Organic Name Reactions for the students and aspirants of Chemistry12th.pptx
Technical barriers to Vietnam leather footwear exported to the European union market
1. FOREIGN TRADE UNIVERSITY
HO CHI MINH CITY CAMPUS
GRADUATION THESIS
Major: International Business Economics
TECHNICAL BARRIERS TO VIETNAM
LEATHER FOOTWEAR EXPORTED
TO THE EUROPEAN UNION MARKET
Author: Nguyen Ngoc Mai
Student ID: 1001017145
Class: K49CLC3
Supervisor: Tran Quoc Trung
Ho Chi Minh City, May 2014
2. TABLE OF CONTENTS
LIST OF ABBREVIATIONS
LIST OF TABLES AND CHARTS
PREFACE ................................................................................................................. 1
Chapter 1: OVERVIEW OF TECHNICAL BARRIERS TO VIETNAM
LEATHER FOOTWEAR EXPORTED TO THE EU MARKET AND THE
NECESSITY OF STUDYING TECHNICAL BARRIERS TO VIETNAM
LEATHER FOOTWEAR EXPORTED TO THE EU MARKET ...................... 4
1.1. Overview of technical barriers..................................................................... 4
1.1.1. Definition of technical barriers................................................................... 4
1.1.2. Roles and purposes of technical barriers .................................................... 4
1.1.3. Types of technical barriers.......................................................................... 5
1.2. Technical barriers to Vietnam leather footwear exported to the EU
market ............................................................................................................ 6
1.2.1. Regulation of Registration, Evaluation, Authorization and Restriction of
Chemicals (REACH) .................................................................................. 6
1.2.2. Labeling requirements ................................................................................ 8
1.2.3. Quality management system: ISO 9001 ................................................... 10
1.2.4. Environmental management system: ISO 14001 ..................................... 12
1.2.5. Social Accountability 8000 (SA 8000)..................................................... 14
1.3. The necessity of studying technical barriers to Vietnam leather footwear
exported to the EU market......................................................................... 16
1.3.1. For Vietnam economy .............................................................................. 16
1.3.2. For Vietnam enterprises............................................................................ 18
1.4. Experience of China in overcoming technical barriers to leather
footwear and lessons for Vietnam.............................................................. 20
1.4.1. Reasons for choosing China ..................................................................... 21
1.4.2. Experience of China to overcome technical barriers to leather footwear
exported to the EU .................................................................................... 21
1.4.3. Lessons for Vietnam ................................................................................. 23
3. Chapter 2: CURRENT SITUATION OF VIETNAM LEATHER FOOTWEAR
EXPORTS TO THE EU MARKET AND OVERCOMING TECHNICAL
BARRIERS TO VIETNAM LEATHER FOOTWARE EXPORTED TO THE
EU MARKET FROM 2008 TO 2013 ................................................................... 24
2.1. Vietnam leather footwear exports to the EU market from 2008 to 2013... 24
2.1.1. Export turnover.......................................................................................... 24
2.1.2. Market structure......................................................................................... 27
2.1.3. Export structure.......................................................................................... 29
2.2. Overcoming technical barriers to Vietnam leather footwear exported to
the EU market from 2008 to 2013......................................................................... 30
2.2.1. Meeting REACH........................................................................................ 30
2.2.2. Meeting labeling requirements .................................................................. 34
2.2.3. Meeting ISO 9001...................................................................................... 35
2.2.4. Meeting ISO 14001.................................................................................... 37
2.2.5. Meeting SA 8000....................................................................................... 38
2.3. Comments ........................................................................................................ 39
2.3.1. Strengths .................................................................................................... 39
2.3.2. Weaknesses................................................................................................ 42
Chapter 3: ORIENTED DEVELOPMENT AND RECOMMENDATIONS TO
OVERCOMING TECHNICAL BARRIERS TO VIETNAM LEATHER
FOOTWEAR EXPORTED TO THE EU MARKET FROM 2014 TO 2020
.................................................................................................................................. 54
3.1.Trends of leather footwear consumption in the EU market........................ 54
3.2. Trends of application of technical barriers to leather footwear in the EU
market ..................................................................................................................... 56
3.3. Basic orientations and goals to overcome technical barriers to Vietnam
leather footwear exported to the EU market from 2014 to 2020....................... 57
3.3.1. Basic orientations....................................................................................... 57
3.3.2. Detailed goals ............................................................................................ 58
3.4.Recommendations for improving the overcoming of technical barriers to
Vietnam leather footwear exported to the EU market from 2014 to 2020 ....... 59
4. 3.4.1. Recommendations for the government...................................................... 59
3.4.2. Recommendations for Vietnam Leather, Footwear and Handbag
Association........................................................................................................... 68
3.4.3. Recommendations for Vietnam leather footwear exporting enterprises ... 75
CONCLUSION....................................................................................................... 80
REFERENCES ....................................................................................................... 81
ANNEXES............................................................................................................... 88
5. LIST OF ABBREVIATIONS
ABBREVIATION FULL MEANING
1 CMS Chemical management system
2 EMS Environment management system
3 EC European Commission
4 ECHA European Chemicals Agency
5 EU European Union
6 FDI Foreign Direct Investment
7 ISO International Organization for Standardization
8 LEFASO
Vietnam Leather, Footwear and Handbag
Association
9 GSP Generalized System of Preferences
10 MARD Ministry of Agriculture and Rural Development
11 MOET Ministry of Education and Training
12 MNRE Ministry of Natural Resources and Environment
13 MOIT Ministry of Industry and Trade
14 MOLISA Ministry of Labor, Invalids and Social Affairs
15 MOST Ministry of Science and Technology
16 MPI Ministry of Planning and Investment
17 ODA Official Development Assistance
18 REACH
Regulation on Registration, Evaluation,
Authorization and Restriction of Chemicals
19 R&D Research and Development
20 SVHC Substance of Very High Concern
21 TBT Technical Barriers to Trade
22 QMS Quality management system
23 USD US Dollar
24 VSQI Vietnam Standard and Quality Institute
25 SAI Social Accountability International
6. LIST OF TABLES AND CHARTS
No. Name of Table Page
1
Table 1.1: Total export turnover and export turnover of leather
footwear of Vietnam from 2008 to 2013
16
2
Table 2.1: Total export turnover and export turnover to the EU of
Vietnam leather footwear from 2008 to 2013
25
3
Table 2.2: Vietnam leather footwear export turnover from the 5
main markets in the EU from 2008 to 2013
28
4
Table 2.3: Number of ISO 9001 certificates given to Vietnam from
2008 to 2012
35
5
Table 2.4: Number of ISO 14001 certificates given to Vietnam
from 2008 to 2012
37
6
Table 2.5: Legal documents relating to supporting Leather and
Footwear industry to overcome technical barriers
41
7
Table 3.1: Production, consumption and external trade of footwear
of the EU market from 2008 to 2012
54
No. Name of Chart Page
1
Chart 2.1: Total export turnover of Vietnam leather footwear
exported to the EU and other countries from 2008 to 2013
24
2
Chart 2.2: Turnover ratio of three main export markets for leather
footwear of Vietnam from 2008 to 2013
27
3
Chart 2.3: Export turnover of Vietnam leather footwear to 5 major
export markets in the EU from 2008 to 2013
28
4
Chart 2.4: Export turnover of Vietnam leather footwear exported to
the EU in 3 categories from 2008 to 2013
29
5
Chart 2.5: Evaluation of Vietnam leather footwear companies of
their chemicals management system
31
6
Chart 2.6: Percentage of companies that have decreased revenue
from the EU market due to REACH from 2008 to 2013
33
7. 7
Chart 2.7: Evaluation of Vietnam leather footwear companies of
their compliance to labeling requirements from 2008 to 2013
34
8
Chart 2.8: The implementation of ISO 9001 of Vietnam leather
footwear exporters to the EU market
36
9
Chart 2.9: The implementation of ISO 14001 of Vietnam leather
footwear exporters to the EU market
37
10
Chart 2.10: Evaluation of Vietnam leather footwear companies
about the importance of input material quality to overcoming
technical barriers
42
11
Chart 2.11: Proportion of three types of exports in total footwear
export turnover of Vietnam in 2013
43
12
Chart 2.12: Evaluation of Vietnam leather footwear companies
about capital support policy of the Government
45
13
Chart 2.13: Evaluation of leather footwear companies of their
attention to and investment in upgrading technology
48
14
Chart 2.14: Evaluation of Vietnam leather footwear companies
about the support of information from the Government and
LEFASO
49
15
Chart 2.15: Evaluation of Vietnam leather footwear companies
about connection between enterprises in the industry
53
8.
