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Vietnam mulls wage freeze to boost competitiveness

Vietnam's textile and apparel industry says it expects to miss its export target in 2016 due to slowing consumer demand and increased competition – and has proposed a freeze on wages to address the issues.

For the first six months of the year, Vietnam's apparel and textile exports amounted to US$12.6bn, an increase of 5% over the same period of 2015, but accounting for only 41% of the total expected for the full year.

The expectation for the full year had been $30bn, but Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association (Vitas), told a recent press conference this is now likely to only reach $29bn. In 2015, exports were $27.5bn.

Among the challenges, Giang cited falling commodity prices, a slowdown in consumer demand in many global economies, and "fierce competition" on price, technology, labour productivity, and technical barriers. Additionally, he pointed to pressure on increasingly shorter delivery times and constantly rising labour costs.

Emphasis was also placed on the industry's export value being largely driven by foreign direct investment (FDI) firms, creating difficulties for local firms in getting new export contracts, particularly for shirts, trousers and jackets. Giang warned that this situation could worsen, increasing the possibility many small and medium-sized firms could go out of business.

In order to address the challenges, Vitas proposed the Government put a freeze on any minimum wage increase in 2017, only increasing it once every two or three years in order to create favourable conditions for competition.

Vietnam's minimum wage has risen by an average of 26.4% per year for local enterprises and 18.1% each year for enterprises with foreign investment during the period 2008-2016. The rises also include increased payments of insurance and union dues, further burdening enterprises, Giang said.

Vietnam is widely regarded to be the largest potential beneficiary of the Trans-Pacific Partnership (TPP) trade deal in the textile and apparel sector. However, Giang says, in order to take advantage, the industry needs to address challenges such as its capacity for large orders, insufficient staff resources, and the proportion of businesses making less FOB.

He adds: "TPP is not yet in force, yet some countries in the region such as Cambodia, Bangladesh and Myanmar are attracting orders. The reason is that these countries have low tax rates, low minimum wages, and government policies to create more favourable conditions. While many enterprises in Vietnam have no effective solutions to prepare for the TPP, many foreign enterprises have been implementing large-scale investment in Vietnam to take advantage of the rules of origin."

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