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The Benefits for Vietnamese Export Businesses in a Changing Global Landscape

16 August, 2024

Political unrest in Bangladesh has primarily short-term effects.

Regarding the political turmoil in Bangladesh, Mr. Tran Nhat Trung, Director of Analysis at ACB Securities (ACBS), stated that the recent unrest led to the closure of garment factories, presenting an opportunity for Vietnam to increase its exports to the US. Additionally, low inventory levels in the US will further boost exports in the second half of the year.

Specifically addressing the apparel industry, Mr. Trung believes that the tension in Bangladesh will temporarily benefit Vietnamese businesses, allowing them to increase revenue in the short term rather than sustaining long-term growth.

Mr. Trung explained that Bangladesh has a history of political instability, such as during the 2013-2014 period, which resulted in loss of life. The country also holds several competitive advantages over Vietnam in attracting apparel orders, including lower labor costs, ranging from $75 to $100 USD, compared to approximately $300 USD in Vietnam, excluding the recent minimum wage increase.

Furthermore, as the apparel industry is a key sector in Bangladesh, contributing about 80% of its export turnover, it receives significant government support. They have a nearly complete supply chain from start to finish, while Vietnam primarily focuses on the sewing process and relies on external sources for raw materials. As a result, many countries still prefer Bangladesh over Vietnam.

Is China’s production recovery a cause for concern?

Assessing China’s current production and business activities, Associate Professor Dr. Nguyen Huu Huan, a lecturer at the University of Economics in Ho Chi Minh City (UEH), noted signs of recovery. China is also constructing numerous warehouses near the border with Vietnam, aiming to export goods to Vietnam. These products have low value but are highly consumed in the Vietnamese market. Another factor is their efficient logistics system into Vietnam.

“When we order from Ho Chi Minh City through Taobao, it usually takes only 2-3 days to receive the goods, and it may take 4-5 days at most. This is comparable to domestic logistics companies, but Chinese goods are much cheaper. Therefore, it is likely that China’s market share will increase through this strategy,” said Mr. Huan.

According to Mr. Huan, the consumer goods industry will undoubtedly suffer the most negative impact, as Vietnamese manufacturing companies struggle to compete with China in terms of costs, prices, and designs. Additionally, the logistics sector will also be affected to some extent.

Assessing the impact on Vietnam’s key export sectors, including apparel, seafood, and wood, Mr. Tran Nhat Trung asserted that they are not threatened by competition from China.

According to the ACBS analyst, Vietnam’s primary export destinations are the US for apparel and wood, while seafood exports to China have increased significantly in the first half of the year.

Regarding competition, Vietnamese apparel companies do not directly compete with Chinese enterprises, and the same is true for Bangladesh. The allocation of orders is typically decided by retail businesses, and orders from Bangladesh tend to have lower profit margins than those from Vietnam. Therefore, even if there are issues in Bangladesh, Vietnamese companies may not necessarily benefit significantly. For instance, if a Vietnamese company is accustomed to a 20% profit margin, they might not accept an order with a lower margin transferred from Bangladesh.

In the case of seafood, Vietnam also exports to China, and the main product is tra fish, which has a production cost much lower than that of Chinese companies. “Vietnamese businesses mainly compete on price, and that is their advantage. Due to the specific nature of these products, the seafood, apparel, and wood industries are not threatened by competition from China,” Mr. Trung stated.

What actions should be taken regarding the green trend?

According to Associate Professor Dr. Nguyen Huu Huan, the green trend is mandatory in the future, and while some sectors may not yet require carbon credits, products exported to the EU and the US will eventually need them. Vietnam has committed to a green transition and pledged to achieve net-zero emissions by 2050. However, the path to achieving this goal seems unclear.

“When I worked with European ambassadors in Vietnam and visited European countries, they often raised this issue. They acknowledged our commitment but questioned the implementation plan,” said Mr. Huan.

Another factor to consider in achieving net-zero emissions in the future is the increase in costs, which contrasts with our traditional competitive advantage of low prices.

Predicting which export sector will go green the earliest, Mr. Tran Nhat Trung mentioned that the apparel and seafood industries would be the most affected. In the apparel industry, the dyeing process is the most polluting. In reality, Vietnam has long emphasized ESG development, and many provinces have restricted dyeing companies. The ESG story is still ongoing, and most listed companies have already prepared for it. While ESG will impact the apparel industry, the effects will not be significant in the short term (3-5 years).

Two crucial considerations when investing in import-export stocks

According to the ACBS analyst, since we are still only a part of the global value chain, we are highly susceptible to input and output fluctuations, which directly affect business performance. Of course, output can be assessed by considering the economic situation of developing countries and their macroeconomic conditions to estimate demand. Meanwhile, input depends on output.

Mr. Trung highlighted two critical factors: monetary policy and the economic situation of those countries. These macro factors significantly influence the supply and demand dynamics and the health of export-oriented businesses.

Huy Khai