Removing raw material bottlenecks for the footwear industry

Vietnam footwear industry makes effective use of free trade agreements (FTAs), notably in markets covered by EVFTA and CPTPP. Vietnam is the world's third-largest shoe producer, after only China and India, and its second-largest exporter. Exports for the industry were $5.6 billion in the first quarter of 2024, a 10% rise over the same period last year. The main five markets for Vietnamese footwear are the United States, Europe, China, Japan, and South Korea, which account for 80% of total export income.

Despite these encouraging achievements, the businesses have considerable obstacles, particularly the undeveloped supporting industry for raw material supply.

In actuality, the majority of new footwear firms focus on processing rather than developing the raw material market. As a result, the majority of raw materials for export manufacturing are imported from China, South Korea, and the ASEAN countries. As a result, achieving the FTAs' intra-bloc origin restrictions presents a substantial challenge.

Furthermore, major importers have increasingly strict expectations of imported items in terms of social responsibility and environmental requirements. For example, from March 2024, the EU market has begun to impose additional standards on eco-design and sustainable design, such as traceability and supply chain transparency. If raw materials are imported from overseas, transparency must be maintained throughout the manufacturing process in the producing region.

The United States recently implemented a regulation that allows for cross-country subsidy inquiries. This strategy focuses on processing industries and several input raw commodities. As a result, if Vietnam obtains raw materials from a third nation and that country subsidizes their production, the use of these items for manufacture and export in Vietnam will be taxed.

Given the foregoing, experts suggest that exporting nations, including Vietnam, must immediately enhance and clarify their product supply chain information,, beginning with raw materials and progressing to a circular economy, while being responsible to society and the environment. It is very important to build a raw material development exchange hub for the footwear sector. With such a center, Vietnamese enterprises would be able to improve internal capacities while also increasing market competitiveness.

Mr. Nguyen Duc Thuan, Chairman of Lefaso and Chairman of the Board of TBS Group, commented on the matter, stating that Vietnam's industrial development strategy up to 2025, with a vision to 2035, has chosen textiles and footwear as two of the seven key industries. To continue expanding the business in the next phase, innovative solutions are required to enhance the sector's value chain and produce long-term advantages.

According to Mr. Thuan, it is critical to encourage the growth of the raw material supply sector towards size, uniformity, and transparency. This would assist firms in the sector, particularly small and medium-sized organizations, in becoming more dynamic and efficient, as well as participating in the industrial supply chain.

Furthermore, Mr. Thuan proposed building a raw material development exchange center and developing the fashion sector in Binh Duong.

In agreement, Mr. Truong Thanh Hoai, Director of the Industrial Department, Ministry of Industry and Trade, stated that five centers, three in the mechanical sector and two in the textile and footwear sector, have begun construction in Hanoi and Ho Chi Minh City in accordance with Prime Minister's Resolution 115/2020/NQ-CP on developing supporting industries.

"The Textile and Footwear Center now has the required prerequisites to begin construction, and the Industrial Department strongly supports it," stated the Director of the Industrial Department.

Furthermore, Mr. Hoai believes that Resolution 115/2020/NQ-CP already offers incentives and support policies; thus, what form should the center's development take? What kind of assistance is required? The association and businesses must clarify.

Regarding this subject, Mr. Nguyen Hong Dien, Minister of sector and Trade, agreed to the idea to build a Raw Material Development Exchange Center for the fashion sector in Binh Duong.

He also directed related Ministry units, based on their functions and tasks, to urgently coordinate, review, and report to the ministry leadership on how to address the association's proposals in accordance with the authority, Party, and State policies, as well as the practical capabilities of businesses.