INDUSTRY REPORT VIETNAM S TEXTILE INDUSTRY

INDUSTRY REPORT VIETNAM S TEXTILE INDUSTRY 2017 www.vietnamcredit.com.vn

Textile Industry Report 2017 04 External Factors PEST analysis on impacts of the external factors including Legal, Economic, Social and Technological factors on Vietnam s textile industry. 15 Global Garment & Textile Value Chain Mapping the global textile value chain, exploring each link in the value chain, valueadded graphs and the position of Vietnam's textile and apparel industry in the value chain. 30 Vietnam s Textile Industry 2017 Production and imports of raw materials for the remaining links of the garment & textile value chain. Localization rate of Vietnam s textile and garment industry. 63 Vietnam's Textile and Garment Companies. Company legal information, ownership structure, financial index against sector average, major import-export activities, credit rating by VietnamCredit. 70 Appendix Textile and apparel industry indexes (ISIC code 13 & 14), textile and apparel master plan for 2020-2030, tariffs and non-tariff barriers, a list of some garment exporters in Vietnam.

Global textile & garment value chain Retailers General stores Natural fibers American garment factories Branded apparel companies Specialty stores Woolen, hosiery Fibers ( knitting, finishing) Domestic subcontractors Petrochemical Synthetic fibers Asian apparel subcontractors Offshore purchasing offices Mass-goods stores Synthetic fibers Local and overseas subcontractors Commercial companies Discount stores Private selling place, direct selling place of factories,... Textile companies Garment manufacturers Retailers Raw materials Auxiliary materials Manufacturers Exporters Marketing

Vietnam is among 5 world's biggest textile & garment exporters, but it is mainly involved in the least valuable links of the value chain. Added value Designers Raw materials and auxiliary materials manufacturers Garment manufac turers Importers Distributors Demonstration of the added value of the textile value chain Value chain

Industry overview Vietnam s Textile & Garment Industry 2017 Export turnover of Vietnam textiles and garments 77.7% Import turnover of textile materials 25.9% 11.3% USD31.80 billion 11.2% USD20.96 billion 54.2% 5.6% 5.4% 8.7% Xơ, Fibers Sợi of các all kinds loại Vải Fabrics các of loại all kinds Phụ Auxiliary liệumaterials Hàng Garments may mặc Bông Cotton Xơ, Fibers Sợi of các all kinds loại Vải Fabrics các of loại all kinds Phụ Auxiliary liệumaterials Number and size of the textile & garment companies: There are more than 8,770 textile & garment companies (2017), of which garment companies account for the majority (70%), following are slubbing companies (6%), weaving/knitting (17%), dyeing (4%), auxiliary companies (3%) 70% of them are private enterprises, 29% are foreign invested enterprises, 1% are state owned enterprises Most of them are small and medium enterprises (200-500 employees) Production: Mainly engaged in the third link of the textile and garment supply chain, which is Cut and Sew. Very few are involved in designing, marketing and distribution of products Industry s added value is low (5-10%) 75% of export turnover is from processing, 22% is conventional production. Labor force: More than 2.8 million workers in 2017 (nearly 3% of the total population), most of them female workers. The labor productivity index of the textile and garment sector in Vietnam is only 2.4 (much lower than other textile exporters, eg China 6.9 and Indonesia 5.2), therefore, this industry is considered as a labor-intensive industry Export method: Most of Vietnamese textiles and garments have no direct access to customers (such as retailers in US and EU markets...). Dependent on foreign merchants (mainly from Hong Kong, Taiwan, Korea).