9. 1
PREFACE
1. The reasons for choosing the research topic
Exports of goods and services today represent around 81% of Vietnam's
GDP (Cong Tri, 2014). For many years, export always plays a key role in the
development of Vietnam economy. It helps increase foreign currencies and create
the base to import modern machines and facilities to serve the modernization and
industrialization of Vietnam. Export also contributed to solve unemployment and
expand international trade relationships. Among the key export industries of
Vietnam, leather footwear plays the role of a spearhead with the third rank in terms
of export turnover. In 2012, Vietnam ranks fifth in top leather footwear exporters of
the world with 3.3% of total market share (World Footwear Yearbook, 2012).
According Vietnam's Socio-Economic Development Strategy for 2011 –
2020, Oriented to 2030, among the main import markets of Vietnam, the EU is
considered as one of the most important market because of its size, potential and
stable growth. From 2008 to 2013, EU is the largest export market of Vietnam
leather footwear with the export turnover each year exceeds 2 million USD.
Besides being a large and potential markets with great demands, the EU
applies a system of technical barriers for imported goods that are considered
worldwide strictest and most complicated. They are projected to become more
complex in the near future, posing a threat to the exports of Vietnam.
Acknowledging the importance of the EU technical barriers to the growth of
Vietnam leather footwear exports, a research on “Technical barriers to Vietnam
leather footwear exported to the European Union market” is chosen to meet the
urgent need of finding solutions to overcome those technical barriers effectively for
sustainable development in this market.
2. Prior studies relating to the topic
Prior studies relating to leather footwear exports mainly focused on
analyzing current situation of exporting leather footwear to the EU and other
markets in order to provide recommendations to increase exports. Nguyen Huynh
Thanh Thao (2011) analyzed factors of Vietnam and the EU market that affect
exports of leather footwear, which include the factor of technical barriers but did
10. 2
not provide detailed research on the system of technical barriers as well as the
ability to overcome those technical barriers of Vietnam leather footwear. Regarding
research of technical barriers, Nguyen Thi Hong Anh (2010) mentioned technical
barriers as one of the mechanisms to restrict imports of the EU market but did not
go into details about technical barriers applied to specific commodities of Vietnam.
There are studies researching on technical barriers to other commodities of Vietnam
exported to foreign markets. Truong Thi Hoai Ngoc (2010) analyzes in details the
current situation of overcoming technical barriers to Vietnam agricultural products
and provides recommendations to enhance the ability of agriculture sector to
overcome those technical barriers. There have not been any studies that directly
address technical barriers to Vietnam leather footwear exported to the EU market.
3. The research purpose
The main purposes of this research include:
- Analyzing the current situation of overcoming technical barriers and ability
to overcome technical barriers of Vietnam leather footwear exports to the EU.
- Providing recommendations for Vietnam leather footwear to overcoming
technical barriers of the EU market.
3. The research object and scope
3.1. The research object
The research object is technical barriers to Vietnam leather footwear
exported to the EU market.
3.2 The research scope
Time: The current situation of overcoming technical barriers for Vietnam
leather footwear exported to the EU market is studied during the period from 2008
to 2013 and the recommendations are for the period from 2014 to 2020.
Space: The topic is researched within Vietnam country.
4. The research methods
Data collection methods: is applied to search and select relevant secondary
information (annual reports, specialized magazines, newspapers, legal documents
and so on) from available sources, such as the Internet and libraries.
Statistical methods: is applied to describe survey data from 51 leather
11. 3
footwear companies in Vietnam that export to the EU market and evaluate current
situation of overcoming EU technical barriers of Vietnam leather footwear.
Analysis method: is applied to analyze the reasons of strengths and
weaknesses in overcoming technical barriers of Vietnam leather footwear
companies, from which providing recommendations for improvement.
5. The structure of the research
Apart from table of contents, list of abbreviations, list of tables and charts,
preface, conclusion, reference and appendix, the thesis include three main sections:
Chapter 1: Overview of technical barriers to Vietnam leather footwear
exported to the EU market and the necessity of studying technical barriers to
Vietnam leather footwear exported to the EU market
Chapter 2: Current situation of Vietnam leather footwear exports to the EU
market and overcoming technical barriers to leather footwear exported to the EU
market from 2008 to 2013
Chapter 3: Orientations and recommendations to overcoming technical
barriers to Vietnam leather footwear exported to the EU market from 2014 to 2020
To complete this thesis successfully, I have received a lot of assistance from
Vietnam leather footwear exporters and Foreign Trade University. I would like to
thank all the leather footwear companies that completed the questionnaire to assist
me in collecting primary data for my research. From Foreign Trade University, I
would like to thank all lecturers of Professional Operation Faculty for their
enthusiastic help and support in the process of completing this thesis. Most
importantly, I would like to express my deep gratitude to MBA. Tran Quoc Trung
for providing me with detailed research method and academic guidance on the topic
as well as his dedication in explaining all of my concerns clearly.
