Preface

As a newly official member of the World Trade Organization (WTO), Vietnam is offering great attractiveness to foreign companies and businessmen to do business with the country in several prospective fields. To update foreign importers and investors with latest developments and big export potentials of Vietnamese industries in general and footwear sector in particular, the Export Promotion Center (PROMOCEN) under the Vietnam Trade Promotion Agency (VIETRADE) issues a report on the Vietnamese footwear sector, one among a wide series introduced by PROMOCEN.

The report is about footwear as a kind of consumption product, including domestically manufactured, processed and imported footwear which are used for domestic consumption and for export. Types of footwear mentioned in this report include sport shoes, canvas shoes, leather and artificial leather shoes, sandals of all types (leather sandals, leatherette sandals, plastic sandals, foam rubber sandals, and so on). The report is divided into nine following parts.  

• Part 1 deals with the overview details including general information of the development process, current status, position, potentials and strengths of the footwear sector in the national economy.
• Part 2 gives an overall description about footwear products’ classification, characteristics and structure. It also names big brands of footwear products well-known mainly in domestic markets.
• Part 3 positions Vietnam as a footwear processing hub of the world. It introduces readers with news on the sector production area, scale, capability, technology and method. Besides, it also helps readers be more aware on new production trends of the country’s footwear sector.
• Part 4 introduces the supply sources of materials for footwear production in Vietnam including domestically produced and import ones.
• Part 5 focuses on the footwear domestic consumption. It envisages the domestic market size, consumption characteristics, power, trends and distribution channels.
• Part 6 and 7 pay special attention on the export and import situation of the country’s sector in recent times, especially from 2003 to six early months of 2008, including export and import value, volume and major markets, etc.
• Part 8 helps readers understand clearly about Vietnamese policies, orientation of footwear production; and forecast on footwear export development in the coming years.
• Part 9 and the Annex of the report provide useful information on footwear related authorities and associations, annually domestic trade fairs and exhibitions, together with contact details of major footwear producers and exporters.

Part 1: Overview

At present, the footwear sector holds a very significant role in the national economic development of Vietnam. It implies a great potential with huge demands for employment, especially for free and unskilled labors. Moreover, footwear sector is considered as a lever to foster the development of some other industries in the process of national industrialization and modernization, help to widen the commercial exchange and international cooperation.

Footwear for export takes an important position in the export structure and has become a key export of Vietnam. With high labor productivity, Vietnamese footwear sector has built up for itself a robust competitiveness and obtained high export value. Vietnam ranks among top ten leading exporters in term of leather shoes in the international market. In EU market only, Vietnam ranks second behind China. The average annual growth of export value of Vietnamese footwear reached 16%, about USD 3.96 billion in 2007, ranked third behind textile sector and petroleum sector of the country.

During recent years, the country’s footwear sector has initially attached with importance to commercial promotion. The entire sector has set up positive actions to strengthen propaganda; boost its image as a big potential sector of the country; improve knowledge on foreign markets’ legal requirements, try to prevent dumping claims, and make use of law to struggle in commercial conflicts. Apart from those, modes of sales applied by enterprises have seen many innovations with plentiful networks of wholesale and retail. Moreover, Vietnamese enterprises have also participated in distribution channels of transnational groups and developed their e-commerce sales.

According to the Vietnam Leather and Footwear Association (LEFASO), export potential of Vietnamese footwear in the international markets, especially in such developed countries as America, EU, Japan or Canada, etc is very high.

Part 2: Product classification, characteristics and structure

1. Product classification, characteristics and structure

Before 1993, major products of Vietnamese footwear were canvas shoes. After that time, Vietnamese footwear products were diversified and available with various types.  

In 1997, Vietnamese footwear volume among the total national export volume was as below:

·          Sport shoes: 92.5 million pairs

·          Canvas shoes 36.5 million pairs

·          Women shoes 38.7 million pairs

·          Leather shoes 6 million pairs

·          Sandals of all types: 32.3 million pairs

During recent years, along with the increase of different goods orders, structure of footwear products has been improved in term of models, types. Ratio of high-class products such as sport shoes, leather shoes, women shoes, etc has been increasing little by little. However, the ratio of leather shoes is still at low level, making up about 2.91% of the  total footwear output of the whole country.

