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Вестник Челябинского государственного университета. 2019. № 7 (429). Экономические науки, вып. 65. С. 186—194.
УДК 339 10.24411/1994-2796-2019-10721
ББК 65.9(5Вье)
TEXTILE AND GARMENT ENTERPRISES IN VIETNAM UNDER THE CONTEXT OF INDUSTRIAL REVOLUTION 4.0
Nguyen Chien Thang, Tran Thi Van Anh1, Ekaterina Nikolaeva2
1 Vietnam Institute of Economics, Vietnam Academy of Social Sciences 2Chelyabinsk State University, Chelyabinsk, Russia
Industrial Revolution 4.0 (Industry 4.0) is going on rapidly, drastically modifying production, and is expected to fundamentally alter the global textile industry. Textile enterprises are generally facing development challenges related to the application of Industry 4.0 achievements, otherwise they will be excluded from the "games". On the basis of assessing the development of textile and garment enterprises in Vietnam, the study shows the development opportunities and challenges for these enterprises under the context of Industry 4.0, and suggests some policy recommendations to enhance competitiveness and technological innovation.
Keywords: textile and garment enterprises, Industry 4.0, technology.
Textile and garment enterprises in Vietnam have exploited development opportunities in international economic integration, especially after Vietnam officially became a member of the WTO. The development of Vietnamese textile and garment enterprises contributes to the increasing foreign currency revenues of the economy. Textile and garment export turnover has risen by nearly 7 times after 12 years from USD 5.85 billion in 2006 to USD 36.14 billion in 2018. This contribution is more evident when assessing the export structure of Vietnam's textile and garment industry. In addition to garments, the key export products, Vietnam's textile enterprises have exported items including filaments, fabrics, textile materials or non-woven fabric. The export values of filaments, fab -rics, and textile materials in 2018 alone were USD 3.95 billion, USD 1.66 billion, and USD 1.23 billion respectively, far greater than the textile export value of 2006.
The development of textile and garment enterprises has created a great number of jobs for the economy. Labor in textile industry has recently accounted for over 20% of total labor in manufacturing and processing industry, and approximately 5% of the total labor force nationwide. In 2017, Vietnam textile and garment industry generated about 2.5 million jobs, 80% of which are jobs for female workers.
From the ownership structure perspective, the development of textile and garment enterprises has contributed to the development of the textile industry, through which boosted industrialization, modernization, economic restructuring, labor restructuring, and economic growth. Textile industry not only assumes the aforementioned roles, it also plays a buffer role,
mitigating shock due to external adverse impacts such as international crisis. For example, during the period of global financial crisis, the textile and garment industry still contributed over USD 9 billion per annum (USD 9.12 billion in 2008, and USD 9.07 billion in 2009) to the total export turnover, which is even much larger than the figures for pre-crisis years (2006-2007).
Despite achieving remarkable development, textile and garment enterprises in Vietnam have to face numerous difficulties and challenges. These obstacles include difficulties in obtaining investment capital for production expansion, technology innovation, difficulties in recruiting qualified workers and stabilizing the number of employees, or difficulties in R&D improvement, and upgrading to higher value-added stages in the global value chain of the textile and garment industry.
While these difficulties and challenges are still being addressed, the Industry 4.0, which merely started in about a decade, poses new development challenges for Vietnamese textile and garment enterprises. The achievements of Industry 4.0 have created a revolution in production of textile industry. These accomplishments change not only how to produce, but also how to satisfy various market sizes thanks to the application of new textile technology on the new internet platform.
Features and prospects for the development of the textile industry in Vietnam were previously studied by such scientists as O. Msami [7] (compared the development of the textile industry in Vietnam and Tanzania), Huong Thanh Vu and Lam Cat Pham [8] (considered the problem of international compet-
itiveness of Vietnamese textile enterprises), An Luon Nguen et al. [9] (analyzed working conditions at Vietnamese textile enterprises and their impact on the health of workers), Hai Hoang Van and Son Nguyen Truong [6] (examined the impact of logistics services on textile production efficiency), Thi-Nham Le and Chia-Nan Wang [10] (investigated the specifics of the formation of value added in the textile and light industry), R. Nayaka, M. Akbarib, SM Farc [5] (supplemented this analysis with a study of the specifics of the formation of value added in the fashion industry), Cai-Xia Chen, Ying Zhang, Yi-Xiong Yang [11] (studied the relationship of sellers and buyers in the markets of textile light industry).