Due to limited research time, limitations and shortcomings in this thesis are
inevitable. Therefore, the author hopes to receive valuable opinions from lecturers
and readers in order to improve the practical value of the thesis in the future.
Ho Chi Minh City, May 2014
Student
Nguyen Ngoc Mai
12. 4
Chapter 1: OVERVIEW OF TECHNICAL BARRIERS TO VIETNAM
LEATHER FOOTWEAR EXPORTED TO THE EU MARKET AND THE
NECESSITY OF STUDYING TECHNICAL BARRIERS TO VIETNAM
LEATHER FOOTWEAR EXPORTED TO THE EU MARKET
1.1. Overview of technical barriers
1.1.1. Definition of technical barriers
Technical barriers to trade refer to technical regulations, minimum standards
and certification systems for health, safety and environmental protection and to
enhance the availability of information about products, which may result in the
erection of technical barriers to trade (The Organization for Economic Co-operation
and Development Glossary of Statistical Terms, 2003)
1.1.2. Roles and purposes of technical barriers
Technical barriers refer to mandatory technical regulations, voluntary
standards and the specific procedures followed to check whether a product is in
compliance with the requirements, which is called conformity assessment
procedures. The conformity assessment procedures can include, for example,
product testing, inspection, certification and accreditation activities.
Technical barriers can arise whenever a producer may have to alter his or her
product in order to conform to requirements of foreign partner countries such as for
health, safety, environmental and consumer protection issues. These requirements
can be imposed by both governments (technical regulations) and non-governmental
organizations (non-regulatory barriers, standards). The legal character of technical
regulations distinguishes them from non-regulatory barriers or standards. Non-
regulatory barriers or standards are voluntary, not legally binding and arise from the
self-interest of producers or consumers involved, for example, to improve the
information in commercial transactions and ensure compatibility between products.
Technical regulations mainly relate to either technical specifications or testing and
certification requirements in conformity assessment procedures (Paul Brenton,
2000). They have different implications for international trade. If imported products
do not fulfill the requirements of a technical regulation, they will not be allowed to
be put on the market. In case of standards, non-complying imported products will be
13. 5
allowed on the market, but then their market share may be affected if consumers
prefer products that meet local standards (WTO Technical information on TBT).
Technical barriers are usually introduced by government authorities with a
legitimate public policy objective in mind – for example, maintaining national
security, ensuring product quality, protecting human health and safety, animal and
plant life and health or the environment, or safeguarding consumers from deceptive
practices. Nevertheless, technical barriers often have an impact on trade and the
competitiveness of exporters. Adjusting products and production processes to
conform to different requirements in export markets, as well as demonstrating
compliance with these requirements, increase production costs and time-to-market.
Additional costs here involve loss of economies of scale when companies must
adjust their production facilities to diverse technical requirements of different
markets as well as conformity assessment cost and information cost. They can
considerably hurt the competitiveness of exporters. Therefore, technical barriers can
become effective protectionism tools. This is the reason for many exporters to put
technical barriers at or near the top of their prioritized concerns on trade barriers.
1.1.3. Types of technical barriers
Technical barriers may be divided into a number of different types. First, and
most important, are technical barriers used for the protection of human health and
safety. The largest number of technical standards and regulations are adopted for
this purpose. A wide variety of examples can be given, from standards on electrical
equipment, regulations on the use of fire-retardant materials in production of
household furniture, regulations on harmful materials in food and drink to labeling
of tobacco to indicate that they are damaging to human health.
The second type is technical barriers for the protection of animal and plant
health and life. They are adopted to protect endangered species and rare plants from
distinction. For example, some countries require that endangered species of fish
reach a certain length before they can be caught or ban the trade of specific animal
products like ivory and medical ingredients from endangered animals.
The third type is technical barriers put in place to protect the environment.
They may include requirements on levels of automobile emission or restriction
14. 6
against products that generate environmentally harmful substances such as CFCs.
Increasing concerns of consumers about the environment and raising level of
pollution have led to greater popularity of this type of technical barrier.
The final type is technical barriers for prevention of deceptive practices,
which aim to protect consumers through information by labeling, packaging and
classification requirement and controls on weights and measurements.
1.2. Technical barriers to Vietnam leather footwear exported to the EU market
1.2.1. Regulation of Registration, Evaluation, Authorization and Restriction of
Chemicals (REACH)
1.2.1.1. Overview of REACH
REACH, Regulation (EC) No 1907/2006 of the European Parliament and of
the council of 19 December 2006, governs the Registration, Evaluation,
Authorization and Restriction of Chemicals, which simplifies and consolidates more
than 40 former regulations. REACH came into force on June 1, 2007 to coalesce
and improve the former legislative framework on chemicals of EU. REACH is the
worldwide strictest regulation on chemicals. The European Chemicals Agency
(ECHA) has been established to manage registration and authorization, carry out
dossier evaluation, co-ordinate substance evaluation and restrictions on chemicals.
The main aims of REACH are to ensure a high level of protection of human
health and the environment from the risks that can be posed by chemicals, the
promotion of alternative test methods, and the free circulation of substances on the
internal market and enhancing competitiveness and innovation. REACH establishes
a registration system for chemical substances that requires the traceability of
chemicals and identification of substances within products.
Key elements and procedure of REACH include:
- Registration of chemicals in quantities of one tonne per year and above by
manufacturers and importers of chemicals, chemical preparations and articles.
Companies have the responsibility of collecting information on the properties and
the uses of substances that they manufacture or import at or above one tonne per
year. They also have to make an assessment of the hazards and potential risks
presented by the substance.
15. 7
- Evaluation of registered chemicals to establish if information submitted is
compliant, whether further information is needed (dossier evaluation) and additional
measures are required (substance evaluation) to ensure their safe use.
- Authorization of chemicals identified as substances of very high concern
(SVHC) - chemicals that may cause severe health or environmental problems —
before they can be made, imported or used in the EU market.
- Restrictions imposed on the manufacture, import and use of high risk
chemicals - chemicals which cause unacceptable risks to the health and environment
and which need EU-wide action. Restrictions may limit or ban the manufacture,
placing on the market or use of a substance.
REACH affects those companies based in the EU manufacturing, importing
or using quantities of one metric tonne or more per year of the following:
- Chemical substances, either single elements or their compounds
- Preparations, which mean mixtures or a solutions composed of two or more
substances (including plastics and alloys)
- Articles, which mean objects which during production are given a special
shape, surface or design that determines their function to a greater degree than does
their chemical composition. Examples of articles are garment, furniture and leather
goods. Leather footwear is classified as article.
