Vietnam has become a top player in the global fashion supply chain, now the third-largest garment exporter after China and Bangladesh,[i] with exports reaching over 100 countries, primarily to the U.S., EU, and Japan. Major global brands like Adidas, Nike, Puma, and Uniqlo are increasingly shifting their production to Vietnam. But why is Vietnam so attractive to these companies? Let’s break down the key reasons.[ii]
Vietnam offers a balance of affordable labor and skilled craftsmanship, with garment workers earning about $300 per month—higher than the global average but much lower than in China, the EU, or the U.S ($400-1,200 per month).[iii] Meanwhile, the high skills of Vietnam’s workforce produce high-quality garments that meet the strict standards of markets like the U.S. and EU.
For example, in 11/2023, Uniqlo praised Vietnam’s manufacturing partners for their advanced skills, capable of producing complex products such as ultra-light down jackets and HEATTECH apparel. This craftsmanship makes Vietnam a trusted partner for high-quality production.[iv]
Vietnam’s growing list of free trade agreements (FTAs), such as the CPTPP and EVFTA, give its garment and textile industry a competitive edge by lowering tariffs. Under the EVFTA, Vietnamese textiles will have zero tariffs in the EU by 2027, leading to significant export growth from 2021 to 2022: 34% in Sweden, 27% in Poland, and 57% in Germany.[v]
As labor costs rise in China and trade tensions with the U.S. increase, many global brands are adopting the “China + 1” strategy—keeping some production in China while expanding to Vietnam to reduce risk and costs. With its competitive labor market and stable trade relationships, this shift is helping Vietnam grow as an alternative production hub for global fashion brands.[vi]
Vietnam’s textile and garment hubs are becoming more advanced, with upgraded infrastructure and technology. The southern regions, including Ho Chi Minh City, Dong Nai, and Binh Duong, host 58% of the country’s garment companies and have strong logistics networks to support the industry.[vii]
In northern Vietnam, around 30% of the country’s garment companies are based, with nearly half in Hanoi, specializing in fashion design and material supply.[viii] Suburban provinces like Nam Dinh are key for midstream production, such as fabric making and dyeing. Significant investments, including Yi Da Denim Mill’s $100 million (China)[ix] and Crystal Group’s $200 million (China) for a sixth factory, emphasize Nam Dinh’s growing importance in Vietnam’s textile industry.[x]
Vietnam’s garment industry offers multiple production models for global brands. 65% of manufacturers operate under the CMT (Cut, Make, Trim) model, while 25% follow OEM/FOB methods.[xi]
While CMT companies provide a quick entry option with basic control over labor, it suits brands with established supply chains looking to leverage Vietnam’s skilled workforce without giving up control over materials and design.
For a more hands-off approach, the OEM or FOB model is ideal, offering end-to-end production so brands can focus on marketing and sales. OEM companies in Vietnam use advanced machinery and experienced staff, ensuring quality control meets international standards, while requiring less micromanagement.
However, choosing OEM comes with risks:
In conclusion, global brands are choosing Vietnam for its cost advantages, market access, and high-quality production. The OEM model is highly efficient, but it carries risks like loss of control, IP concerns, and supply chain issues. A well-structured OEM contract is essential to protect your investment and avoid delays.
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In D’Andrea & Partners Legal Counsel, our extensive expertise in the Vietnamese market enables us to assist you with crafting OEM contracts that provide strong, reliable protections for your business. Through our consultancy, we ensure robust protections, including strict quality control, IP safeguards, transparent costs, and clear termination clauses to minimize risks and secure your business.
The above content is provided for informational purposes only. The provision of this article does not create an attorney-client relationship between D’Andrea & Partners and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel.
[i] FISC, “Vietnam textile and garment industry value chain”, accessed at: https://fisc.vn/nganh-trien-vong/chuoi-gia-tri-nganh-det-may-viet-nam-p1369.html
[ii] Vietnam Communist Party News, “The textile and garment industry aim for export revenues of 44 billion USD in 2024”, accessed at: https://dangcongsan.vn/kinh-te-va-hoi-nhap/nganh-det-may-dat-muc-tieu-xuat-khau-44-ty-usd-nam-2024-653445.html
[iii] Vietnam WTO Center, “Vietnam’s textile and garment industry: A “Golden” opportunity for sustainable development”, accessed at: https://trungtamwto.vn/chuyen-de/24109-nganh-det-may-viet-nam-thoi-diem-vang-cho-phat-trien-ben-vung
[iv] Express, “Vietnam is among Uniqlo’s key production hubs in Asia”, accessed at: https://vnexpress.net/viet-nam-thuoc-nhom-san-xuat-chu-chot-o-chau-a-cua-uniqlo-4676958.html
[v] Ministry of Industry and Trade, Institute of Strategic and Industrial Policy Research, “The impact of Free Trade Agreements (FTAs) on Vietnam’s textile and garment exports”, accessed at: https://vioit.org.vn/vn/chien-luoc-chinh-sach/tac-dong–cua-cac-hiep-dinh-thuong-mai-tu-do–fta–toi-xuat-khau-det-may-viet-nam-4646.4050.html
[vi] Vietnam WTO Center, “The wave of production shifts away from China”, accessed at: https://trungtamwto.vn/hiep-dinh-khac/15359-lan-song-dich-chuyen-chuoi-san-xuat-khoi-trung-quoc-viet-nam-dung-bo-lo
[vii] ACITF, “Report on Vietnam Textile and Garmet Industry”, accessed at: https://www.ids.trade/files/actif_report_on_vietnam_textile_and_garment_industry.pdf
[viii] ACITF, “Report on Vietnam Textile and Garmet Industry”, accessed at: https://www.ids.trade/files/actif_report_on_vietnam_textile_and_garment_industry.pdf
[ix] People News, “Nam Dinh receives new 100-million-USD manufacturing project”, accessed at: https://en.nhandan.vn/nam-dinh-receives-new-100-million-usd-manufacturing-project-post128425.html
[x] Vietnam Investment Review (A Special Edition of Bao Dau Tu), “Hong Kong’s Crystal Group eyes $200 million project in Nam Dinh”, accessed at: https://vir.com.vn/hong-kongs-crystal-group-eyes-200-million-project-in-nam-dinh-108279.html
[xi] Economic and Forecasting Journal, “Production preparation process: Theory and solutions for Vietnamese garment enterprises”, accessed at: https://kinhtevadubao.vn/quy-trinh-chuan-bi-san-xuat-ly-thuyet-va-giai-phap-cho-cac-doanh-nghiep-nganh-may-viet-nam-29839.html
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