Cotton output of Vietnam only meets 1% of domestic demand. In addition, only 30% of domestically produced yarn is retained for domestic demand. So 70% -80% of fabric used for the garment industry has to be imported. This leads to a paradox: lack of fabric for the garment industry while most of the yarn is exported. Domestically supplied Import Export 30% 70% 99% 30% Fabric 70% 40% 60% Cotton Synthetic fibers Yarns Auxiliary materials

Million USD Thousand tons IMPORTS & EXPORTS OF COTTON 2017 2016 2015 2014 Imports of cotton, yarn of China Import Nhập khẩu of yarns sợi Nhập Import khẩu of cotton bông 1,850 1,090 1,950 1,090 2,072 962 2,268 1,805 1,400 1,200 1,000 800 600 400 200 580 Imports & exports of cotton of Vietnam Import Nhập khẩu Export Xuất khẩu 1,292 1,014 1,034 755 12.000 10.000 8.000 6.000 4.000 2.000 2013 2,080 3,075 0 2013 2014 2015 2016 2017 - Thousand tons 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Export turnover of cotton of Vietnam 2013 2014 2015 2016 2017 Vietnam imports 70-80% cotton from the US, India, Brazil, Australia and Côte d Ivoire 1,400 1,200 1,000 800 600 400 200 0 Import turnover of cotton of Vietnam 2013 2014 2015 2016 2017 USA Mỹ Ấn India Độ Brazil Brasil Australia Úc Côte Bờ biển d Ivoire ngà - China Taiwan Thailand India Korea Trung Quốc Đài Loan Thái Lan Ấn Độ Hàn Quốc Source: Vietnam Cotton Association, ITC, General Department of Customs, VietnamCredit (updated data in 12/2017)

Thousand tons Thousand tons IMPORTS & EXPORTS OF YARN Vietnam's yarn industry is still heavily dependent on China's cotton demand and any major changes in its cotton and yarn demands will have a direct impact on Vietnam. 720 Yarn export and import of Vietnam Xuất Export khẩu Nhập Import khẩu 1,167 962 859 695 740 792 820 1,349 876 800 700 600 500 Exports of yarn of Vietnam 2014 2015 2016 2017 400 300 200 100 2013 2014 2015 2016 2017 0 China Korea Turkey Thailand India Trung Quốc Hàn Quốc Thổ Nhĩ Kỳ Thái Lan Ấn Độ There have been 7 lawsuits on Vietnam's yarn export: 5 antidumping cases, 1 anti-subsidy case and 1 from Turkey, the EU, India and Brazil. In particular, polyester yarns and synthetic yarns were subject to anti-dumping duties from Turkey and spandex fibers were subject to anti-dumping investigations by India in January 2016. 400 350 300 250 200 150 100 50 0 Imports of yarn of Vietnam 2014 2015 2016 2017 China Taiwan Thailand Korea Indonesia Trung Quốc Đài Loan Thái Lan Hàn Quốc In-đô-nê-xi-a Source: Vietnam Cotton Association, ITC, General Department of Customs, VietnamCredit (updated data in 12/2017)

Billion USD IMPORTS & EXPORTS OF FABRIC Domestically produced fabric only meets 30% of domestic demand. Moreover, the dyeing and finishing stages of Vietnam are not welldeveloped so enterprises have to export unfinished garments and import processed fabrics for use. Import turnover of fabrics of all kinds from Vietnam Export-import turnover of fabric of Vietnam 7.00 2014 2015 2016 2017 Export* Xuất khẩu* Import Nhập khẩu 6.00 5.00 2017 1.78 11.37 4.00 3.00 2.00 2016 2015 1.49 1.43 10.57 10.23 1.00 0.00 China Korea Taiwan Japan Hongkong Trung Quốc Hàn Quốc Đài Loan Nhật Bản Hông Kông 2014 1.26 9.56 Source: General Department of Customs, VietnamCredit (updated data in 12/2017) Imports of fabric from China account for the bulk of the total import value, so the garment industry is once again at risk of losing the TPP advantage due to the "fiber on" rule. TPP countries account for only 5.3% of raw material suppliers Vietnam.