The advantages that businesses of developed economies enjoy from early application of Industry 4.0 achievements and international economic integration have posed greater challenges for enterprises in developing economies, including Vietnam. While the role of textile and garment enterprises in industrialization and modernization is undeniable, promoting the development of these enterprises has become increasingly difficult.
1. Overview of Vietnamese textile and garment enterprises' development
In 2007, the textile industry was formed on the basis of 2,994 enterprises in Vietnam. This figure increased by 98.5% over the course of 5 years (2007-2011), and by 47.4% in the next 5-year peri-
od. From 2,994 enterprises (in 2007), the number of textile enterprises surpassed 10,000 enterprises in 2017 (Fig. 1), marking a huge development in size. Regarding distribution pattern, the majority of textile enterprises locate in the Red River Delta and Southeastern region, which enables these enterprises to execute R&D and cooperation to improve competitiveness.
From ownership perspective, the growth of domestic private enterprises is clearly seen (Tab. 1). The number of state-owned textile and garment enterprises has reduced rapidly since the reform, under the state-owned enterprise reform program with the focus of privatization.
The number of FDI enterprises in textile and garment sector significantly rose after reform, particularly after the development of export processing and industrial zones. The development of FDI enterprises has led Vietnam's textile and garment industry to integrate with the world. After Vietnam officially became a member of the WTO (2007), the number of FDI enterprises in textile industry reduced gradually. In 2007, FDI enterprises accounted for 17.88% of the total textile enterprises, and 18.6% of Vietnam's garment enterprises. Coupling with the reduction of FDI enterprises and the increase in domestic private enterprises, the proportion of FDI enterprises in textile industry constituted less than 1% of the total number of enterprises operating in both textile and garment
Fig. 1. Number of textile and garment enterprises in the 2007-2017period Source: General Statistics Office (2007-2018)
Table 1
Number of enterprises by scale and ownership
Year Sector Type of enterprise SOE Private FDI
Small 1 758 78
Textile Medium 6 73 79
Large 13 41 41
2007 Total 20 872 198
Small 3 1717 231
Garment Medium 6 145 158
Large 3 28 41
Total 12 1890 430
Small 1 2257 4
Textile Medium 3 540 9
Large 13 310 8
2017 Total 17 3107 21
Small 1 4965 13
Garment Medium 9 895 19
Large 11 396 9
Total 21 6256 41
Source: compiled by the authors according to statistics of the GSO.
sectors. With the decline in FDI enterprises, at below 50 enterprises in each sector [textile and garment], it can be seen that the role of producing garment products to meet domestic and export demands is primarily assumed by domestic enterprises. Foreign enterprises in textile and garment sector have shifted from direct production to linking or service stage in the textile production chain.
In terms of labor and capital size, the majority of textile and garment enterprises are micro scale (employing fewer than 10 employees) and small scale. Vietnamese textile and garment industry is lacking medium and large-scale enterprises. This is a reason that hinders the connection between domestic enterprises — by main and supporting industries, and value chain development.
The average time required for the introduction of a new generation of technology for textile and garment industries is 10 years and 5 years respectively. This pe -riod for dyeing industry alone is longer, about 15 years. Under the impact of Industry 4.0, this period is remarkably shortened. The technology employed by textile and garment enterprises in Vietnam is mainly produced in the first decade of the 21st century. However, there are still some Vietnamese textile and garment enterprises that use technology produced from the 1980s or 1990s of the previous century. In other words, Vietnamese textile and garment enterprises lag behind from 1 to 3 generations of technology compared with foreign textile and garment enterprises. The level of
technology lag is larger in textile enterprises than that in garment enterprises. Specifically, the proportion of textile enterprises using outdated technology is greater than the figure for garment ones.
According to the results of a sample survey conducted by the GSO for the 2010-2015 period, the majority of Vietnamese textile and garment enterprises used technologies from a decade earlier. The number of Vietnamese enterprises using outdated technologies of 2 to 3 decades compared to the world technology level accounts for a small proportion. However, the proportion of garment enterprises using 2 decade outdated technology saw an increasing trend between 2010 and 2015 (Fig. 2).
The level of backwardness in technology level is greater in textile than in garment enterprises. Specifically, the proportion of textile enterprises using 1 to 3 generation outdated technology is larger than the figure for garment enterprises. However, by 2017, there has been a remarkable change in the technological status of textile and garment enterprises. The proportion of textile and garment enterprises using 2 to 3 generation outdated technology reduced significantly. The majority of enterprises used 1 decade outdated technology. A large proportion of enterprises have been using new technologies which have been produced since 2010. This fact reflects the efforts of Vietnamese textile and garment enterprises in narrowing the technology gap compared with the world textile and garment enterprises.