Export products:

During the phase 1992 - 1997, major kinds of Vietnamese footwear for export were:

• Sport shoes: 85.3 million pairs;
• Canvas shoes: 30.2 million pairs;
• Women shoes and boat-like shoes: 60 million pairs.

Ratio of major products out of the total Vietnamese export footwear in 2007 was as follows:

+ Sport shoes: During the phase 1992-1997, quantity of export sport shoes increased from only 48.4% of the total national export footwear volume in 1992 to 68.4% in 1997. Foreign invested enterprises held a share of export market of four times as many as that of Vietnamese enterprises.

+ Canvas shoes: During the phase 1992- 1997, export of canvas shoes accounted for 17.1% in term of quantity and 12.2% in term of value of the total national footwear export quantity and value. More than 60% of materials used to produce canvas shoes were from domestic resources so this brought an advantage in cheap and stable material source, and a preferential treatment in export thanks to GSP. Vietnamse canvas shoes production enterprises now takes initiative in both their input and output and obtain high profits, so their season shift in a year is longer than that of other products.

+ Women shoes and boat-like shoes of all types: Export volume of women shoes, beach slippers and beach sandals in 1997 reached 60 million pairs, valued USD 140.9 million, equivalent to 34.1% of the total footwear quantity and 17.7% of the total footwear export value. These products in general are labour-consuming in production, inconsiderably invested, and had low value with average export price at USD 2.96 per pairs in 1997. Materials for these products are quite abundant such as tanned leather, leatherette canvas, plastics and others available nationwide such as rattan, bamboo, sedge, jute, wood, and so on.

+ Leather shoes and other types of footwear: In 1997, volume of Vietnam export leather shoes reached 600,000 pairs, valued USD 6 million. To produce these type of shoes, Vietnam had to import over 60 million square feet of tanned leather in 1997, equivalent to USD 70 million, including pigskin for high-class export shoes, cowhide for export sport shoes, and other types of export women shoes.

During 1998 - 2008, beside the acceleration of footwear export quantity, structure of Vietnamese footwear export experienced big changes in orientation of increasing the ratio of high quality footwear products and high-technological content. These changes made Vietnamese footwear export increase in term of both quantity and quality. Among export footwear types, sport shoes and women shoes increased at a higher speed than that of other types of footwear.  

Sport shoes still remain key commodity of the sector, accounting for 51% producing capacity of the sector, in line with the consumption trend of the export markets.

2. Well-known brands at home and abroad

According to the Vietnam Leather and Footwear Association (LEFASO), though holding very high position in the ranking list of exports, the added value of Vietnamese footwear is rather low. There are 35% to 40% of products processed by orders of foreign customers, meanwhile products under Vietnamese brands are very few, only account for 20%. Thus, there is a fact that Vietnam has exported a large quantity of footwear but products under Vietnamese brands are not so well-known in the world market. Most Vietnamese footwear producers favor processing products under foreign trade marks and brands than making their own branded products. Therefore, Vietnamese brands which come to the “memory” of the consumers now are extremely few including Vina - Shoes, Biti’s, Thuong Dinh, Pasteur, TandT, Hong Thanh, Hong Anh, Hanh Dung, Dong Hai, Long Thanh, Kim Thanh, etc.

However, recently, seeing positive signs in the domestic market and realizing weakness, big Vietnamese footwear producers such as Hai Phong Footwear Company, Thai Binh Footwear Company, Duc Trieu Footwear Company Limited, Biti’s Company, etc have started to orient to serve domestic demands by investing in the establishment of professional model design rooms. Moreover, together with the guideline of association for co-development, the operation of the Vietnamese footwear sector in particular and the production of the whole country in general has got new growing steps with high feasibility. In recent years, the domestic footwear sector has often organized Vietnam branded footwear design competitions. These activities have proved to be useful factors which help the country’s footwear sector to discover and germinate design talents so that Vietnamese footwear producers can affirm their products’ aesthetic value and brand fames in both domestic and foreign markets.

Following is information on some Vietnamese well-known branded footwear:

+ Biti’s: Pride of Vietnamese footwear brand

“Biti’s takes a loving care of Vietnamese foot” is a familiar slogan with domestic consumers. Biti’s is proud to be one of Vietnamese enterprises who has been very successful in popularizing their footwear brand to the world market. 

