Foreign-invested footwear manufacturers show their power

Foreign invested enterprises (FIEs) account for less than 25 percent of total number of footwear enterprises, but make up 77% of total export value.

Footwear is one of the industries with high export turnover. However, the profitable industry is being controlled by companies from the Republic of Korea (RoK) and Taiwan.

According to the Vietnam Leather & Footwear Association (Lefaso), with 800 enterprises and 1 million workers, FIEs account for one-fourth of total number of footwear makers, but they make up 77% of export value. Pouchen is one of them.

In Vietnam, the group has many subsidiaries, including PouYuen in HCM City, PouHung, PouLi in Tay Ninh), PouChen, PouSung in Dong Nai, Du Duc in Tien Giang and Duy Khang in Long An which had VND30 trillion in total turnover in 2014. The figure was equal to 17% of Vietnam’s total export turnover from footwear products.

The output of FIEs has been increasing rapidly in recent years and is expected to continue increasing as Vietnam has wrapped up negotiations for a series of free trade agreements (FTAs), including TPP (Trans Pacific Partnership), Vietnam-EU and Vietnam-RoK agreements.

When TPP takes effect, the goods from TPP member countries to the US will be able to enjoy preferential tariffs. This means that the well-known brands like Nike and Adidas may place bigger orders with Vietnamese enterprises.

Under the tax cut plan, the tariff on Vietnam’s footwear exports to the ASEAN Economic Community (AEC) will be cut to zero percent by the end of 2015. 

Lefaso’s chair Nguyen Duc Thuan commented that Vietnam now has greatest ever opportunities to develop the footwear industry. However, he said businesses need to cooperate better. The Thai Binh Footwear Company, for example, has worked with SMEs (small- and medium-sized enterprises) to help each other develop.

One of the biggest risks for Vietnam, as warned by experts, is transfer pricing conducted by FIEs. Vietnam has been heavily dependent on imported input materials, while FIEs dominate the domestic market. These are the ideal conditions for FIEs to conduct transfer pricing.

Meanwhile, the information about transactions in the markets could be controlled by foreign enterprises in the global supply chains. This makes it very difficult for Vietnam’s state management agencies to find information when investigating transfer pricing.

Freewell, Freetrend Industrial and Ching Luh reported huge gross losses of VND800 billion by the end of 2014. However, Freetrend Industrial expanded its factory in HCM City.

According to Lefaso, the localization ratio in the footwear industry is about 40-45%. Only soles and sewing thread can be made domestically, while tanned and artificial leather are mostly imported.  
Vietnamnet