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Up to 68% of textile enterprises and 54% of garment enterprises (in the survey) are using technology produced in the first decade of the 21st century (Fig. 3). Meanwhile, the number of enterprises using technology produced from 2011 onwards accounts for 30% and 45% of enterprises in textile and garment sectors respectively. One of the reasons for this phenomenon is due to the pressure of participating in the global value chains which forces Vietnamese textile and garment enterprises to innovate machinery and equipment to the level used by other enterprises in the chains.
Nonetheless, there are still problems with the technology used by Vietnamese textile and garment enter-
prises. Although these enterprises have applied technologies produced recently, the level of automaton in these technologies is not high. In the enterprise survey data of 2017, the most important devices which affect the competitiveness of enterprises are mainly manually operated electric machines. The number of enterprises using machines that are automatically controlled by computers remains relatively small.
The calculation results show that about 81% of textile enterprises and 91.1°% of garment enterprises at the time of the survey (2017) used labor-controlled technologies (Fig. 4). The number of enterprises using computer-controlled machines was significantly low.
Fig. 3. Technology level of textile and garment enterprises in 2017 Source: authors' calculation from Enterprise Survey [4]
Less than 1% of textile and garment enterprises applied manufacturing technologies controlled by computers.
A large number of textile enterprises (14.3%) and garment enterprises (6.7%) applied electric hand tools.
Although these enterprises have paid more attention to important production technologies that decide their competitiveness, their investment in telecommunication and IT and communication technology remains relatively low. In 2017, only 38.9% of textile enterprises and 37% of garment enterprises used computers with internet access; meanwhile 30.8% of textile enterprises and 37% of garment enterprises have computer without internet access. The remaining enterprises used traditional telecommunications equipment to connect with the rest of the world including land-line telephones and mobile phones...
2. The 4.0 Industrial Revolution with opportunities and challenges
for Vietnamese textile and garment enterprises
The nature of Industry 4.0 is the application of digital and artificial intelligence to optimize production processes and methods. Platform technologies including large databases, cloud computing, internet of
thing, 3D printing, biotechnology, new material technology, robot, etc. have contributed to changing the production mode of the world. For the development of textile and garment enterprises as well as the textile and garment industry in Vietnam, Industry 4.0 has posed the following opportunities and challenges.
2.1. Switching production to flexible, streamlined and independent process
3D printing, robot, and internet of thing (IoT) applications in the textile and garment industry allow the production of physical products (from raw materials to finished products) to change from many stages in the manufacturing chain with the participation of many businesses to one stage by one business. Combining IoT with digital technology helps textile and garment enterprises 4.0 remaining mass productions and tailored made services at the same time
These above changes bring development opportunities for textile and garment enterprises independently without efforts to participate in global supplying chains. Instead of reducing more cost for greater value added, these enterprises can serve their customers' need by customization so that these differentiations generate more profit and value added.
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i Hand tools
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i Machinery controled by Human ■ Computer controled Machinery
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Fig. 4. The automation level of technologies in textile and garment enterprises Source: compiled by the authors from Enterprise Survey 2017
In other words, now under the influence of the industrial revolution 4.0 economies of scope have taken the place of economies of scale to be a decisive role in the competitiveness of enterprises.
With the support of big data and artificial intel-legence, enterprises can easily detect and/or predict problems in manufacturing process if any to have prompt solutions so that they can ensure their production effectiveness.
However, besides opportunities, Vietnam textile and garment enterprises have to overcome many challenges to develop. The first one is their capabilities for local technology improvement, capital mobilization and expenses for R&D activities.
Before the Industrial Revolution 4.0, weaving in-dustryhas changed almost every 5 years and it took average 10 years and 15 years to change technology for the textile industry and dyeing industry respectively. However, the integration of high technology like robot, internet of thing (IoT) in weaving and textile industries help shorten the time period for changing technology generation.
Before the Industrial Revolution 4.0, it took an average of 5 years,10 years and 15 years to change technology generation for the weaving industry, textile industry, and dyeing industry respectively. However, these mentioned times have reduced thank to the integration of high technology like robots, the internet of thing (IoT) in weaving and textile industries
Investment in new technology requires huge volumes of capital but the majority of Vietnam textile and garment enterprises are small and micro-enterprises. Thus, ensuring and mobilizing enough capital for technology improvement as well as building up capabilities to master new technology can be seen as their first challenges. Technology improvement cost very high except for those who can develop the technology themselves
UNDP & MOIT's report [2] shows many challenges for development investment when there are only 16% of enterprises in the garment industry have been preparing to develop smart factory based on equip -ment to equipment connected foundation, and this number is 24% in the textile industry. Around 7% of enterprises face infrastructure problems when implementing their smart factories development target, besides around 62% of textile enterprises and 50% of garment enterprises cannot upgrade their devices to accomplish the goals of equipment to equipment connected or equipment to IT system.