1.2.1.2. Obligations of leather footwear exporters under REACH
Registration is the submission to ECHA of a technical dossier with
information on the properties of a substance and, if required, a chemical safety
report documenting the chemical safety assessment for this substance. Registration
of a substance in articles is mandatory for an article producer or importer only if the
following two conditions are met:
- The substance is intended to be released from the imported articles during
normal or reasonable foreseeable conditions of use.
- The total amount of the substance present in all articles imported, from
which the substance is intended to be released, exceeds 1 tonne per year.
The key part of REACH that affects the leather footwear sector relates to
substances in articles, whether those substances are intended to be released and
16. 8
whether they are SVHCs. Companies that place products onto the EU market
including manufacturers, importers and retailers of footwear, need to ensure that
their products do not contain substances above the set limits that have been
classified as SVHCs or as restricted substances.
The identification of a substance as a SVHC and its inclusion in the
Candidate List creates certain legal obligations for the importers, producers and
suppliers of an article that contains such a substance. SVHCs include those
classified as Carcinogenic, Mutagenic or toxic to Reproduction (CMRs), Persistent,
Bio accumulative & Toxic (PBTs) and very persistent very bioaccumulative
(vPvBs). SVHC Candidate List has undergone several updates and now there are a
total of 151 SVHCs in the list (updated April 2013). Producers and importers have
to notify to ECHA the SVHCs listed on the Candidate list that are present in their
articles no later than six months after the inclusion of the substance in the Candidate
List, if both the following conditions are met:
- The substance is present in their relevant articles above a concentration of
0.1% weight by weight.
- The substance is present in these relevant articles in quantities totalling
over one tonne per year.
Although REACH is a European regulation, irrespective of the location of
the factory, it does apply if the manufactured chemicals, leather or finished products
are finally sold on the European market. REACH will most likely affect parts of the
supply chain that are not directly involved in Europe because of the global nature of
leather footwear manufacture and tannery suppliers. Concerning the effect of
REACH to Vietnam leather footwear exporters, the EU importers shall ask Vietnam
producers to furnish requirement for submission to ECHA. It is important to note
that the submission of information to ECHA must be done by EU manufacturers or
importers. The obligation of foreign exporters is to provide information about
chemical substances in the products as required by EU importers to serve the
implementation of their legal duty with ECHA.
1.2.2. Labeling requirements
There is currently no EU-level framework that covers the labeling of leather
17. 9
and leather products. The EU has only set up legislation regarding the labeling of
footwear, and there is only limited legislation on leather product labeling in certain
European countries. Footwear labeling is covered by Directive 94/11/EC of the
European Parliament and Council of 23 March 1994, on the approximation of the
laws, regulations and administrative provisions of the Member States relating to
labeling of the materials used in the main components of footwear for sale to the
consumer. The amending act (Directive 2006/96/EC) came into force in 2007.
It was introduced because:
- There were different provisions in the EU Member States on footwear
labeling and these created obstacles to the functioning of the internal market
- Consumer interests needed to be protected by correct information risk of
fraud for both consumers and industry need to be reduced.
The Directive covers:
- For each pair, at least one of the footwear items (defined and illustrated in
the Directive) must bear information relating to the upper, the lining and insole
sock, and the outer-sole of the footwear article. The information may be conveyed
by means of approved pictograms or textual information, as defined and illustrated
in the Annex to the Directive, and must relate to the material which constitutes at
least 80% of the surface area of the upper, the lining and insole sock of the footwear
article, and at least 80 % of the volume of the outer-sole. However, if no single
material accounts for at least 80 %, information must be given concerning the two
main materials in the composition of the article.
- Given that the aim of the above measures is to provide information, the
label must be legible, durable and accessible, and the manufacturer or his authorized
agent established in the Community is responsible for supplying the label and for
the accuracy of the information contained on it. Only the information provided for
in the Directive has to be supplied, but there is nothing to prevent additional
information being given on the label.
The rules are:
- The labeling shall convey information relating to the three parts of the
footwear: the upper, the lining and the sock, and the outer sole (Article 1).
18. 10
- Either pictograms or written indications may be chosen (Article 3).
- The label must be visible on at least one shoe of the pair by printing,
sticking, embossing or using attached labels (Article 3).
- The manufacturer is responsible for supplying the label and for its
accuracy. If he is not established in the Community, the person who first places the
footwear on the market is responsible (Article 4).
1.2.3. Quality management system: ISO 9001
1.2.3.1. Overview of ISO 9001
ISO (the International Organization for Standardization) is a worldwide
federation of national standards bodies (ISO member bodies). The ISO 9000 family
addresses various aspects of quality management. The standards provide guidance
and tools for companies and organizations who want to ensure that their products
and services consistently meet customer’s requirements, and that quality is
consistently improved. ISO 9000 is divided into three parts respectively referred to
as: ISO 9001, ISO 9002 and ISO 9003. ISO 9001 is the standard that gives the
requirements for a quality management system. ISO 9001:2008 is the latest,
improved version. It is the only standard in the ISO 9000 family that can be used for
certification. ISO 9001 specifies the quality system requirements in the situation
where a supplier’s capability to design and supply conforming products is at issue.
The language of the ISO 9001 is that of what the supplier’s system ―shall‖ do. The
standard is aimed at achieving customer satisfaction through the elimination of
nonconformity at all stages of manufacturing and servicing.
ISO 9001 certification is not technically mandatory to export to the EU
market. However, exporters with certification will have more opportunities to gain
and maintain contracts with EU partners. Adherence to the ISO standards can also
be publicized to gain market access abroad, because many foreign buyers place a
premium on these standards (ITC, 2012). In addition, even if the law does not
require ISO 9001 certification, EU importers may require ISO 9001 compliance
from their suppliers since buying materials and products from ISO 9001 certified
businesses limits the importers’ exposure to product liability.
1.2.3.2. Procedure to implement ISO 9001
19. 11
Step 1: Team nomination
A small team consisting of a senior person from each of functions of the
company should be appointed by board of management for system development.
One member of the team should be designated as the coordinator; the management
representative could be given this role. The team should undergo awareness and
documentation training on the ISO 9001 with a professional training organization.
Step 2: Gap analysis
For the gap analysis, a flow chart should be drawn, showing how information
currently circulates, from order placement by the customer to delivery of the
product. Next, with the built diagrams, a list of existing procedures and work
instructions for the most relevant activities can be formulated. Throughout that
process, the company may identify some infrastructural gaps such as:
- The need for additional building space, equipment and machines, utilities,
facilities, support; the need for proper handling and storage of raw materials to
avoid their mix up and spoilage.
