COMPARATIVE ADVANTAGE OF VIETNAM’S TEXTILE AND CLOTHING INDUSTRY _ A DISSERTATION Presented to the Faculty of the Graduate School Southern Luzon State University, Lucban, Quezon, Philippines in Collaboration with Thai Nguyen University, Socialist Republic of Vietnam _ In Partial Fulfillment of the Requirements for the Degree Doctor of Business Administration _ By LE ANH TUAN (JOHN) December 2013 i APPROVAL SHEET The Dissertation of LE ANH TUAN entitled COMPARATIVE ADVANTAGE OF VIETNAM’S TEXTILE AND CLOTHING INDUSTRY Submitted in Partial Fulfilment of the Requirements for the Degree DOCTOR OF BUSINESS ADMINISTRATION A program offered by Southern Luzon State University, Republic of the Philippines in collaboration with Thai Nguyen University, Socialist Republic of Vietnam has been approved by Oral Examination Committee WALBERTO A MACARAAN, EdD Expert JOANNA PAULA A ELLAGA, DBA Expert MELCHOR MELO O PLACINO, PhD Expert EDUARDO T BAGTANG, DBM External Panel CECILIA N GASCON, PhD Chairman Endorsed by: Recommended by: NGUYEN KHANH DOAN, PhD Adviser APOLONIA A ESPINOSA, PhD Dean Accepted in Partial Fulfilment of the Requirements for the Degree Doctor of Business Administration _ Date WALBERTO A MACARAAN, EdD Vice President for Academic Affairs ii CERTIFICATE OF ORIGINALITY This is to certify that the research work / dissertation entitled: COMPARATIVE ADVANTAGE OF VIETNAM’S TEXTILE AND CLOTHING INDUSTRY, orally defended/ presented under the DBA Program jointly offered by Southern Luzon State University of the Republic of the Philippines and Thai Nguyen University of the Socialist Republic of Vietnam, embodies the result of original and scholarly work carried out by the undersigned This dissertation does not contain words or ideas taken from published sources or written works by other persons which have been accepted as basis for the award of any degree from other higher education institutions, except where proper referencing and acknowledgement were made Candidate’s Signature Le Anh Tuan (John) Date Orally Defended: 23rd, September, 2013 iii ACKNOWLEDGMENT Throughout the course of research leading to the completion of this dissertation, I wish to express gratitude to the many people, who have provided me with tremendous help and support in one way or another, which I think I cannot possibly acknowledge in full measures First and foremost, I would like to express my sincere thanks to Vice Associate Prof Dr.Nguyen Khanh Doanh, my advisor, for his invaluable thoughts, insightful suggestions and useful guidance in the course of finishing this dissertation Sincere appreciation are also hereby given to the committee members for their propositions, valuable comments, and constructive suggestions which were of substantial value to this study I would like to faithfully acknowledge professors of SLSU & TNU at the DBA Program of Thai Nguyen University for their insightful lectures in the different subjects that provided me knowledge and techniques to develop a good research My sincere thanks is also extended to my friends for their meaningful discussion, hospitality and friendships Finally, I am profoundly grateful to my parents, my wife, my sisters and my brothers, who have always been with me in every situation They have been my source of encouragement during my work LE ANH TUAN iv DEDICATION To My Friends & Family Thank you for ALL the Support LAT v TABLE OF CONTENTS PAGE TITLE PAGE ……………………………………………………………… I APPROVAL SHEET ……………………………………………………… ii CERTIFICATE OF ORIGINALITY ……………………………………… iii ACKNOWLEDGEMENT ………………………………………………… iv DEDICATION ……………………………………………………………… v TABLE OF CONTENTS ………………………………………………… vi LIST OF TABLES ………………………………………………………… viii LIST OF FIGURES ……………………………………………………… ix LIST OF APPENDICES ………………………………………………… x ABSTRACT ………………………………………………………………… xi CHAPTER I II III IV INTRODUCTION …………………………………………… Background of the Study ………………………………… Objectives of the Study …………………………………… Significance of the Study ………………………………… Scope and Limitations of the Study ……………………… Definition of Terms ………………………………………… REVIEW OF LITERATURE ……………………………… 10 Conceptual and Theoretical Framework ………………… 37 METHODOLOGY Research Design …………………………………………… 51 Data Gathering Procedure ………………………………… 51 Research Instrument ……………………………………… 52 Statistical Treatment ……………………… …….