Garments companies in big distress because of EU market fall

VietNamNet Bridge – The public debt crisis in Europe has dealt a strong blow to Vietnamese garment companies which have been sitting idle because of no orders.

The door to EU market narrowed

The public debt crisis in the Eurozone has forced the governments and people to apply the contractionary policy for a long time, which has led to the sharp spending and public investment cuts.

According to Pham Xuan Hong, Deputy Chair of the Vietnam Textile and Apparel Association Vinatas, the number of orders drops by 20-30 percent every month in comparison with the same periods of the last year.

Hong said only big garment companies still get orders, and the orders are just enough to maintain production till the end of August. Especially, Vietnamese companies sometimes have to accept the orders with no profits or little losses in order to retain the partners.

Meanwhile, banking experts have said lacking orders is not the only worry of garment companies. Even the ones, which still can get the orders from foreign partners, have also incurred loss because of the euro depreciation.

The public debt crisis has led to the euro decreasing continuously in value. Therefore, Vietnamese exporters, who get payment in euro, in fact, can only make modest profits, despite the high turnover. While they receive euro for finished exports, they have to pay dollars for material imports from China, Thailand and Taiwan.

Together with the contractionary policy, the EU has also been applying the protectionism policy to restrict the imports by installing trade barriers and increasing the strict requirements on quality and safety.

Therefore, small companies find it unable to satisfy the stricter requirements on the social responsibility that the EU importers impose. While importers set up high requirements on the products, they have been trying to force the import prices down.

Since Vietnamese enterprises have to spend more money to satisfy the new requirements set by the importers, they cannot reduce the production costs in order to improve the competitiveness.

Garment companies not welcomed by banks in Vietnam

Not only foreign importers, but domestic commercial banks have also turned their back to garment companies. As a result, garment companies cannot sell their products and cannot access the bank loans to get by in the current difficult period.

A lot of enterprises have been trying to reorganize the production to improve the quality and improve the competitiveness. However, many of them still have died because of the lack of capital.

The EU remains the biggest export market for Vietnamese garment companies. However, the EU is also the big export market for a lot of other exporters as well. Therefore, Vietnam has to compete with the other exporters to scramble for the parts of the market which has declined in the crisis.

China remains the biggest rival for Vietnam in all the terms of output, prices and quality. Besides, Myanmar, after the embargo is lifted, would be, together with Cambodia and Bangladesh, the redoubtable rivals for Vietnam, since the three exporters can sell products to the EU at the zero tariff.

According to the General Department of Customs, the garments export turnover to the EU dropped by 25-30 percent in the first quarter of 2012 in comparison with the same period of 2011. By the end of May, Vietnam had exported 844 million dollars worth of garments to the EU, a decrease of 1.4 percent.

Do Thien – Kim Ngan