some issues for the future businesses entering the industry, as the government has a control over industries. The political stability of Vietnam seems to quite excellent if we look at the figures illustrated below.

Figure 4: Political Stability and Violence; Press Freedom Index[pic 5]

2.1.2 Vietnam Regulatory Bodies and Processes in Textile Industry

The government of Vietnam is putting more emphasis on the textile industry as it is one of the major contributors towards the country’s development. In 2001, government of Vietnam came up with a development plan for the textile and garment industry that is so called “Speed-up Strategy for 2010”. The aim of this plan is to encourage more investments in the upstream sector in order to massively boost the exports of high value-added garment that are authentic in their brands and design. (Goto, 2007)

Textile Industry of Vietnam is regulated by The Ministry of Industry (MOI). It is a governmental agency which focuses on the management of industry and trade, and many other industries along with the textile and garment industry. It is a high authority which aims to fulfil significant tasks. “The Ministry of Industry and Trade shall perform its tasks and powers defined in the Government's Decree No. 178/2007/ND-CP of December 3, 2007, defining the functions, tasks, powers and organizational structures of ministries and ministerial-level agencies.” (ASEM Connect, 2014)

Vietnam Textile Garment Group has established a company which owns several smaller businesses related to the textile industry of Vietnam. This company is so called VINATEX. The brief information about VINATEX was given in the background of the textile industry section of the report. It is crucial to mention the fact that VINATEX plays an increasingly important role in the textile industry of Vietnam, that’s why following statistics will add value to the report. The export value of VINATEX is over 20% from the total export turnover of the Vietnamese textile and apparel industry. The annual production of VINATEX include 100,000 tons of pure 100% cotton, 1,500 tons of thread, 250,000,000 square meters of fabric; 50 million knitted products; 80 million garments, and so on. (Textile World Asia, 2009)

2.1.3 Taxation Policies

Taxation policies on the textile industry include Revenue/VAT taxes and Profit taxes. Revenue tax was introduced in 1990 and later on replaced by VAY in the beginning of 1999. Tax rates ranges from 0-40% for different firms operating in different industries. Textile firms are charged in the rate of around 10%, and if firms are export ones, the rate is 0%. As for Profit tax, all textile firms are subject to 35% tax excluding foreign firms which operate under a rate of 25% tax. (Thanh et al., 2001)

2.1.4 Trade Agreements

The most significant trade agreements that Vietnam entered are World Trade Organization (WTO), US Bilateral Trade Agreement (USBTA), Association of South East Asian Nations Free Trade Area (AFTA), and China-ASEAN Free Trade Agreement (CAFTA). Previously, the main contributors to the export growth of Vietnam were two-sided or bilateral trade agreements which are mainly emphasised on the European and Japanese markets. These trade agreements were established in 1992. This bilateral trade agreement had enabled Vietnam to freely access the European Union. It also enabled to fully utilize Generalised System of Preferences (GSP) inside the European Union. After signing US Bilateral Trade Agreement in 2000, Vietnam started running exports without any tariffs to the US. Vietnam had normalised trade relations due to this agreement which leaded into dramatic changes in export destinations for the United States. (Thoburn, 2009)

Table 1

Export destinations, Vietnam, 2005 and 1995

(% of total merchandise exports)

USA

ASEAN

EU

Japan

China

Australia

Others

2005

18.3

17.7

17.0

13.4

9.9