…… 53 RESULTS AND DISCUSSIONS ………………………… 72 Vietnam’s Export Performance in Textile and Clothing 72 Patterns of Vietnam’s Comparative Advantage in Textile vi and Clothing ………………………………………………… 80 Determinants of Vietnam’s Comparative Advantage and Competitiveness in Textile Clothing ……………………… 88 Trade Complementary and Forecasting Vietnam’s Potential Exports …………………………………………… V 94 SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS Summary of Findings ……………………………………… 96 Conclusions ………………………………………………… 98 Recommendations ………………………………………… 98 REFERENCES ……………………… ………………………………… 102 APPENDICES …………………………………………………………… 108 CURRICULUM VITAE …………………………………………………… 111 vii LIST OF TABLES TABLE PAGE Basic Economic Indicators of Vietnam 73 Contribution of Textile and Clothing to Vietnam’s Total Exports 74 Annual Growth Rate of Vietnam’s Textile and Clothing Exports 74 Structure of Vietnam’s Textile and Clothing Exports 76 Top 10 Textile and Clothing Export Markets of Vietnam 77 Importance of Vietnam in World Exports of Textile and Clothing Exports 79 Summary of Statistics 80 Measures of Trade Specialization 81 Vietnam’s Revealed Comparative Advantage in Textile and Clothing 82 10 Results of Galtonian Regression 83 11 Transition Probability Matrix 2001-2011 84 12 Mobility Indices 86 13 Herfindahl Index 87 14 Summary of Statistics 88 15 Determinants of Vietnam’s Textile and Clothing Exports (REM) 89 16 Tariff rates applied by Vietnam on Imports of Textile and Clothing 93 17 Trade Complementary 95 viii LIST OF FIGURES FIGURE PAGE Porter’s G eneric Strategies for Competitive Advantage 11 Conceptual and Theoretical Framework 38 Determinants of National Competitive Advantage 41 Linking Comparative Advantage and Competitive Advantage 45 ix LIST OF APPENDICES APPENDIX PAGE Description of the Commodity 109 Transition Probability Matrix 110 ` x 97 In addition, the textile and clothing industry also attracted many workers contribute to reducing unemployment situation Improving the competitiveness of Vietnam textile and clothing has more significance than Vietnam in the early stages of WTO integration period with the level of trade liberalization and to create competitive environment fair competition among exporting countries Over the past few decades, the Vietnam textile and clothing industry has become less competitive in the global marketplace There are many reasons for this, including overcapacity and low profitability; however, the dramatic increase in imports from low cost producing countries, particularly China, has, according to the study, had the greatest negative impact on the domestic industry (Textile and clothing Industry, 2006;, 2007) The increase in textile and clothing imports into the Vietnam marketplace is the result of various occurrences including the Agreement of Textiles and Clothing phase-out of quotas in 2005, in addition to liberalized trade agreements, currency manipulation by some exporting countries, and lack of enforcement of trade laws Rising oil prices, which are a key component of synthetic fibers, combined with the increasing pressures on upstream pricing, due to retailer consolidation and increased competition, has only contributed to the hastening decline of the domestic industry Due to the concurrent factors impacting the textile and clothing industry Successful firms examined their business practices in order to ascertain their core competencies and have focused on that particular segment that offers them a competitive advantage over lower priced imports Prior to these requests Maintaining the comparative advantage of Vietnam’s textile and clothing industry in order to enhance export capacity is more and more significant 98 Conclusions To foster future production and export, so as to reach continuing development in textile and clothing industry, more relevant policy should be implemented to move the economy and its export sector towards a desirable comparative advantage structure Recommendations Based on the above analysis, some policy recommendations are made as follows: Enhancing human capital and raise technology capacity of textile and clothing firms Optimization of industry structure, enhancement in human capital and technology are preconditions to continuing development, comparative advantage, technological innovation as well as to industrial upgrade in Vietnam’s textile industry In recent years, a large number textile firms in Vietnam have capitalized on outward processing using the country’s unskilled and cheap labor This outward processing does not generally require very high levels of technology The excessive reliance on cheap labor and backward technology to promote exports has prevented Vietnam from moving up the comparative advantage ladder Experience of Asia’s