The controls of operation based on information technology (smart-operation) in textile and garment
enterprises are still low. 67% of textile enterprises and 73% of garment enterprises can neither control their equipment by information technology nor connecting equipment using other technology.
The second challenge is developing high-quality human resources. In the past, production activities of enterprises based on cheap and lower secondary graduates; meanwhile today, the integration of robotic technology and automation requires fewer labors with the ability to operate the robots-system.
According to Jae-Hee Chang, Gary Rynhart and Phu Huynh [1], approximately 86% of workers in the Vietnamese textile and footwear industry are at high risk of losing their jobs due to production technology changes. If calculated in absolute number, that would be big. About 2.3 million workers (of which female workers account for 78%) are working in the textile and clothing sector. More importantly, the majority are low-skilled ( 17% have only primary-level schooling) and a proportion of 35.84% aged 36 and older. This weak group having no capability to absorb new technology knowledge, or if any, will create training costs burdens for textile and garment enterprises.
Although enterprises could recognize their problems and have specific activities in training their human resource, their efforts are still small, and cannot be implemented effectively because this problem is of public professional training services also
UNDP & MOIT report [2] shows that 81% and 87% of garment and textile enterprises respectively have training activities to equip workers with knowledge and techniques to be ready to apply new technologies - Information Revolution 4.0 products. However, the majority of surveyed enterprises still self-assess that their abilities are not good enough to be able to master information technology 4.0, including collaboration software skills; security techniques and data analysis techniques; supportive system building skills; system knowledge.
2.2. Changing customer service approach towards customization and online
Capturing customers' demand to meet their differentiated need faster. On the foundation of the IoT, digital technology, big data, activities related to customers interests and demands survey, and product distributions also vary. IoT and digital technology applications change the whole process of market access as well as customer contacting and assessment, reducing product distribution time to market. Big data and cloud computing are the basis for enterprises to capture their customers' needs and interests, as
well as personal customer information (in privacy blinding guarantees) to be able to serve better.
Opportunities to save distribution and storage cost. Enterprises can save many costs by not using traditional stores. Instead, numbers of online virtual stores will increase more and more, allowing enterprises contact their customers easily and conveniently.
Shortening the time to market of finished products to end-used consumers. Traditional distribution systems (stores, sales agents) can be replaced more effectively by virtual online ones. Finished products can be delivered directly from the factory to the end-consumers through express courier systems, instead of through one distribution system as now. Role of businesses such as Amazon, Yamato Transport will become more important to the textile enterprises development. By shortening product consumption time, enterprises can revolve their capital quicker, improving their financial capacity and business efficiency.
Serving niche market. Recent pilots in Vietnam show that the price of garment products based on technology 4.0 is about 15-20% higher than that of traditional produced ones. With the support of new technology, garment products have become customized to be suitable for individuals instead of a common size (size M, size S, size L) as before. Despitehigher costs, consumers, especially middle-class and above, are willing to pay. Obviously, technology applications 4.0create the supper-earn-ing-profit opportunity for businesses by differentiating product for each customer.
Despite these opportunities, enterprises of developing economies like Vietnam in the 4.0 era also face development challenges.
The biggest challenge is participating in either new generation global value chains or producing independently. The global textile and garment value chains surely work but will be adjusted more streamlined to eliminate any worthless stagedue to technological progress. The role of traditional raw material sources such as cotton, yarn, and competitive advantage of low labor cost has decreased with the application of new materials and robots technology in production. Many "stage" like weaving, sewing can easily be replaced by industrial robots to create quality products at low cost. In this context, shifting manufacturing (textile, garment) enterprises back to developed economies instead of locating in developing economies like now is more and more feasible. Therefore, textile enterprises in developing econo-
mies including Vietnam face the challenge of either innovating in order not to be excluded from global value chains, due to the MNCs' business strategy adjustments, or adjusting their strategies for independent development themselves.
The challenge of capacity development for connection. The proportion of textile and garment enterprises with the capacity for internet connection is low. This big challenge is when applications of the internet are more and more popular over the world in not only controlling production and logistics processes but also communicating with customers to improve service quality and doing e-commerce.