IMPORT & EXPORT AUXILIARY MATERIALS Export turnover of raw/auxiliary materials of Vietnam to other countries Domestic production of auxiliary materials for textiles and garments only meets about 50% of demand. Buttons, mex and zippers must be imported in large quantities. Meanwhile, the sewing thread meets the domestic demand, many enterprises (including foreign ones) have bought 100% domestic sewing thread for their production. Vietnam mainly imports auxiliary materials from China (over USD 2.05 billion, accounting for 37.8% of the total import value of this country, up 9.32% over 2016). Vietnam's auxiliary materials for textile, garment, leather and footwear have been available in 26 countries around the world. 350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 2014 2015 2016 2017 China Indonesia Hongkong Cambodia Japan Trung Quốc Indonexia Hông Kông Campuchia Nhật Bản 6.00 5.00 Import-export turnover of textile, leather and footwear auxiliary materials Import Nhập khẩu Export Xuất khẩu 5.07 5.42 2.50 2.00 Import turnover of raw/auxiliary materials of Vietnam 2014 2015 2016 2017 4.00 1.50 3.00 2.00 1.00 2.37 1.11 2.58 1.43 1.50 1.71 1.00 0.50 0.00 2014 2015 2016 2017 0.00 China Korea Taiwan USA Japan Trung Quốc Hàn Quốc Đài Loan Mỹ Nhật Bản Source: General Department of Customs, VietnamCredit (updated data in 12/2017)

COTTON, YARN PRODUCTION Number of companies producing textile-garment auxiliary materials 2012 2013 2014 2015 2016 Cotton cultivation and spinning are the first links of the textile supply chain, playing a key role in supplying raw materials for the following stages, including weaving, dyeing and sewing. 431 397 411 355 340 296 315 306 290 290 283 273 257 242 210 Criteria 2013/2014 2014/2015 2015/2016 % change between 2016/15 and 2014/15 Cultivated area (thousand ha) 2.50 1.20 1.0-20% Yield (tons / ha) 1.39 1.38 1.38 Cotton seed yield (thousand tons) 3.47 1.66 1.38-17% Standard output (%) 36.5 36.5 36.5 Cotton fabric output (thousand tons) Output of cotton fabric by bale (thousand bales, standard: 218kg cotton / bale) Vietnam's cotton production (from 2013/2014 to 2015/2016) 1.27 0.6 0.5-17% 5.82 2.78 2.31-17% Source: Vietnam Cotton Association, Vietnam Ministry of Agriculture, VietnamCredit (data updated in 12/2017) Yarn manufacturers DNSX sợi DNSX Woven vải dệt fabric thoi manufacturers DNSX Knitting vải dệt fabric kim, and vải đan nonwoven móc và vải fabric không manufacturers dệt DNSX Garment phụ accessories kiện ngành manufacturers may Source: General Department of Customs, VietnamCredit (updated data in 12/2017) Number of spindles (million spindles) Number of rotors (thousand rotor) Yarn yield (thousand tons) 2013 2014 2015 2016 2017 6 6 6.3 6.5 7.5 103.35 103.35 103.35 103.35 103.35 1.321,9 1,560 1,905.3 1,978.5 2,320.8 39 Textile industry in Vietnam 52 71 55 60

FABRIC PRODUCTION Garment enterprises can not be active in purchasing fiber and cloth materials in the domestic market. This leads to the fact that garment industry is in need of fabric, while the yarn industry is abundant. Production of raw material (million m2) 2017 2,412.18 Nearly 6,000 garment enterprises produce 6 billion products and use 11-12 billion meters of cloth per year. But domestic fabric production cannot meet the demand, so Vietnam needs to import 9-10 billion m2 per year, equivalent to 80% of total demand. Woven fabric output in 2016 reached 1.4 billion m2, which is only enough to meet 25% of garment export demand. For knitted fabrics, the output reached 468.3 million m2, increasing 57.8% over 2015 and is mainly used for the domestic market because it does not meet export standards. Investment from FDI enterprises is the cause of the increase in knitted fabric production. These companies mainly supply fabric directly to garment factories which manufacture goods to export to the USA and the EU. 2016 2015 2014 2013 2012 2,203.86 1,525.60 1,346.50 1,239.40 1,251.70-500 1,000 1,500 2,000 2,500 Source: GSO, compiled by VietnamCredit (updated 12/2017)