successful economies, such as Japan, the NIEs and some ASEAN countries, shows that quality human capital is pivotal in raising technology levels and competitiveness of firms, which in turn will eventually lead to favorable changes in comparative advantage patterns of the whole economy Vietnam, therefore, should reform its education and 99 training system to make it capable of providing a trained labor force that meets the needs of firms The government also needs to provide incentives and practical support for textile and clothing firms to raise their technology capacity through R&D activities On the firm level, firms in the textile industry ought to strengthen input on R&D, persistently improve technology and release new products into international market as well as impose new technology to present categories Technology is the soul for enterprises’ development and core to competitive advantage, while technological innovation practitioners are enterprises For large firms and firm groups, it is necessary to establish R&D center to construct a market-oriented innovation system in which technology and production cyclically promote each other From the perspective of global economic development, 60%-70% of benefit growth in developed countries relies on progress in science and technology, yet in Vietnam, this ratio is very low It is therefore urgent for Vietnam to reconstruct and upgrade the traditional textile industry with high technology Thus a consummate technological innovation system is required for technology absorbance and renovation Government’s effective regulation and establishment of industrial earlywarning system While official interferences were widely employed among the Vietnamese government to control exports, market method, which includes exchange rate, drawbacks and exporting tariffs, should mainly be adopted by the government in the current market economy to regulate market order and textile export 100 In addition, the government and industry associations ought to analyze Agreement on Textiles and Clothing (ATC) to find good means for Vietnam’s textile exports, improve policy cooperation with other countries, investigate trade policies of textile importing countries, introduce flexible measures to stimulate exports, and settle trade disputes through negotiation within WTO framework with other WTO members Vietnamese government and industrial associations should make active efforts to establish a government-guided industrial early-warning system which involves government, industrial associations and firms Government and industrial associations should also construct industrial information centers and databases In order to overcome technical trade barriers, government and enterprises should provide textile enterprises with assistance, especially in information collection toward technology statutes, technique standards and assessing procedures Consistency between trade and other policy objectives The results underscore the importance of a comprehensive approach to designing economic development policies which should seek consistency between trade and other policy objectives Governments should avoid actively affecting trade patterns in general but such actions may be particularly counterproductive if they are inconsistent with country‘s resource base and other policies in place Thus, when seeking to maintain or develop competitiveness in a certain area—for instance capital-intensive sectors—this is best achieved through drawing on best practices and developing effective broad policies that facilitate capital accumulation In case where a country succeeds in increasing its endowment of capital, relative to other countries and other factors of production, this is likely to result in the re-orientation of its exports toward 101 capital-intensive sectors Importantly, a broad-based approach involves a lower 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Structure of Vietnam’s Textile and Clothing Exports 76 Top 10 Textile and Clothing Export Markets of Vietnam 77 Importance of Vietnam in World Exports of Textile and Clothing Exports 79 Summary of Statistics... textile and clothing industry and helping Vietnam reach higher position in global market of textile and clothing products Textile and clothing industry has been declared as a key industry of the... foundation and empirical evidence of comparative advantage  To investigate the patterns of Vietnam’s comparative advantage in textile and clothing industry  To analyze the dynamics of Vietnam’s comparative