Established in two decades ago with small production scale and 20 workers, Biti’s firstly specialized in rubber sandals. Now the company produces more than 20 million pairs of shoes and sandals of several styles and sizes including fabric shoes, sport shoes, children footwear, sandals, etc every year. Biti’s products are not only best sold in domestic market but also be loved in international market thanks to its products’ good quality and diverse kinds and designs.

Biti’s brand is now getting more and more famous. This helps Biti’s products have firm foothold in the domestic market. Currently, the company’s products have been distributed via 3 trade centers, 9 branches and more than 4,500 retail agents and showrooms in 40 countries and territories in the world. In China only, Biti’s has developed more than 20 wholesale agents and 350 retail agents in almost provinces in the western and southern areas of China. In the coming time, Biti’s brand will continue to subjugate the domestic market, orient to penetrate new potential oversea markets, especially American market. In 2008, it is estimated the product export value under Biti’s brand must achieve 50%.

+ Thuong Dinh’s footwear brand: After nearly 50 years of operation, Thuong Dinh’s footwear brand has been able to affirm its good position in the market. Thuong Dinh’s footwear serves for various demands in sport, mountain climbing, labour protection and fashion. Thuong Dinh’s products occupy 20% of the domestic market share and distributed by one branch in Hochiminh city, 03 wholesale agents in the north, central part and south of the country and 45 retail shops and showrooms in many cities and provinces nationwide.

For oversea markets, since 1961 Thuong Dinh’s footwear has been exported to former Eastern Europe. Since 1985 major export markets of Thuong Dinh’s footwear have been EU, Australia, Canada, Brazil, America and some Asian countries such as Japan and Korea, etc.

For several continuous years, Thuong Dinh’s footwear brand has always been voted among Top Ten products, or products most beloved by consumers. Thuong Dinh’s footwear has also received plentiful awards for good quality and price.

+ VinaGiay is the one of largest footwear manufacturers and traders for local and foreign markets. Its specified products include dress shoes, casual shoes, sandals and slippers. Most of them are made of genuine leather and for men and ladies.

VinaGiay has participated in Vietnam's footwear market since early 90's with diverse fashionable footwear suitable to both young and elder customers. VinaGiay often has more than 500 varieties to serve all customers. VinaGiay products' patterns are always changed, so they keep pace with customers' fashion and taste, through pattern creating technique on computer, research on foreign catalogues and especially on foreign shoe patterns from scholarship trips, fair-exhibitions and researches on leather and leatherette products in India, France, Italy and other European countries. VinaGiay's products are displayed and sold at several shops in Vietnam. VinaGiay branded shoes were given the industrial ownership protection on Nov 5, 1991, winning many gold medal sets in international trade fairs, selected as High Quality Vietnamese Goods by consumers in 7 consecutive years 1997- 2004.

Part 3: Production

1. Production areas

Most of footwear production enterprises are located in the localities with transport and industrial advantages. In the north, a great deal number of footwear producers, especially private and foreign invested ones base in Hai Phong province and former Ha Tay province (now being merged with Hanoi city). In the south, they mostly locate in Hochiminh City and provinces of Dong Nai, Binh Duong, Binh Dinh where concentrate lots of industrial zones, etc.

2. Production scale, capacity, technology and method

In the 1980s, Vietnamese footwear production was at embryo stage and then formed into an industrial sector with initial scale of a small volume of leather, leatherette products, low quality labor protection tools. Normal canvas shoes which were produced in a few small factories with sparse equipment. Products for domestic consumption were of poor quality and most of them were manually made.

During the phase 1991 - 1992, Vietnamese footwear products were mainly exported to USSR and Eastern European countries. When those markets faced a political change, two thirds of Vietnamese footwear factories had to close, 12,000 workers became unemployed; most of machines and equipment became backward, lines of workers and cadres were unqualified; thus their products did not satisfy the market requirements. Therefore, the country’s footwear production and export did not develop.