3. Some policy suggestions
To improve the capacities of competitiveness for textile and garment enterprises in the context of Information Revolution 4.0 supports from Government are needed to implement:
Firstly, developing infrastructure, especially information technology infrastructure, developing e-commerce, creating conditions for enterprises to access and apply the achievements of Information Revolution 4.0.
For textile and garment enterprises to develop and apply technologies of 4.0 to improve labor productivity, infrastructural such as information technology, electricity, and water are very important.
The development of telecommunications infrastructure is a platform for textile and garment enterprises to access and apply technologies 4.0. Especially in the trend of more enterprises applying cloud computing technology in their services and transactions, the significance of transmission over the internet is greater.
Despite many brilliant achievements after 20 years of Internet in Vietnam, now, the digital content industry is stalled. The market share falls into foreign companies' hands with 95% of social media market shares belonging to Facebook and YouTube while Google holds 98% of search engine market share. In term of e-mail, 98% of the market share covered by Gmail and Yahoo and 80% of e-commerce market share is from foreign enterprises.
Therefore, in the coming time, it is necessary to have policies for Vietnam's industry of internet, digital content and mobile applications to develop including:
— Building a fair, competitive mechanism between local and foreign enterprises to create a market with many service providers co-existing.
— Simplifying licensing and management procedures for businesses to innovate freely for the development of modern applications.
The supply of electricity and water for production needs to be enough stable and regular because power outages and dehydration can negatively affect enterprises' production process, delaying the completion of customers' orders and violating delivery time of the contracts. The more high-tech enterprises apply, the more losses they will get if their machines stop (stagnation arising in both production system and business activities).
There are numbers of textile and garment enterprises subscribing to online marketplaces on a glob -al scale of Amazon and Alibaba... For example, May 10 Joint Stock Company has organized sales activities in Amazon's marketplace since 2017 their products have been delivered directly to US customers without any import distributors, unlike the way this company has been doing for years.. However, this number of enterprises is limited, and local online shopping websites are still few and can't compete with foreign competitors.
The Government should have policies to support the development of E-commerce Exchange with a capacity of quality guaranty for both sellers and buyers for local and international enterprises operating in Vietnam territory, similar to Alibaba which can support Chinese businesses a lot to reach customers and partners worldwide.
Secondly, training high quality human resources. Currently, Vietnam still lacks human resources of high quality and quantity for the Information Revolution 4.0. Vietnam is classified in a country group not ready for the Industrial Revolution 4.0. Of which, it ranked 70/100 on human resources index, 81/100 on high professional labor index, and ranked 75/100 on university quality [3].
For the advantages of technology applications 4.0, it is necessary to have enough quality labor source for textile enterprises in the fields which can apply technology 4.0 machine lines. Managers and technical workers are required at the educational level of university and college respectively,
with the necessary implementation skills. Besides, labors working directly at production plants need to be retrained to obtain the technical knowledge of operating robots and highly automatic machine lines.
Some solutions to improve the quality of human resources for the textile and garment industry are as follows: Change the model/method and training programs to be suitable with the requirements of Information Revolution 4.0
• Retrain and additional train for low-qualified workers with priority for knowledge and skills related to information technology, automatization applications, management and information analysis.
• Train human resources with fashion, foreign languages and informatics knowledge to be able to update world fashion trends
• Coordinate between universities and textile and garment associations by organizing workshops and training programs regularly to help gradually changing ways of thinking for labors and make them accessible and enable to operate modern equipment with new software installations
Thirdly, support textile and garment enterprises to innovate technology. For competitiveness improvement in the context of Information Revolution 4.0 as well as the upgrade in the global textile value chain, textile and garment enterprises are forced to innovate technology. However, most of them are small enterprises with the low-capital source they need Government supporting schemes to innovate technology. Government should support: issue a preferential tax policy for the import of high-tech machinery for the production. Implement synchronously solutions to handle difficulties and create conditions for enterprises to access capital from banks effectively, promote large enterprises to take the lead in investment, in capturing and developing technology to improve global competitiveness and export capacity, enhance the connection between scientists and businesses to commercialize scientific products.
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Information about the authors
Nguyen Chien Thang — Vietnam Institute of Economics, Vietnam Academy of Social Sciences. [email protected]
Tran Thi Van Anh — Vietnam Institute of Economics, Vietnam Academy of Social Sciences. [email protected]
Ekaterina Nikolaeva — Chelyabinsk State University, Chelyabinsk, Russia. [email protected]
