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Garment companies fear they may lose clients ‘cause of higher production costs
The decision to increase the minimum wage two months earlier than initially planned has raised big worries to businesses, especially the labor intensive industries such as garment and footwear.
Garment and footwear producers have been put on tenterhooks, because they fear they may lose a lot of orders at the end of 2011 and early 2012. The problem is that businesses have been told to apply the new minimum wage two months earlier than initially planned. This spells that the businesses will have to pay more money to pay social insurance premiums for workers, which will make the production cost increase.
With more than 2000 workers, the Saigon 2 Garment Company now fears that the profits would be smaller when it has to pay more for workers’ social insurance premiums.
Nguyen Huu Toan, Deputy General Director of the company, said that though the production costs increase, the company cannot adjust the sale prices of finished products. If they do, clients may leave the company for other producers. Especially, foreign importers may shift to place orders with Bangladeshi or Indonesian producers instead of Vietnamese.
“The minimum wage increases will certainly affect the garment and footwear industries, which need high numbers of workers. This will make Vietnam less attractive than other countries in the eyes of investors,” said Chris Kim, Deputy General Director of South Korean Mirae Fiber.
In the last few years, a lot of foreign investors have moved to Vietnam and set up their production bases in order to take full advantage of the cheap labor force. However, an officer of the Vietnam Textile and Apparel Association (Vitas) has said that when the minimum wage increases, this will make the production costs increase, which will force foreign investors to reconsider their decisions to make investment in Vietnam.
The officer emphasized that garment is a labor intensive industry; therefore, it is understandable why the minimum wage adjustment seriously affects garment enterprises.
Dao Xuan Long, Assistant to Dinh Vang Company’s General Director in Hai Phong City, said that though there are many orders in 2011, because foreign investors placed orders with Vietnamese producers instead of Chinese, the company has to struggle to develop, because it has to arrange enough money to pay its 1200 workers.
Long added that foreign importers now keep more hesitant in negotiating for the contracts for the first quarter of 2012.
“If the negotiations fail, the foreign partners may leave us and contact other regional producers,” Long said.
According to Miti, a company specializing in making bags, with the new minimum wage increase, the company has to pay 100 million dong a month more for social insurance premiums. Meanwhile, the company is now facing a lot of difficulties. Especially, it is very difficult to access bank loans.
As such, though the export revenue of the garment and footwear industries has increased significantly by 30 percent over the same period of the last year, the profits gained by enterprises proves to be modest.
In fact, the decreases in the profits of footwear and garment enterprises can also be explained by the fact that the enterprises have been relying too heavily on import materials. Meanwhile, the import material prices have been increasing recently. The cotton price, for example, has increased by 45 percent.
In the first nine months of the year alone, Vietnam imported 9.2 billion dollars worth of materials.
Thoi bao Kinh te Saigon has quoted the statistics of the Ministry of Industry and Trade as saying that Vietnam exported 1.5 billion dollars worth of garment exports in August, but the export turnover in the last two months dropped to 1.3 billion dollars.
The ministry has also warned that some garment companies may lack orders for the year-end and the new-year seasons. It is estimated that Vietnam’s garment export turnover in 2011 would reach 13 billion dollars.
vietnamnet, TBKTSG
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