Textile production has had huge impact on the environment Water consumption in textile dyeing industry Water consumption (m 3 per ton of products) Cotton 80-240 Woven cotton fabric 70-180 Wool 100-250 Polyacrylic fabric 10-70 Comparison of resource use in the textile industry Materials and energy Chemistry Unit Vietnam Vietnam s practical optimization Germany Dye kg/ton 5-80 4.6-12.3 5-80 Additives kg/ton 200-1,000 230 92-1,032 Finland Water m 3 /ton 130-600 100 100-150 144-380 Energy Heat energy FO ton /ton 1.5-2.5 1,655 0.24-0.32 0.86-2.39 Electrical Power kwh/ton 885-2,000 900 240-350 The textile industry is using a lot of water. Water is used a lot during wet cloth processing. It takes about 15-20m3 of water to produce 1,000m of fabric.. About 88% of water used is discharged as waste water and 12% is evacuated. Wastewater is primarily from the manufacturing of yarns, weaving, dyeing and finishing. Nguồn: Viện dệt may (dữ liệu cập nhật 12/2017)

High-tech machines for textile and garment industry are mostly imported from Korea, Japan, China... Almost all high-tech machines used in the textile and garment industry is imported from Korea, Japan, China... (sample design machine, plotter, cutter, printer, sprayer, folding machine, sewing machine...) Impacts of 4.0 technology: 86% of the manual labor of the textile industry will be replaced by robots Traditional mass production orders will no longer be available Transaction costs will decrease 30-80% Many smart factories, digital factories will be established Import markets of textile equipment of Vietnam Trung China Quốc Nhật Japanbản Đài Taiwan Loan 20% 7% 38% The two most imported machines in Vietnam in recent years Hàn KoreaQuốc 8% Spinning machine (31%) Đức Germany Khác Others 10% 17% Sewing machine (29%) Source: ITC, compiled by VietnamCredit (updated in 12/2017)

Production methods Vietnamese garment enterprises are mainly engaged in processing America is the largest importer of garments of Vietnam, with import turnover reaching more than US $ 12 billion, increasing 7.3% over 2016. Production method of Vietnam's textile and garment OEM/FOB ODM/OBM CMT Export turnover of Vietnamese garments to other countries 2017 25.0% 10.0% 65.0% 14,000 2013 2014 2015 2016 2017 2016 25.0% 10.0% 65.0% 12,000 10,000 2015 20.0% 10.0% 70.0% 8,000 6,000 2014 20.0% 10.0% 70.0% 4,000 2,000 0 Mỹ USA Nhật Japan Bản Hàn Korea Quốc Germany Đức Anh UK Source: GSO, ITC, compiled byvietnamcredit (updated in 12/2017) 2013 30% 5% 65% 0% 20% 40% 60% 80% 100% Source: GSO, compiled by VietnamCredit (updated in 12/2017)

Export turnover of textiles and garments is very large, but Vietnamese garment enterprises enjoy very low profit 10% Production methods ODM /OBM 25% FOB Turnover of garment industry 75% Other costs 25% Processing cost Processing (CMT) 65% Although FDI enterprises account for only 30% of the total number of garment enterprises in Vietnam, they account for 70% of the whole sector's revenue, while the domestic ones account for 30%. 85% of local textile and apparel enterprises are engaged in processing and processing cost make up for only 25% of the cost of the finished products. 70% Domestic 30% FDI 30% Domestic 70% FDI Product price Textile companies by economic sector