- The need for additional test facilities for routine testing of the product
during production and before dispatch to customers.
- The need for periodic check-ups of measuring instruments and subsequent
repair, maintenance or calibration.
Step 3: Documentation
QMS-related documents such as quality policy, quality objectives, process
performance parameters, skills requirements, quality manual, quality plans,
procedures and work instructions should be prepared. The documentation on
procedures and work instructions should reflect current practice.
Step 4: Training and implementation
Train all employees in how to use the new QMS. As the system gets
developed (refer to step 3 above), the implementation phase should get going at the
same time, i.e. supporting evidence like records, minutes of meetings and customer
feedback data should be maintained.
Step 5: Internal audit and improvement
Some of managers and staff of the companies should be trained by a
20. 12
professional trainer to carry out internal auditing of the QMS. The management
representative may also carry out audit management activities. After the system has
been implemented for about three months, trained auditors should conduct an
internal audit. Any gaps found during the audit should be corrected; any
modification required in the system documents should be carried out; any need for
additional awareness and skills training or improving the infrastructure should be
taken care of. Once the system stabilizes, internal audits should be conducted at
planned intervals, once every six months for example, or as needed.
Step 6: Management review
The management board should review internal audit results, customer
feedback data, status of quality objectives, analysis of process performance, product
conformity trends, status of corrective and preventive actions. As a result of this
review, management may decide to set new targets for quality objectives and to
make the improvements needed in the QMS. Management reviews should be held at
regular intervals, for example at least once every six months.
Step 7: Certification
Once the system has been in operation for a few months and at least one
internal audit and one management review has been conducted, the company may
consider applying for certification from an accredited certification bodies.
1.2.4. Environment management system: ISO 14001
1.2.4.1. Overview of ISO 14001
The ISO 14001 standard is an environmental management system standard,
not an environmental performance standard. The standard is designed to establish a
management system that evaluates and addresses how the organization interacts
with the environment. ISO 14001 is the world’s most recognized framework for
environmental management systems (EMS). The overall aim of an EMS based upon
ISO 14001 is to support environmental protection and the prevention of pollution in
a balance with socio-economic needs.
Although the EU claims that ISO 9000 certification is not required to do
business in the EU, that was the message received by many non-European
companies and lead to the success of that standard. If ISO 14001 is similarly
21. 13
successful, the companies who are already ISO 14001 certified will have an
advantage in the EU market. In addition, producers may find that many consumers
not only try to purchase from environment-friendly companies, but will spend a
little more if they feel they are helping the environment.
1.2.4.2. Procedure to implement ISO 14001
It will be possible for companies to integrate their EMS ISO 14001 with their
QMS ISO 9001, as they are compatible with each other (ITC, 2012). Within the
standard, there are 17 elements of ISO 14001 that are required to be met by
companies seeking formal recognition for their ISO 14001 EMS, as follows:
- An environmental policy supported by senior management;
- Identification of environmental aspects and impacts, and the identification
of significant environmental impacts that the organization may cause;
- Identification of environmental compliance requirements;
- Development of objectives and targets, and environmental management
programs of the company;
- Defined resources, roles, responsibilities and authorities for environmental
management of the company;
- Development of competence, training and awareness procedures;
- A communication process of the EMS to all stakeholders;
- Development of EMS documentation as required by the standard;
- Development of document control procedures;
- Development of operational control procedures;
- Development of emergency preparedness and response procedures;
- Development of procedures to monitor and measure operations that can
have significant impact to the environment;
- An evaluation of compliance procedure;
- Procedures developed for the management of non-conformance, corrective
and preventative actions;
- Development of a records management procedure;
- A program for completing internal EMS audits and corrective actions;
- Development of management review procedures by management board.
22. 14
1.2.5. Social Accountability 8000 (SA 8000)
SA8000 is an international standard developed by Social Accountability
International (SAI), a Non-Government Organization for improving working
conditions around the world. It is one of the world’s first auditable social
certification standards for decent workplaces, across all industrial sectors. It is based
on conventions of the ILO, UN and national law, and spans industry and corporate
codes to create a common language to measure social compliance. It takes a
management systems approach by setting out the structures and procedures that
companies must adopt in order to ensure that compliance with the standard is
continuously reviewed. Those seeking to comply with SA8000 have adopted
policies and procedures that protect the basic human rights of workers. As of June
2013, there are 3231 SA 8000 certified facilities.
SA 8000 is a voluntary requirement for companies that export to the EU. In
certain cases, importers of some product ranges may require SA 8000 when their
target customers highly value social responsibility, and a certification like SA 8000
significantly affect buying decisions.
Below are the nine elements in the SA8000 Standard:
- Child Labor: No use or support of child labor; policies and written
procedures for remediation of children found to be working in situation; provide
adequate financial and other support to enable such children to attend school; and
employment of young workers conditional.
- Forced and Compulsory Labor: No use or support for forced or compulsory
labor; no required 'deposits' - financial or otherwise; no withholding salary, benefits,
property or documents to force personnel to continue work; personnel right to leave
premises after workday; personnel free to terminate their employment; and no use
nor support for human trafficking.
- Health and Safety: Provide a safe and healthy workplace; prevent potential
occupational accidents; appoint senior manager to ensure occupational safety and
health (OSH); instruction on OSH for all personnel; system to detect, avoid,
respond to risks; record all accidents; provide personal protection equipment and
medical attention in event of work-related injury; remove, reduce risks to new and
23. 15
expectant mothers; decent dormitories- clean, safe, meet basic needs; and worker
right to remove from imminent danger.
- Freedom of Association and Right to Collective Bargaining: Respect the
right to form and join trade unions and bargain collectively. All personnel are free
to: organize trade unions of their choice; and bargain collectively with their
employer. A company shall respect right to organize unions and bargain
collectively; not interfere in worker organizations or collective bargaining; allow
workers freely elect representatives; ensure no discrimination against
personnel engaged in worker organizations.
- Discrimination: No discrimination based on race, national or social origin,
caste, birth, religion, disability, gender, sexual orientation, union membership,
political opinions and age. No discrimination in hiring, remuneration, access to
training, promotion, termination, and retirement. No interference with exercise of
personnel tenets or practices; prohibition of threatening, abusive, exploitative
behavior at workplace or company facilities.
- Disciplinary Practices: Treat all personnel with dignity and respect; zero
tolerance of corporal punishment, mental or physical abuse of personnel; no harsh
or inhumane treatment.
- Working Hours: Compliance with laws & industry standards; normal
workweek, not including overtime, shall not exceed 48 hours; 1 day off following
every 6 consecutive work days, with some exceptions; overtime is voluntary, not
regular and not more than 12 hours per week; required overtime only if negotiated.
