Orders for the first two quarters

General Department of Vietnam Customs data show that in January 2022, Vietnam exported US$390.3 million worth of handbags and umbrellas, and nearly US$1.94 billion worth of footwear. According to Phan Thi Thanh Xuan, Vice President of the Vietnam Leather, Footwear and Handbag Association (LEFASO), the export value of the leather and footwear sector in January 2022 equaled 95 percent of that in the same period last year.

Export orders enable domestic leather and footwear companies to maintain production until the end of the second quarter of 2022, motivating their recovery efforts. Phan Thi Thanh Xuan said that most leather and footwear companies, especially those in the southern region, have resumed production with 80 percent of workers already back to work and few companies still lacking workers.

There are opportunities for the leather and footwear sector to resume production and export growth in 2022. Since the beginning of the year, major brands such as NIKE and ADIDAS expressed their wish to increase production in Vietnam.

The representative of LEFASO said Vietnam has become NIKE’s largest outsourcing partner, with more than 50 percent of the firm’s shoe output made in Vietnam. NIKE-brand products account for about 30 percent of the export value of the Vietnamese leather and footwear sector, generating jobs for 300,000 workers. NIKE plans to further expand production in Vietnam and all its factories in the country are currently operating to fulfill orders for 2022.

According to Phan Thi Thanh Xuan, footwear and sportswear giants want to expand production in Vietnam because they have adequate manufacturing facilities there and the labor cost is competitive. Moreover, American consumers are becoming increasingly interested in made-in-Vietnam shoes. The US imports about 1.8 billion pairs of shoes annually, with Vietnam’s exports to this market exceeding 300 million pairs, mostly sports shoes.

Improving internal capacity

Despite these opportunities, the domestic leather and footwear sector still faces difficulties in resuming export growth. Due to high input material and logistics costs, importers may place their orders in countries nearer to them than in Vietnam to save expenses. While state support packages have yet to take effect, businesses, especially those in the southern region where companies were heavily affected by Covid-19, are straining for financial resources to recover production.

Strict requirements of orders from major brands are another challenge for domestic leather and footwear companies. Moreover, export prices signed for this year’s orders are not higher compared with previous years.

NIKE’s input materials are supplied mostly by foreign-invested companies. The participation of domestic companies in the supply chain of this brand remains very limited.

To help domestic leather and footwear companies overcome challenges and recover production, Phan Thi Thanh Xuan proposed that government, ministries and sectors implement the VND350 trillion economic recovery and development support package, and simplify administrative procedures to facilitate access to it by eligible businesses. Inappropriate policies hindering production and export activities, such as exchange rates and taxes imposed on materials, should be adjusted. New policies should be put in place to help businesses take advantage of free trade agreements to increase exports. The leather and footwear sector should also be supported to improve the quality of human resources, especially at high-level management positions.

The infrastructure and logistics facilities should be further upgraded. Adequate seaports and roads are crucial for export sectors such as leather and footwear to facilitate the circulation of goods and increase exports. There should be an appropriate strategy for investment in material production. Research should be promoted to create and develop new designs and materials. Domestic companies should follow the global trend of green development by applying clean production methods to protect the environment. High technology should be applied to reduce carbon dioxide (CO2) emissions.

Viet Nga