Outlook for Textile & Garment Industry 2018 The growth rate of the textile and garment industry in 2018 may increase by 7.3% after the CPTPP Agreement is signed on March 8, 2018. The textile and garment export turnover is set at US $ 35 billion. The industry will focus on increasing the rate of manufacturing ODM goods to 12% - 14%. As for FOB, it will promote the purchase of raw materials for more added value for the product. UNIT 2020 2030 1. Export turnover billion USD 36-38 64-67 Garment export / Country export rate % 13-14 9-10 2. Labor use 1,000 people 3,300 4,400 3. Main items - Cotton fiber 1,000 tons 15 30 - Synthetic fibers 1,000 tons 700 1,500 - Fibers 1,000 tons 1,300 2,200 - Fabrics of all kinds million m 2 2,000 4,500 - Garment products million products 6,000 9,000 4. Localization rate % 65 70 5. Growth rate of industrial production value Whole industry % 12%-13% 9%-10% Textile industry % 13%-14% 10%-11% Garment Industry % 12%-13% 9%-10% Export growth % 9% 6% Growth of domestic market % 10%-20% 8%-9% 6. Structure of textile & garment industry Textile industry % 47% 49% Garment industry % 53% 51%

APPENDIX 1 Tariffs and Non-Tariff Barriers of Viet Nam and other countries are calculated by unit price (trade weighting) before and after liberalization of trade in the markets involved in each FTA CPTPP (TPP11) TPP12 2017 2030 2017 2030 Tariffs applied to Vietnam in FTA markets 1.70% 0.20% 4.20% 0.10% Vietnam's tariffs applied to FTA members 2.90% 0.10% 3.20% 0.10% Non-tariff barriers applied to Vietnam in FTA markets 9.40% 5.80% 9.40% 4.30% Vietnam s non-tariff barriers applied to FTA members 7.90% 5.00% 10.30% 5.00% Source: compiled by VietnamCredit (updated in12/2017)

APPENDIX 2: SOME GARMENT EXPORT COMPANIES IN VIETNAM Company names No. of product lines Employees Country City 1 AGTEX 28 2 1,000 Vietnam HCMC 2 Bac Giang Garment Company 5 7,600 Vietnam Bac Giang 3 Dong Nai Garment Corporation 5 4,000 Vietnam Bien Hoa 4 Branch of 8/3 Textile and Garment Company - Hai Phong Veston Factory 1 - Vietnam Hai Phong 5 Esquel Garment Vietnam Company Limited - EGV 2 5,300 Vietnam Binh Duong 6 South East Garment Manufacturing Co., Ltd 5 5,000 Vietnam Binh Duong 7 Southern Garment Co., Ltd 2 600 Vietnam Bac Giang 8 Garco 10 4 8,000 Vietnam Hanoi 9 Hansoll Vina Company Limited - HSV 4 6,000 Vietnam Binh Duong 10 Hoa Binh Garment Joint Stock Company 6 500 Vietnam HCMC 11 Hoa Tho Textile and Garment Joint Stock Company 6 10,025 Vietnam Da Nang 12 Hue Textile and Garment Joint Stock Company 6 3,955 Vietnam Hue 13 Khanh Hoa Garment Joint Stock Company - Khagarexco 3 900 Vietnam Nha Trang 14 Hue - Vietnam Textile and Garment Joint Stock Company 5 350 Vietnam Hue 15 29/3 Textile and Garment Joint Stock Company 6 3,500 Vietnam Da Nang 16 My Hung Garment and Trading Joint Stock Company 5 985 Vietnam Hung Yen 17 Nam Dinh Textile Joint Stock Company 6 5,000 Vietnam Nam Dinh 18 NamYang International Vietnam Co., Ltd 6 2,500 Vietnam Bien Hoa 19 Phu Tho Garment Company Phu Tho - SHONAI 2 900 Vietnam Viet Tri 20 PNG Vietnam Company Limited 5 1,000 Vietnam Hai Duong 21 Sai Gon 2 Garment Joint Stock Company 6 2,700 Vietnam HCMC 22 Song Hong Garment Joint Stock Company - Sh. Garny 3 8,463 Vietnam Nam Dinh 23 Tien Hung Joint Stock Company 5 2,200 Vietnam Hung Yen 24 Thai Binh Import Export Company Limited 5 4,000 Vietnam Thai Bình 25 Valley View Vietnam Co., Ltd 6 300 Vietnam Da Nang 26 Viet Tien Garment Joint Stock Company 6 7,200 Vietnam HCMC 27 Vina Korea Co., Ltd 6 5,000 Vietnam Vinh Phuc 28 Vinatex Da Nang Joint Stock Company 6 3,000 Vietnam Da Nang 29 Vinatex Investment Joint Stock Company 5 3,000 Vietnam HCMC 30 X20 JSC 4 3,100 Vietnam Hanoi Source: Dun & Bradstreet