- Remuneration: Respect right of personnel to living wage; all workers paid
at least legal minimum wage; wages sufficient to meet basic needs & provide
discretionary income; wages and benefits clearly communicated to workers; paid in
convenient manner – cash or check form; overtime paid at premium rate; prohibited
use of labor-only contracting, short-term contracts, false apprenticeship schemes to
avoid legal obligations to personnel.
- Management Systems: Facilities seeking to gain and maintain certification
must go beyond simple compliance to integrate the standard into their management
systems and practices.
24. 16
1.3. The necessity of studying technical barriers to Vietnam leather footwear
exported to the EU
1.3.1. For Vietnam economy
1.3.1.1. Contributing to increase export turnover
Vietnam’s leather footwear sector has been growing stably since the mid-
nineties and become one of biggest foreign currency earners for the country.
Leather footwear is one of the key export industries that take an important position
in the export structure. The average annual growth of export value of Vietnamese
footwear reached 17.35% in 2013 with total turnover of about 8.52 billion USD.
From 2008 to 2013, exports of leather footwear have retained the third rank in
contribution to total export turnover of Vietnam, behind crude oil and textile and
garments products (Vietnam Statistical Handbook, 2013). As shown in table 1.1, the
contribution of leather footwear exports to total export turnover of Vietnam from
2008 to 2013 is considerable with the stable level of 6 – 7%. From 2008, Vietnam
has been successful in retaining the position in top five largest footwear producers
of the world. In 2012, Vietnam ranked fifth in top leather footwear exporters with
total export turnover of 7.262 million USD (World Footwear Yearbook, 2012).
Table 1.1: Total export turnover and export turnover of leather footwear of
Vietnam from 2008 to 2013
Measurement: billion USD
2008 2009 2010 2011 2012 2013
Total export
turnover
62.685 57.096 72.236 96.905 114.529 132.134
Export turnover of
leather footwear
4.776 4.006 5.212 6.594 7.262 8.525
Ratio (%) 7.62 7.01 7.22 6.80 6.34 6.45
Source: Author’s collection from Statistical Handbook of Vietnam 2013
In EU market only, Vietnam ranks second behind China in terms of market
share. From 2008 to 2013, the EU maintained largest export market for Vietnam
leather footwear. Therefore, the performance of Vietnam leather footwear in the EU
has a significant impact on total export turnover of the sector, and thereby
25. 17
contributing to total export turnover of Vietnam. Besides economic crisis, one of the
most important reasons that can potentially hurt export turnover and development
prospects in the EU market is the increasing complication and rigorousness of
technical barriers. If products cannot overcome technical barriers, they will not be
allowed to be imported into the EU market. The failure in meeting standards and
regulations of the EU will certainly lead to decrease in export turnover and future
exports development. Therefore, the success in overcoming technical barriers will
contribute to maintaining and raising export turnover in the EU.
Compliance with standards and regulations of technical barrier system of the
EU would not only help Vietnam exporters increase export turnover in this market
but also create favorable conditions to expand exports in other developed countries
since Vietnam products have passed the strict test of quality of the EU. It will
contribute to enhance the international prestige of Vietnam leather footwear
products to facilitate development in many foreign markets and thereby, increase
total export turnover from leather footwear sustainably.
1.3.1.2. Contributing to promote industry development
In the effort to overcome stringent technical barriers of the EU market,
Vietnam leather footwear sector needs to implement projects to renew production
system and develop supporting industries. In details, Vietnam needs to increase
localization rate and reduce dependence on imported materials in order to better
control the quality of finished products. In addition, the need to overcome technical
barriers will encourage the development of infrastructure for leather footwear sector
as well as supporting industries. It will also provide an incentive for technology
modernization in each enterprise and the whole sector. New standards in production
will be likely to be applied in accordance with international standards. High
technical standards and strict regulations will also bring the need of establishing
industrial zones for large-scale expansion and benefits from economies of scale in
building facilities. Those factors will contribute to sustainable development of
industries, which will benefit Vietnam economy in the long run.
1.3.1.3. Contributing to create jobs and enhance quality of human resources
Leather footwear industry implies a great potential for employment,
26. 18
especially for free and unskilled labors from rural areas of Vietnam. According to
LEFASO, leather footwear sector is employing 670.000 workers (plus 500.000
workers in supporting industries) (Van Nam, 2014). The success in overcoming
technical barriers of a major market like the EU will help the sector to further
develop business, maintain stable market share and receive new orders, which will
contributing to increasing the need of labors. Therefore, it will facilitate job creation
and partly raise income of the labor force.
In addition, meeting high technical standards of the EU requires well-trained
and skilled labors to operate modern machinery and control the quality of products.
There is also a need to increase the expertise of managers and engineers to
implement and control system renewal. It will encourage investment in training
labor force, and thereby enhance the quality of human resources sustainably.
1.3.1.4. Enhancing trade between Vietnam and the EU
During the last two decades, trade relations between Vietnam and the EU
reached a high level of development. The EU is second largest trading partner and
biggest export market of Vietnam while Vietnam is fifth most important trading
partner of the EU in ASEAN. In 2012, bilateral turnover reached 29.1 billion USD,
in which exports to the EU reached 20.3 billion USD and imports from the EU
reached 8.8 billion USD (Department of multilateral trade policy, 2013).
The EU is the largest export market of Vietnam leather footwear, accounting
for 34.76% of total leather footwear export turnover in 2013. Overcoming technical
barriers will promote the exports of leather footwear into the EU market, which will
contribute to the total growth of Vietnam exports to the EU. If exports grow in a
large market like the EU, the foreign exchange earnings can be invested in
purchasing machinery and modern technology of the EU. It will contribute to
improving trade balance as well as further strengthen bilateral trade relations
between Vietnam and the EU.
1.3.2. For Vietnam enterprises
1.3.2.1. Contributing to enhance the prestige of Vietnam leather footwear in
international markets
The EU is considered the market with the most complicated and strictest
27. 19
regulations as well as high standards of quality in its technical barrier system. The
success in overcoming technical barriers of the EU can strongly prove that Vietnam
leather footwear products can meet high international quality standards from any
other markets. Therefore, by overcoming EU technical barriers, Vietnam leather
footwear can gradually establish and maintain the prestige of being safe and
friendly with the environment as well as having quality that is up to international
standards. The procedure of complying with technical regulations and meeting
standards of the EU is also the process of building trust with not only EU customers
but also international partners and customers of other export markets. It will prove
that Vietnam companies do pay attention to sustainable development,
environmental protection and social responsibility.
Thanks to that recognition, Vietnam companies can promote production and
exports to the EU as well as other countries in order to expand market share and
gain more profit. In addition, that prestige will be valuable asset in the marketing
strategy and the process of building brand name for Vietnam leather footwear,
which will support the long-term increase in added value of the industry.
