The Vietnam textile industry, after experiencing a historic wave of success with exports surging nearly 20% in the first nine months of 2022, is now navigating a period of significant transition. This unparalleled growth, the highest in over a decade, is projected to face considerable headwinds due to global economic shifts. Key textile industry challenges include inflationary pressures in major markets, evolving supply chain demands, and a critical need for sustainable textile production. Despite these obstacles, the sector’s remarkable resilience and adaptability are evident as Vietnamese textile businesses consistently innovate to meet new standards, demonstrating a clear commitment to long-term, sustainable development and green textile manufacturing.
Economic Headwinds and Shifting Market Demands
In the first three quarters of 2022, the export turnover for Vietnam’s textile sector reached approximately 35 billion USD, marking a 21% increase compared to the same period in 2021 and representing the fastest growth rate in over ten years. However, enterprises began facing significant challenges toward the end of the year. The impact of inflation on Vietnam’s textile exports has been substantial, as consumers in key markets like the United States and the European Union reduced spending. Concurrently, other markets such as China and Japan continued to enforce strict measures against Covid-19, which affected both the raw material supply chain and overall consumer demand for Vietnamese textile products.
According to analysis from VNDirect Research, high inventory levels and inflationary pressures prompted U.S. consumers to shorten their pre-order periods from six months down to three. This shift caused a slowdown in orders for many prominent textile businesses during the fourth quarter of 2022.
Inflationary pressures in major markets like the US and EU are leading to reduced consumer spending, significantly impacting Vietnam’s textile enterprises.
Further complicating the landscape are stringent requirements for product traceability for cotton, textiles, and yarn, alongside a strong push for “greening” production mandated by new-generation Free Trade Agreements (FTAs). Agreements like the CPTPP and EVFTA include rules of origin that require yarns and textiles to be manufactured in Vietnam or other certified FTA countries to benefit from preferential taxes. This presents a challenge, as the textile industry’s localization rate is approximately 57%, with Vietnam importing up to 80% of its textiles for garment exports.
The mandate for greening production for Vietnam textile enterprises, often aligned with a circular economy model, is an unavoidable market reality. The EU has initiated new ecological regulations for products consumed within its 27 member states, with textiles being one of the first sectors targeted. Under these rules, textiles entering the EU must be durable, reusable, and recyclable. Similarly, the Nordic market has implemented eco-label regulations that focus on recycled content, organic ingredients, and product quality, demanding the use of Best Available Techniques (BAT) for water and energy efficiency, including the use of self-produced solar energy.
Transforming to Adapt and Embrace Sustainability
In response to these market challenges, Vietnamese textile enterprises have been proactively transforming their operations. Vietnamese textile industry adaptation strategies include diversifying export destinations beyond traditional markets and prioritizing investments in technology and automation. Many businesses are adopting technology to reduce and reuse wastewater from dyeing processes and are investing in or partnering with solar power developers to increase their consumption of renewable energy. Others are focusing on creating independent material management departments, optimizing fabric use, controlling losses, and repurposing fabric remnants. These efforts are central to the strategy of greening the textile industry and enhancing sustainability.
Companies integrated into global supply chains are also diligently working to meet new green standards. The fashion brand H&M, for example, has committed to a carbon-neutral supply chain by 2030, a goal that requires its 31 Vietnamese suppliers to meet new carbon neutrality targets. Nike has announced similar plans, affecting its more than 100 suppliers in Vietnam.
Solar power panels installed at a Nike supply chain factory in Vietnam.
Despite the numerous challenges, industry analysis suggests that the textile sector is well-positioned for future growth, particularly as enterprises actively transform and leverage FTAs. The rules of origin requirements within these agreements are compelling businesses to expand their capabilities across the entire production chain. This focus on sustainable development in the Vietnam textile sector is not only a response to external pressures but also an opportunity to build a more robust and self-sufficient domestic value chain. Looking ahead to 2030, the textile sector is aiming for an annual growth rate of 5-6%, targeting a production value of approximately 68-70 billion USD.
Vu Phong Energy Group