APPENDIX 3: BASIC INFORMATION PRODUCTION CAPACITY OF TOP TEXTILE COMPANIES IN VIETNAM No Company Address SĐT Email Website Year of Est Chartered capital Tax code Employees Production capacity 1 Vietnam National Textile and Garment Group Vintex-VGT SENTINEL PLACE Building, No. 41A, Ly Thai To Street, Hoan Kiem District, Ha Noi City, Vietnam (84-24) 38257700 info@vinatex.com.vn www.vinatex.com 1995 300 million VND 5,000,000,000,000 0100100008 80000 products / year 2 TNG Investment and Trading JSC TNG No. 434/1, Bac Kan Street, Hoang Van Thu Ward, Thai Nguyen City, Thai Nguyen Province, Vietnam (84-208) 385 8508/ 385 4462 info@tng.com http://www.tng.vn 1979 38 million VND 411,172,910,000 4600305723 9544 products / year 3 Phong Phu Corp PPH No. 48, Tang Nhon Phu Street, Quarter 3, Tang Nhon Phu B Ward, 9 District, Ho Chi Minh City, Vietnam (84-28) 3514 7340, 6684 7979 info@phongphucorp.com www.phongphucorp.co m 1964 6 million VND 746,708,910,000 0301446006 5000 products / year 4 Thanh Cong Group TCM 5 Hoa Tho Corporation HTG 6 Bac Giang Garment Company BGG 7 No. 36, Tay Thanh Street, Tay Thanh Ward, Tan Phu District, Ho Chi Minh City, Vietnam No. 36, Ong Ich Duong Street, Hoa Tho Dong Ward, Cam Le District, Da Nang City, Vietnam No. 349, Giap Hai Street, Dinh Ke Ward, Bac Giang City, Bac Giang Province, Vietnam No. 3, Nguyen Oanh Street, Ward 10, One member limited liability company of the Corporation 28 Agtex 28 Go Vap District, Ho Chi Minh City, Vietnam (84-28) 3815 3962-3815 3968 (84-236) 3846 290 / 3670 295 / 3671 011 (84-204) 3558 156 / 3854 645 (84-28) 3894 2238-3894 1415-3894 4291 tcm@thanhcong.net www.thanhcong.com.vn 1967 office@hoatho.com.vn www.hoatho.com.vn 1962 contact@bbg.vn www.bgg.vn 1972 agtexhcm@fmail.vnn.vn www.agtex.com.vn 1975 26 million VND 516,538,290,000 0301446221 6200 products / year 22 million VND 225,000,000,000 0400101556 11692 products / year 8 million VND 300,309,600,000 2400111910 13000 products / year 9 million VND 700,000,000,000 0300516772 6000 products / year 8 Hansae Vietnam Limited Liability Company Hansae Lot D2, Tay Bac Cu Chi Industrial Park, Tan An Hoi Commune, Cu Chi District, Ho Chi Minh City, Vietnam (84-28) 38924801 / 38924802 bichvn@hansae.com www.hansaevn.com 2001 150 million VND 240,000,000,000 0302286394 9600 products / year 9 Nha Be Corporation MNB số 4 Bến Nghé, Phường Tân Thuận Đông, Quận 7, Thành phố HCMC (84-28) 3872 0077-3872 9124 nhabeco@hcm.fpt.vn www.nhabe.com.vn 1972 0300398889 30000 37.2 million products / year 10 Maxport Limited Vietnam MAXSPORT Room 505-06, 5th Floor, No 83B, Ly Thuong Kiet Street, Tran Hung Dao Ward, Hoan Kiem District, Ha Noi City, Vietnam (84-24) 3858 3225 www.mxp.com.vn 2004 VND 300,000,000,000 0101452549 12,000 37.5 million products / year