1.3.2.2. Stimulating Vietnam leather footwear industry to improve capacity
Complicated and rigorous technical regulations of the EU have been forces
and stimulations for Vietnamese leather footwear businesses to consistently strive
for system adjustment and capacity enhancement to satisfy this difficult market. EU
end users are considered difficult consumers in making purchasing decisions. Not
only do they require high standard of quality and design, but they also demand to be
ensured that products must guarantee complete safety to their health and the
environment. In addition, they also have requirements about sustainability and
working conditions of labor force. Therefore, without technical barriers, it would be
easier for Vietnam leather footwear products to penetrate the EU market but still
difficult to satisfy and win the trust of EU customers. Technical barriers have been
giving Vietnam leather footwear industry the foundation to build the brand ―Made
in Vietnam‖ in the EU market. For instance, if Vietnam leather footwear complies
with strict regulation of chemical usage under REACH which already ensures safety
of products, obtain other certificates such as SA8000, ISO 9001 and ISO 14000, and
28. 20
meet all requirements of EU importers, Vietnam products have already passed the
test of EU consumers about quality, sustainability, safety to human health and
environment as well as working condition of laborers. That is the foundation for
Vietnam businesses to build the brand for Vietnam leather footwear, and continue to
increase export turnover and develop stably.
One of the purposes of technical barriers is actually to protect domestic
production from exports, but the standard of quality required is necessary and
reasonable. By putting effort in capacity enhancement to satisfy those high
standards, Vietnam leather footwear sector has strong motivation to improve
weaknesses in production system, human resources, infrastructure, technology and
supporting industries to further strengthen the ability of overcoming technical
barriers. All of those elements will increase the overall capacity of the industry in
all aspects for long-term sustainable development.
1.4. Experience of China in overcoming technical barriers of the EU to leather
footwear and lessons for Vietnam
1.4.1. Reasons for choosing China
China is the largest leather footwear producers and exporters of the world. In
2012, China ranks first in top footwear exporters of the world with 40.4% of total
market share (World Footwear Yearbook, 2012). In the EU market, China confirms
the continuity of leadership in market share, while Vietnam remains the second
rank. In recent years, despite negative effect of economic downturn, China still
maintains its number one position in leather footwear production and exports of the
world. Even though leather footwear products of China have been encountering
several difficulties due to stringent technical barriers from the EU, China has been
implementing several effective solutions to deal with them and keep their exports
stably in quality and turnover.
Leather footwear industry of China and Vietnam once share many common
features in production conditions as well as difficulties such as cheap labor, labor
intense, low technological level, etc. With the right orientations and prompt actions
to cope with difficulties and improve competency, China remains the stable position
of the largest exporter of leather footwear to the EU. Current improvement and
29. 21
growth of China as well as effective measures to cope with technical barriers of the
EU in similar situation with Vietnam needs to receive thorough consideration in
order for Vietnam leather footwear industry to obtain valuable lessons.
1.4.2. Experience of China to overcome technical barriers to leather footwear
exported to the EU
Controlling the quality of input materials is one of the priorities of China
manufacturers to ensure that their products comply with raising standards from the
EU. Therefore, China pays special attention to developing supporting industries, in
which tanning is the most important. Special emphasis has been paid on well-
planned development that aims at optimum utilization of domestic raw materials
and skilled labor for maximizing the returns and innovation of the industry in order
to meet demands of high-quality leather to produce footwear for exports. China has
detailed plan to control the quality of leather by developing castle breeding
specifically for tannery industry. The industry reports reveal that the annual
production of leather in China is around 7.7 billion square feet accounting for over
20% of total global. From January 1, 2006, the Government prohibited importing
raw hides for processing into leather for exports, in the effort to reduce low value
added processing in China. In September 2006, the Government continued to ban
importing skins and hides for processing trade, but allowed processing of imported
hides for exporting finished products like leather footwear. In addition, there is
quota restriction on the import of raw hides and skins for processing trade. The
processing trade is only allowed in Export Processing Zones under strict supervision
of Customs Administration in China (General Consulate of Pakistan in China, 2011)
Specialized industrial cluster has enabled Chinese companies to produce and
large volumes of footwear per order in the most cost efficient way. The close
location of similar producers in the cluster enhances efficient handling of
production and delivery, sharing of investment cost of building facilities and other
infrastructure like wastewater treatment plans.
Despite still being labor-intensive, leather footwear industry is not only
expanding but also modernizing while tacking with environmental problems to meet
standards of developed markets. In order to further enforce compliance with
30. 22
environmental regulations, 12th National Five Year Plan of China has compelled
leather footwear enterprises to carry out an energy saving method of production and
to reduce the level of contamination. In 2011, 183 enterprises were shut down in
2011 because their products generated high contaminations (General Consulate of
Pakistan in China, 2011). This rigorous enforcement motivates existing producers to
maintain sound production standards and upgrade their production lines with
environmental friendly materials and technologies. During five-year period, all
industrial sectors will focus on upgrading their technologies and products.
Upgrading technological level not only helps enhance the quality of China footwear
to meet high standards of the EU but also reduce costs in the long run, especially in
the current increase of labor cost, which will further strengthens price competitive
advantage of China leather footwear.
New standards according to international standards are started to apply in
order to make China footwear products approach required quality of developed
markets, including the EU, which will be a considerable advantage to overcome
technical barriers. In order to construct an updated system of standard for all
industrial sectors in China, in 2011, Ministry of Industry and Information
Technology of China introduced a system of newly approved standards for 359
industrial sectors, including 4 groups of standards for leather footwear industry in
China (General Consulate of Pakistan in China, 2011)
The China Association of Leather Footwear Industry has also set up an
industry early-warning system for making proactive responses to the technical trade
barriers and support enterprises in the industry with information for better
preparation to meet standards and regulations of foreign markets.
After 7 years of preparation, the executive plan of genuine leather mark and
eco – leather was put into operation on July 1, 2002. Genuine leather mark and eco-
leather refer to the different kinds of finished leather qualified for the certification
trademark "genuine leather mark". Such finished leather has to meet the
requirements and relevant provisions of specification for genuine leather mark and
eco-leather products in addition to satisfying corresponding present state and
industry standards (General Consulate of Pakistan in China, 2011). The trademark
31. 23
can be used as a signal of quality, creating an advantage for China footwear
products in international markets.
1.4.3. Lessons for Vietnam
From measures that China has been taking to cope with technical barriers of
the EU and more importantly, develop their leather footwear industry sustainably,
Vietnam can have valuable lessons and experience for future orientation. In details,
Vietnam should concentrate on the following issues:
Firstly, Vietnam needs to lay special emphasis on developing supporting
industries to increase localization rate and reduce heavy dependence on imported
input materials for better controlling the quality of finished products.
