ASEAN Dominates Textile Manufacturing Landscape

12 July 2023, Mumbai

Traditionally, global textile manufacturing has been dominated by China, the US, and the European Union (EU) countries such as France, Germany, Italy, Spain, and Portugal, along with India, Bangladesh, and Vietnam. 

However, a new wave of countries within the Association of Southeast Asian Nations (ASEAN) is emerging as strong players in textile manufacturing. 

What all you need to know

ASEAN's Dominance in Textile Manufacturing Continues to Grow

The ASEAN countries have established their dominance in the textile manufacturing sector, and this trend shows no signs of slowing down. The textiles and clothing industry in the ASEAN region is experiencing steady growth, evident from the import of textile machinery into the region and the strong resource base for value-added product manufacturing. 

ASEAN's integration in the textile and clothing industry is comprehensive, encompassing all aspects of the supply chain across multiple ASEAN members. This includes fiber production, yarn spinning, fabric knitting or weaving, as well as the cutting and sewing of finished apparel.

ASEAN's Sustainable Manufacturing Efforts Gain EU's Favor, Boosting Credibility.

Rise of ASEAN Nations in Textile Manufacturing

A similar situation can be observed in India, where inflation has become rampant, leading to higher input costs and increased prices for finished goods. 

As a result, many manufacturers have relocated their units from India and China back to the US, or they have sought out other more affordable manufacturing destinations. 

Consequently, India is no longer a preferred outsourcing destination.

Labor Costs Drive ASEAN's Textile Manufacturing Boom

The ASEAN nations are currently leveraging trade, migrant labor, and transferable capital to promote prosperity in Southeast Asia. Specifically, the international garment industry within ASEAN is facilitating regional investment integration, skill transfer, job creation, and economic growth.

US Obstacles Drive Manufacturing Boom; China's concerns over increasing labor costs, sluggish demand from the West, and the US's interference in its financial journey have created an opportunity for ASEAN nations to capitalize on.

Poses Strong Competition to India and China

ASEAN countries are gradually gaining market share in the global textile market. Cambodia, Thailand, Vietnam, Myanmar, and the Philippines have strong potential in the textile sector and are making significant advancements in their development. 

Upswing; Textile product exports from these countries are continuously increasing, posing tough competition for India and China. India's Inflation Woes Diminish its Appeal. They have a fair chance of dominating the global textile market in the foreseeable future.

Alfred Tan, the deputy chairman of the Cambodian AFTEX member Textile, Apparel, Footwear, and Travel Goods Association in Cambodia (TAFTAC), emphasizes the pivotal role of textile-related industries in ASEAN economies and their competitive presence in the market. 

He notes that the region has successfully captured a larger global market share, serving as an alternative supply source to China and other key countries. 

Tan also highlights the narrowing gap between production costs (including raw materials, labor, logistics, and compliance) and FOB and retail pricing over the past decade, expecting this trend to continue into the next decade. 

Growing appreciation; ASEAN governments recognize the sector's future potential in terms of domestic job opportunities and foreign exchange generation, providing tax incentives to manufacturing units and collaborating with the sector to attract local, regional, and international direct investments.

Region's Appeal for Outsourcing Increases as Manufacturers Seek Cheaper Destinations

Moreover, ASEAN's cooperation on environmental issues is guided by the ASCC Vision 2025, which aims to promote balanced social development and a sustainable environment. 

These efforts align well, particularly with the EU's focus on greener manufacturing methods, enhancing ASEAN's credibility in the global market.

ASEAN's Garment Industry Thrives

Towards stronger vertical integration, the ASEAN Federation of Textile Industries (AFTEX) has launched the Source ASEAN Full Service Alliance (SAFSA). SAFSA aims to establish a virtual vertical supply chain by connecting ASEAN apparel factories, buyers, textile mills, and apparel factories. 

This enables businesses to offer comprehensive service packages to international buyers. 

SAFSA currently has 45 members, including 27 buyers, with annual apparel sales exceeding US$50 billion. Major brands like Benetton Group, Colombia Sportswear Company, Debenhams, Guess, Marks & Spencer, Polo Ralph Lauren, and Hermes-OTTO are among SAFSA's customers.

A View on Vietnam:

In April 2023, Vietnam's textile industry experienced a mix of positive and negative trends. Robust growth was observed in cotton imports, with a significant increase of 27.9% Year over Year (YoY) and 29.9% Month over Month (MoM), indicating strong demand. 

However, yarn imports faced a temporary slowdown, declining by 16.4% MoM, despite a slight 0.8% YoY increase.

Vietnam's Textile Industry Faces Mixed Trends 

Yarn exports also witnessed a decline, with a 4.7% MoM and 1.4% YoY drop. China, South Korea, and the United States remained the primary export destinations for yarns. The net export of yarns decreased by 4.3% YoY, but there was a promising increase of 18.8% MoM.

Furthermore, imports of grey fabrics and finished textiles decreased by 9.6% MoM and 20.7% YoY. The textile and garment exports faced challenges, declining by 3.3% MoM and 19.4% YoY.

These trends highlight the challenges faced by Vietnam's textile industry, including global macro risks and weakening demand in key markets. 

To adapt to changing market dynamics, Vietnam's textile industry needs to navigate these obstacles and develop sustainable growth strategies.

Vietnam's Foreign Trade Performance Update

Tran Thanh Hai, the deputy general director of the Agency of Foreign Trade, reported double-digit growth in Vietnam's exports and imports during the first quarter of 2022, reaching $176 billion, a 14.4% year-on-year increase. Export growth accounted for 12.9% of this growth. 

Hai attributed the increase to the favorable impact of new-generation free trade agreements (FTAs) and regional trade agreements. 

Vietnam has established several FTAs, including those with Japan, Chile, Korea, the Eurasian Economic Union, as well as agreements within ASEAN and with India, Australia, and New Zealand.

Textile and Apparel Exports Contribute to 46.9% of Total Trade in RCEP Countries

According to recent data, textile, and apparel exports (T&C) from countries in the Regional Comprehensive Economic Partnership (RCEP) accounted for $374.6 billion, representing 46.9% of global trade. 

In contrast, imports amounted to $138.5 billion, making up 15.9% of global trade. Major exporting countries include Vietnam, Cambodia, Myanmar, and various ASEAN regions, while China, Singapore, Brunei, the Philippines, Japan, South Korea, Australia, and New Zealand were net importers.

Trade dynamics

China is actively investing in Vietnam to diversify and enhance the value of its exports. Meanwhile, Bangladesh, with its low labor costs, continues to compete in the market. 

Raihan Mahmud, the marketing director of Bangladesh's Tex Garment Zone, expressed that if exporters in Bangladesh can diversify their products and the government secures new free trade agreements, the country has a better chance of catching up.

Emerging paradigm

Both the apparel sectors in Bangladesh and Vietnam are poised to benefit from the "China plus one" strategy adopted by many garment sourcing companies, thanks to their diverse capabilities and advantages. 

According to WTO data, Vietnam is projected to surpass Bangladesh as the world's second-largest garment exporter in 2020.

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