For four years (1992-1996) alone, due to the investment and innovation of equipment via joint venture and cooperation, Vietnamese footwear sector invested over VND 2,000 million, half of which was used for purchasing machines and equipment and VND 200 billion for purchasing labor tools. More than 55% of the investment capitals mobilized in forms of joint capital and deferred payment between Vietnamese and foreign producers. By those means Vietnamese footwear sector modified, completed and equipped with about 200 production lines, 1,900 leather bag production, repaired about 200,000 m2­­ and built 240,000m2 new workshops with a total investment of over VND 3,000 billion.

By 1996, there were more than 200 footwear production enterprises in the whole country, including state owned, private and foreign-invested enterprises. Production output of the Vietnamese footwear sector at that time reached 450 million pairs.

By the end of 1997, the country had basically set up a network of footwear production enterprises, mainly for export, with a capacity of 260 million pairs; among those sport shoes accounted for 50%. Most of machines and equipment used at that time were imported from Taiwan and Korea.

Although this was corresponding to financial situation and management level of the country at that time, there were many shortcomings. Some footwear types were qualified to export but they were not designed by conveyor belt technology, the speed was low and they required a lot of materials; in addition, only a few workers could handle an engine which had short longevity. To overcome such problem, Vietnamese footwear factories invested in equipment to modernize stages such as: mechanical embroidery, computer application, IT application to improve production efficiency.

From 1998 onwards, the Vietnamese footwear sector received a wave of production transfer from Taiwan, Korea owing to its advantage of low workforce payment and the Vietnamese Government’s active polices of foreign investment attraction. In early 1998, there were 35 foreign-invested enterprises in the leather and footwear industry, with a total investment up to USD 123 million. Production capacity of the footwear sector accordingly robustly increased. Footwear output in 1998 reached 206 million pairs, up 186% compared to that in 1993.

From 1998 to 2001, the Vietnamese footwear production still remained at a relatively drastic speed. In 2001, Vietnam produced about 320 million pairs of shoes; of which sport shoes accounted for 43%, women shoes for about 21.6%; canvas shoes for about 11.7% and other types for about 23.7%. Also at that period of time, the Vietnamese production value of shoes and sandals of all types kept increasing at higher and higher speed each year. In 1999, growth speed of the national footwear production reached 12.95% higher than that of 1998. This figure in years 2000 and 2001 were 25.74% and 5.70% respectively. This means that the Vietnamese footwear production was developing and step by step became an important production sector for domestic consumption and export.

During the years 2001-2008, the footwear sector saw a continuous increase in growth rate (with an average growth of 10% per year for shoes and sandals). By the end of 2007, production capacity of shoes and sandals of the entire sector reached 680 million pairs; in 2008 production capacity of the sector exceeded 90% of the capacity invested. The country’s footwear sector now owns 750 synchronous production lines which can make products from material processing to finishing with a total capacity of 715 million pairs per annum. Key commodities of the sector are sport shoes, accounting for 51% of the sector’s products, conformable with the consuming trend of the export markets.

Some output figures of the footwear sector in June and six early months of 2008

(Source: Vietnam General Statistics Office)

According to a survey of the Vietnam Leather and Footwear Association (LEFASO), until 2008 there are about 450 footwear producers with around 1 million direct and indirect laborers. Production competence of the sector is mainly based on non-state establishments and foreign factories which make up more than 90% competence of the whole sector. It is clear that the competence of the sector depends on investment of domestic and international private capital sources.

In term of production method and organization, Vietnamese footwear sector is based on 4 production methods: Pure processing; semi-product material selling; production according to FOB – or FOB drawing-out (production for foreign trademarks and brands, consumption in export markets); or products under Vietnamese enterprise’s trademarks and brands, however this mode is rarely implemented, etc. 

Establishments participating in production, consumption and export of footwear in Vietnam include state-owned enterprise, private companies and handicraft production establishments.

In market mechanism, state-owned enterprises which have more advantages than others about capital, materials and technical basis, experiences and trading relations have actively looked for and expanded their markets, study trading modes and international transaction ways, guarantee quality, price, term of delivering goods and improve prestige and export effectiveness.

Private enterprises taking part in organizing distribution and export of footwear in Vietnam are remarkably new at present. However, because of advantages of orderly, dynamic and flexible labor organization, and change to meet market demand, quick adaption to the process of changing market mechanism, some enterprises have operated more effectively than state-owned enterprises.

