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Profits fall as apparel exports rise
Jul '10
While the Vietnam Textile and Apparel Association (VITAS) has assured that they are nearing their goal of attaining $10.5 billion in export revenue for 2010, their profits are declining.

An owner of a garment manufacturing firm, said that, during the first six months of the year, net export revenue touched 281 billion dong, but profits were registered at only 15 billion dong or five percent of the revenue.

More so, this garment firm owner also mentioned that, apparel firms have received more orders in 2010 as compared to 2009, but the profits are laid back, due to rising cost of production. Currently, this firm's worker's wages are 3 million dong per month, a raise from 2.5 million per month, which was paid in 2009.

More over, apparel firms are finding it difficult to access bank loans, as interest rates have risen; because the State does not have any more grant programs. Electricity and freight costs have also escalated by 15 percent. Apparel firm owners feel that rising export prices by 10-15 percent are not huge enough to counterbalance the rising cost of production by 25 percent.

An industry expert revealed that, currently, apparel firm's profits are extremely low, as only about 20 percent of the clothing firms can procure a profit of five percent of their earnings, whereas other firms can attain merely three percent. On the flip side, smaller firms don't even think about profits, they are merely trying to sustain production in order to retain their labourer's jobs.

But, it is also turning difficult for enterprises to increase exports, especially when local sources are unable to provide raw materials and accessories to clothing firms. For instance, an apparel firm owner said that, his order book was full to manufacture and sell goods, but failing to find a fabric supplier; he had to limit himself to the CMT (cut, make and trim) mode to manufacture apparels.

Industry experts reveal that, Vietnamese firms cannot export goods under FOB mode (definite selling products) in the real sense. More over, none of the firms can take over all stages of production i.e. from designing to creating finished good and then also sell them to earn 30 profits.

Vietnamese firms only manufacture goods, which are on the basis of their client's ideas and instructions. Hence, these firms earn lower profits, probably equal to the outsourcing price in addition to several percent of management fee and material purchases.

Currently, Vietnamese firms are receiving orders from the middle-group companies based in Taiwan, Japan and South Korea, who ensure that these firms get very low profits.

Fibre2Fashion News Desk - India

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