Vietnam's Textile Market Is Saturated With First-Line Brands, Shifting Production Bases To Other Southeast Asian Regions.

Although the trade war between China and the United States has eased, the previous tensions have forced global suppliers to shut down some factories in China and start building factories in other Southeast Asian countries. The global supply chain's long-term dependence on China is changing.


Due to the shortage of labor force in mainland China and the increase in manual prices, Nike Lululemon Eclat Textile Co., China's Taiwan supplier, closed all the Chinese factories in 2016 and transferred the business to Vietnam. But as the trade war intensified, he decided to gradually shift Vietnam's production business to other Southeast Asian countries such as Indonesia and Kampuchea, hoping to provide more flexible production services for customers through the establishment of multiple small production bases.


Mr. Hong Zhenhai, chairman of Ru Hong, said that at present, 50% of the group's production is completed in Vietnam, and its business structure is not flexible enough. To cope with the changing global political and economic trends, they will diversify their businesses to help customers diversify their risks. The flexibility of production business is the key to the company's future success. Due to political and economic reasons, it is difficult for customers to plan the supply chain demand and to be more conservative when placing orders, but the company's diversified production lines can help customers solve this problem.


In the next three years, he will not expand the scale of Vietnam's factories, but will invest 80 million dollars in various countries in Southeast Asia and establish 120 production lines. Later this year, the board will confirm the specific implementation of the plan. If it is still unable to solve the problem, he will consider investing in factories in India or Mexico.


After the release of the news, the share price of Ru hung rose 3.1% to 402 NTD in July 15th, the biggest increase in the past two months. In the same period, the Taiwan weighted stock index increased by 0.5%.


Helen Chien, an analyst at investment bank, said that compared with its peers, he had a leading edge in the diversification of production areas and had great advantages in the supply chain, which is very beneficial to the long-term development of the company.


Xing Yalei, an analyst at Cathay Securities, ranked the stock rating of ROK hung as "Neutral". She said. A decentralized supply chain will reduce the impact of trade wars on the company's business. In the long run, this decision will also help companies save costs.


The strategy of the reform of the production of Confucianism has been achieved. In 2018, the company's net profit rose 26% to NT $5 billion 305 million compared to the same period last year. From the beginning of this year to now, the share price of Ru Hong has increased by 13%.


Vietnam market tends to be saturated


Although the major manufacturers have invested and built factories in Vietnam in the past due to their geographical advantages, but as the United States increased tariffs on Vietnam's exports of steel, Vietnam's market was saturated, and labor shortages appeared, the major companies began to suspend the expansion plan of Vietnam's factories.


Feng Yujun, chief executive of Li & Fung, the world's largest consumer goods supplier, said that Vietnam's manufacturing industry had long been saturated with Fung Spencer.


Because Vietnam's business is becoming more and more saturated, Nike, Adidas and Puma footwear manufacturers have increased the investment of Indonesia factories. In 2018, Baocheng produced 326 million pairs of shoes, 46% of which were produced in Vietnam. In the first quarter of 2019, Vietnam's production decreased to 43%, while the proportion of Indonesia's production increased from 41% last year to 41%.


A spokesman for Baocheng said that land prices in Vietnam were also rising and there was no downward trend. In the long run, they think there is little room for development in Vietnam. Although Vietnam's business is saturated, they do not think that the transfer of business to other developing countries is the best solution. In order to ensure the competitiveness of the group, they will increase investment in plant automation technology.


The Swedish fashion retailing giant H&M has moved the garment production plant from Burma to China. The Japanese garment enterprise ONWARD HOLDINGS, which accounts for 60% of the production capacity in China, has transferred the production department to Kampuchea, and has already set up offices in the area. The Japanese clothing company Adastria has gone to about 8 of its production and relies on China. At present, it also purchases raw materials and starts production lines in Vietnam, Thailand and Indonesia, and plans to increase the proportion of Southeast Asian production to 3 in the next 2-3 years.


After World War II, there were three large-scale industrial transfers worldwide, from the US Europe to Japan and South Korea, from developed countries to Asia, "four small dragons", from Japan and Korea and Singapore to mainland China. Every industry transfer has been affected by technological innovation, and has been affected by the last industrial transfer.


The consequence is that the more industrial transfer is, the more impetus the development of the country or region will take.


In addition to the traditional manufacturing industries such as textiles and automobiles, Southeast Asian region will attract major electronics and technology development companies.


Although these electronic or technology companies are also seeing the production factors such as the huge market, labor force and land in Southeast Asia, the changes brought about by these production zones to the local economy, environment and society are huge and intense. With the infrastructure construction needed in the production area, the economic and environmental conditions in Southeast Asia can be greatly improved, thereby improving the investment prospect.