Footwear products of foreign invested enterprises have high quality on international export market because their equipment and technology are more modern than those of domestic enterprises. Besides, foreign invested enterprises have stable material supply sources and export contracts. Joint venture products tend to occupy domestic market. Major countries and territories which make investment in footwear production in Vietnam are Taiwan, Korea, B.V.Island, Germany, Singapore, etc.

Compared to foreign direct invested enterprises, Vietnamese small and medium sized enterprises are weaker on investment and have fewer chances to participate in international market. Nearly all these enterprises do not approach abroad markets and have direct relations to customers. They have to pass many foreign intermediate partners, and do not have enough competitive power, particularly in medium and long terms. Because of weakness of capital, technology, equipment, domestic enterprises face competitive pressures from foreign invested enterprises. Besides, they do not have direct distribution systems at foreign markets. They usually sell their products via intermediate companies at low prices. Moreover, due to lack of market information, they are at weaker position than foreign partners when processing or export is negotiated.

Among list of 500 biggest companies in Vietnam in 2008 called VNR500, there are 13 companies operating in footwear production. Most of them are foreign invested companies. Following are names of these mentioned companies:

Currently, nearly all famous footwear brands in the world have appeared in Vietnam. Big firms construct their plants in Vietnam for main purpose of export, not for sale at Vietnamese domestic market. Those big brands are Adidas, Bata, Nike, Timberland, Reebok, Clarks, Puma, Fila, Decathlon, Diadora, New Balance, Cat, Nine West etc. 

3. Production trend

Before the development of foreign footwear in domestic market, domestic footwear enterprises have to plan to develop handicraft footwear products with high quality, fashionable mode, continue to affirm their position in domestic market as well as foreign markets.

International footwear sector tends to move production to developing countries, especially countries with favorable investment environments, stable and safe political situation. Vietnam can meet all these requirements. Besides the country has officially joined the World Trade Organization (WTO), tariff barrier is gradually rejected. Together with the export and production promotion policies of the Government, Vietnam will become an ideal investment place for international footwear manufacturers.

According to the Vietnam Leather and Footwear Association (LEFASO), one of biggest goals of Vietnamese footwear sector is to transfer the production modality from processing for foreign buyers to producing their own products with their own brands.

Part 4: Materials for production of footwear

1. Domestic production and supply

Materials of footwear production sector make up 80% value of products, in which leather production sector plays the most important role. According to Vietnam Leather and Footwear Association (LEFASO), the demand on leather in 2007 of the whole sector was about 350 million  square feet; meanwhile tanning plants of Vietnam and foreign countries which have invested establishments in Vietnam only manufactured and met about 25% domestic demand on tanned leather. Most of domestic leather is only used for production of low-class shoes. Domestic canvas is only used for production of labor protection shoes, it is not qualified for production of advanced canvas shoes because dyeing quality of the following lot is different from the previous lot. On the other hand, role of breeding sector to supply materials for footwear sector in Vietnam at present is limited. It is estimated that about one third of pelt is used in domestic market, about 60% of buffalo skin and 40% of cow skin are exported.

Beside leather and artificial leather, the Vietnamese footwear sector also consumes a big volume of plastics and rubber to produce its products.

Materials for production of plastic footwear are obtained from hydrocarbon extracted from petroleum during oil filtering process. Vietnam has a large petroleum reserve from ores and mines with low price, which is a favorable condition for the development of plastic footwear in Vietnam.

However, the sources of plastic materials cause a lot of difficulties to plastic footwear producers in Vietnam. The current Vietnamese plastic sector generally supplies only 17% (i.e. approximately 300,000 tons) of plastic materials per year. Dependence on input materials always challenges the plastic footwear producers.

Many plastic footwear producers have attempted to be active in the supply of materials for their production expansion. Vietnam now has several projects on material production with the capacity of 300,000 tons of PE per year, 140,000 tons of PP per year and 60,000 tons of PS per year.

In addition, the types of materials supplied by domestic producers for plastic footwear production are not diversified. A strategy for long-term and stable development of materials in Vietnam will be available in the near future so that the country’s plastic sector can be more active in material supply and enhance its competitiveness in the market.

