VietNamNet Bridge - High export turnover and export growth rate are usually cited in government agencies’ reports as proof of economic development. However, there are many problems behind the figures.



Part 2: Input costs up, profits down, exporters suffer

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More orders have come as the global economy is better off. However, this has not made Vietnamese exporters happy, because they have to pay higher for production costs, while the export prices remain unchanged.

Truong Thuy Lien, director of Lien Phat Footwear Company, said everything is getting more and more expensive, from input materials to transport cost and pay to workers, while the selling prices remain low, which has shrunk profits.

Lien noted that this is the situation of the majority of Vietnamese exporters, most of which do outsourcing for foreign partners. In order to earn bigger money, enterprises need to export products under the FOB (free on board) mode instead of doing the outsourcing. However, this is an “impossible mission” for Vietnamese enterprises.

“Global production and supply chains exist in the footwear industry, in which designers, material suppliers and manufacturers are united,” she explained, adding that if enterprises export FOB products, they sometimes also have to use materials requested by the foreign partners.

Lien estimated that while Vietnamese enterprises can pocket 10 percent of the profit of the footwear production and supply chain, distributors can earn 30-35 percent.

The director of a HCM City-based garment company disagreed with the opinion that Vietnamese textile and garment enterprises are the biggest beneficiaries in free trade agreements (FTA). 

“Foreign investors have been flocking to Vietnam to set up their production bases to take full advantage of the FTAs,” he explained.

“I know a lot of enterprises have cut their workforce. Though this is just a mild personnel restructuring. This shows that Vietnamese enterprises are facing difficulties,” he added.

Le Quang Hung, chair of Garmex Sai Gon, noted that Vietnamese enterprises are inferior to foreign companies in the competition. Seventy percent of turnover in the textile and garment sector goes to foreign invested enterprises’ pockets. Vietnamese enterprises earn the remaining 30 percent because 85 percent of them just do outsourcing for foreign partners.

Meanwhile, the current tax policies are believed to facilitate foreign-invested enterprises and put Vietnamese at a disadvantage.

“Vietnamese enterprises will still ‘live’ if they implement outsourcing contracts. However, an economy will not develop if it is based on outsourcing works,” said Bui Trinh, a renowned economist.

Trinh said that while foreign invested enterprises make up 70 percent of import/export turnover, they only make up 20 percent of GDP.

“The added value brought by the enterprises to the national economy is modest,” he said.

NLD