Vietnam’s footwear industry is the country’s third-largest export sector. The industry has been continually growing over the past decade – except for during the pandemic – and is predicted to double in size by 2031.
While global demand for footwear is growing, Vietnam’s footwear industry is likely to benefit as manufacturers leave China in search of lower labor costs and greater international market access.
Vietnam ranks second in the world in terms of leather and footwear exports after China, exporting 1 billion pairs of footwear to countries around the world every year. The largest proportion of the country’s footwear exports goes to the EU. By the end of 2021, there were about 2,200 enterprises producing footwear in Vietnam, mainly concentrated in the area around Ho Chi Minh City. The country earned some US$20.78 billion from exports of leather and footwear in 2021.
China – the world’s largest manufacturer of footwear – is also home to the world’s biggest footwear spenders. While mainland spending on footwear is considerably lower, people in Hong Kong spent the largest share on shoes globally, at US$372 per capita in 2021.
However, amid the current geopolitical environment, rising salaries in China, and Covid-induced disruption, footwear manufacturers have increasingly shifted their operations outside of the world’s most populous country. As a result, Vietnam – China’s neighbor to the south – stands to benefit.
China is losing its charm
Investors are becoming increasingly concerned about China’s zero-Covid policy and its impact on economic activity, especially in the manufacturing sector. In a major incident in September 2021, China locked down the shoemaking hub of Putian after just 139 cases. More than 500,000 workers and 4,200 shoe manufacturers for international and local brands are based in Putian and the city produces more than 1.3 billion pairs of shoes each year.
Lockdowns in places like Shanghai have also had a sizeable impact on footwear supply chains. One footwear manufacturer with production facilities in Vietnam and Indonesia told Drapers that they had been impacted by a shortage of raw materials from China. As well as being a production hub for finished footwear products, China produces raw and synthetic materials used in footwear production elsewhere in the world.
It is worth noting that Vietnam had enacted similar lockdowns, also impacting footwear manufacturers. Some factories were forced to close for months in 2021, and this had a profound impact on supply chains. However, Vietnam is now taking a more business-friendly approach. On March 16, 2022, the government announced that quarantine regulations for entry into Vietnam had been abolished.
However, it is not just the pandemic and China’s response that is causing manufacturers to shift production facilities. Labor costs are a big factor. Data suggests that Vietnam’s labor costs are half as much as China’s labor costs at US$2.99 (VND 68.000) per hour compared to US$6.50 (VND 148.000) per hour respectively. Other countries, particularly those in ASEAN, are also becoming attractive to companies currently manufacturing out of China, with comparative wages a major influencing factor.
Vietnam might not have the domestic demand of China, but the footwear industry is booming, exporting a billion pairs of shoes every year. Analysis suggests that the nation will continue to benefit as footwear manufacturers shift production facilities from China to its southern neighbor.
Data from the Observatory of Economic Complexity (OEC) highlights that footwear was the third-largest export from Vietnam in 2020. The main destination for Vietnamese footwear exports were the US (US$6.43 billion), China (US$2.24 billion), Germany (US$1.03 billion), Japan (US$953 million), and South Korea (US$730 million).
The OEC noted that Vietnam’s fastest-growing footwear export markets between 2019 and 2020 were China (US$272 million), Poland (US$25.6 million), and Taiwan (US$22.6 million). The growth of the export market to China is perhaps indicative of the shift in production away from China.
Nike has more than 100 suppliers in Vietnam
Major brands such as Nike and Adidas have elected to situate their main manufacturing facilities in Vietnam. Nike has more than 100 suppliers in Vietnam, with 96 factories concentrated in the southern region. Adidas has also chosen Vietnam as its main production area – its 2020 annual report highlights that some 40 percent of total footwear production came from Vietnam in 2019.
In addition to lower labor costs compared to China, Vietnam has also signed trade agreements with the EU and US, reducing tariffs and trade barriers for major markets. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) –a trade pact signed by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam – has also seen Vietnam’s footwear exports to Canada and Mexico soar.
However, data from Research and Markets highlights that local footwear enterprises remain weak, amid financing and upscaling challenges. The group says that foreign companies dominate the sector.
More growth forecast
Analysis from Research and Markets states that Vietnam’s footwear production and exports are expected to continue to grow in 2022-2031. The group predicts CAGR of 8.1 percent over the next nine years. By 2031, Research and Markets expect the Vietnamese footwear market to be worth a huge US$38.7 billion – that’s double the 2022 estimate of US$19.1 billion.
Much of Vietnam’s growth is likely to come as firms relocate from China. Companies such as Nike have highlighted their intention to ramp up production even further in Vietnam. Other factors, including the availability of a young, driven labor force, may also be influencing companies to move their operations from China to Vietnam.
However, local industry leaders noted that the industry was still recovering in late 2021. While there may be strong order volumes, one business leader said that only 80 percent of workers had returned following the pandemic, and this was holding production back.
Meanwhile, there will be competition for business from other developing ASEAN nations, such as Indonesia and Malaysia – both nations possess young workforces with low wages relative to China.
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam. We also have partner firms in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at [email protected] or visit our website at www.dezshira.com.