For rubber materials to produce rubber footwear, Vietnamese sources of natural rubber materials are diverse.

Main rubber material supply areas are the Southeast (339,000 hectares), Highland (113,000 hectares) North Central (41,500 hectares), and South Central Coast (6,500 hectares) accounting for 66%, 22.6%, 8.3% and 1.3% respectively.

Rubber trees of high economic effects are planned to grow on poor land in the Northern mountainous provinces (Dien Bien, Quang Tri, Son La, Lai Chectaresu). Dien Bien will plant these rubber trees on 1,000 hectares in 2008 and on 20,000 hectares in six years with a latex capacity of 2 tons per year. Quang Tri plants rubber trees mainly in Vinh Linh with 3,500 hectares which are now available for exploitation. Son La also has a pilot area of 70 hectares with reasonable result. Lai Chau has the area of 100 hectares. Nghe An has 1,559 hectares. Kon Tum planted nearly 3,000 hectares in 2007, mainly in Dak To (885 hectares), Dak Hectares (795 hectares), Sa Thay (685 hectares), Ngoc Hoi (300 hectares), Kon Ray (200 hectares) and Kon Tum town (80 hectares). Tay Ninh plants on 52,603 hectares.

For small scale rubber planting, the implementation of the project “Diversification in Agriculture” was assisted by the World Bank (WB), the French Agency for Development (AFD) and Vietnamese government. It started in December 1998 and ended on 30 December 2006. The project was completed after 8 years with a total expenses of USD 86.9 million aiming to increase income and create jobs for local people in 12 poor provinces in Highlands and Coastal Central provinces (Kon Tum, Gia Lai, Dak Lak, Dac Nong, Quang Binh, Quang Tri, Thua Thien Hue, Quang Ngai, Binh Dinh, Phu Yen, Khanh Hoa, Binh Thuan) with good results.

Footwear auxiliary sector is rather serious, Vietnamese enterprises only manufacture some auxiliaries for footwear production such as marks, shoelaces, show rings, crochets, ankles, decoration things on shoes etc.

Concerns of the Vietnamese footwear sector at present are how to develop tanning industry, which takes initiative about materials, and step by step form closed production process.

Currently, some enterprises in the sector have invested in production of footwear auxiliaries. For instance, at the end of May 2008, Lien Anh Co., Ltd officially started the textile and footwear auxiliary center project in Trung Thanh industrial zone, Tan Binh commune, Da An district, Binh Duong. Total investment of this project is USD 12 million on the area over 16 hectares. This is the first textile and footwear auxiliary center project in Vietnam. When the center is operated, it takes role to deal with the biggest difficulty of textile and footwear sector at the phase of materials. The center will be the biggest and modern material supply one in Vietnam. The center will gather many domestic and foreign material suppliers of textile and footwear sector together. Main items of the project include one nodal market with the area of 28.000 m2 with 1.250 stalls. Offices and showroom are 4.500 m2 wide which meets demand on product show and introduction of enterprises’ information. Then, outdoor store with area of 45.000 m2 can meet demands on goods storing of 20.000 tons, and  office zone is also included.

In September, 2008, ISA Tan Tec started construction of a new ecological tanning plant in Vietnam. The plant has been constructed in Hochiminh city. The plant will start operation in June 2009 with 280 employees and produce 2 million m² of tanned leather with high quality per year which satisfies new LITE standards. This standard is based on calculation of Center for England Tanned Leather Technology about energy level and average consumption of tanning sector. LITE products need less energy (about 30%) and less water (about 50%) in the process of production.

2. Imported materials

For footwear sector, because development of domestic tanning sector is slow, materials must be ordered and bought from foreign countries. Currently, 75% of tanned leather which serves demand of the whole footwear sector depends on import. Artificial leather, used for sport shoes, although its export density is approximately 50% value of exported footwear in general, use up to 80% of imported materials etc.

Besides, 70-80% of major materials for production of shoes which are leather and artificial leather, auxiliary materials (glue, sewing thread, button, mark, etc) are imported. Import value of auxiliary materials for footwear during 2003-2007 did not vary much.

Import value of auxiliary materials for sewing and footwear

(Unit: USD 1,000)