Secondly, in the long run, to meet increasing standards and regulations
required by the EU market, technology modernization is crucial. Vietnam leather
footwear companies should consider upgrading their production lines according to
EU standards and Vietnam Government should adopt policies to encourage and
support technology innovation of enterprises.
Thirdly, there should be specialized industrial cluster for the industry to take
advantage of economies of scales for cost reduction in building required facilities
for better compliance with technical and environmental regulations.
Fourthly, Vietnam should build new standards according to international
standards to give domestic companies the motivation to manufacturing in
conformity to standards of key export markets.
Finally, Vietnam should invest in enhancing the effectiveness of early-
warning system so that exporters can obtain full and updated information in order to
better prepare and find solutions to deal with technical barriers.
SUMMARY OF CHAPTER 1
Chapter 1 provides general knowledge of technical barriers and indicates
main regulations and requirements of the EU market to imported leather footwear
products from Vietnam. In addition, it points out the importance of researching
these technical barriers for Vietnam economy and businesses. Finally, it introduces
valuable experience of China in overcoming these barriers to draw practical lessons
for Vietnam leather footwear industry.
32. 24
Chapter 2: CURRENT SITUATION OF VIETNAM LEATHER FOOTWEAR
EXPORTS TO THE EU MARKET AND OVERCOMING TECHNICAL
BARRIERS TO LEATHER FOOTWEAR EXPORTED TO THE EU
MARKET FROM 2008 TO 2013
2.1. Exporting Vietnam leather footwear to the EU market from 2008 to 2013
2.1.1. Export turnover
Overall, total export turnover from leather footwear of Vietnam went up by
178.49% from 4,776.22 million USD in 2008 to 8,525.41 million USD in 2013. In
2009, export turnover bottomed out in the period with a decrease of 16.11%
compared to 2008 due to the negative effects of economic downturn. It is followed
by a dramatic recovery in 2010 with an increase of 30.09%, from 4,006.76 million
USD in 2009 to 5,212.25 million USD in 2010, which is the biggest growth rate
from 2008 to 2013. The figure of export turnover has been increasing continuously
from 2010 to 2013 and reached the peak at the end of the period.
Chart 2.1: Total export turnover of Vietnam leather footwear exported to the
EU and other countries from 2008 to 2013
Measurement units: million USD
Source: Author’s collection from statistics of LEFASO
The figure of export turnover from the EU of Vietnam leather footwear
follows a similar trend with the movements of total export turnover, which are a
decline in 2009 compared to 2008 and continuous growth from 2009 to 2013.
0
2,000
4,000
6,000
8,000
10,000
12,000
2008 2009 2010 2011 2012 2013
Total leather footwear exports to the EU Total leather footwear exports
33. 25
Table 2.1: Total export turnover and export turnover to the EU of Vietnam
leather footwear from 2008 to 2013
Year
Total Vietnam leather
footwear exports
Vietnam leather footwear exported
to the EU
Turnover
(million USD)
Growth
rate (%)
Turnover
(million USD)
Growth
rate (%)
% of total
exports
2008 4,776.22 11.96 2,484.72 14.14 52.02
2009 4,006.76 -16.11 2,007.27 -19.22 50.10
2010 5,212.25 30.09 2,403.57 19.74 46.11
2011 6,549.05 25.65 2,609.23 8.42 39.84
2012 7,262.32 10.89 2,650.19 1.57 36.49
2013 8,525.41 17.35 2,963.58 11.83 34.76
Source: LEFASO
In 2008, although global economic crisis started to show negative effects,
Vietnam leather footwear industry managed to keep business with the EU market
stable, which results in an increase of 14.14% in export turnover compared to 2007.
From January 1, 2009, EU removed Vietnam from the list of countries that can
enjoy generalized Scheme of Tariff Preferences (GSP - preferential tariff for poor
countries), which put a great pressure on domestic producers and exporters. The
loss of GSP status averagely increased import duties in the EU market by 3.5% to
5.5%, making duties on Vietnam leather footwear products surged to 8%. In
addition, the global economic crisis caused strong impacts on Vietnamese economy
in general and the leather footwear sector in particular. EU also suffered the effects
of the crisis, which reduced the consumption of footwear by 11.10%, according to
statistics of Eurostat. Export markets were more narrowed and the competition got
tenser. As a result, Vietnam’s leather shoes industry had to face many difficulties,
leading to a decrease of 16.11% compared to 2008.
In 2010, export revenue from the EU market of Vietnam leather footwear
amounted to 2,403.57 million USD, showing a relevant increase of 19.74 %
compared to 2009. The main reason for that stunning growth was the removal of EU
34. 26
anti-dumping duties imposed on the Vietnamese leather-capped shoes by the EC
from April 1. The lifting of the anti-dumping tariff on leather-capped shoes
produced in Vietnam was an advantage to expand exports in the EU market for
Vietnamese exporters, as they were no longer burdened with a 10% tax. Vietnam
leather footwear producers could then compete with competitors from India,
Indonesia, Bangladesh, Sri Lanka, Pakistan and Cambodia. The removal of the anti-
dumping duties opened opportunities to boost exports in the 27-nation market for
Vietnam exporters while exposed it to strong competition at the same time.
The growth rate in 2011 slowed down with an increase of 8.42% compared
to 2010. Vietnam producers were confronting fierce competition from Chinese
leather footwear exporters who no longer suffered the tariff of 16.5%. With most
EU nations facing financial crisis in addition to rising competition in prices from
Chinese products, Vietnam’s leather footwear sector grew sluggishly during the
2012 as compared to 2011, and achieved a growth of only 1.57%.
Vietnam's footwear export turnover in the EU market hit a record high of
2.963,68 million USD in 2013, up 11.83% year-on-year. The export turnover of
leather footwear reached a relatively high growth rate due to the gradual recovery of
the EU market. Vietnam also benefits a lot from the information of GSP of EU.
From 2014, under the new regulations of GSP provided to developing countries
including Vietnam, the leather and footwear industry is taken out of the maturity list
of the EU and GSP within three years, from January 1, 2014 to December 31, 2016.
The tax rate applied on Vietnamese leather footwear exports to the EU will be
reduced from 13 - 14% to 3 - 4%. EU importers start to take advantage of the
upcoming preferential level of tariff by increasingly moving orders and production
from China to Vietnam. Domestic leather footwear companies are preparing to
catch new opportunities from GSP to increase exports to the EU. Therefore, in
2014, export turnover from the EU market of Vietnam leather footwear products is
expected to be further promoted.
The EU has retained the position as the biggest market for Vietnam leather
footwear from 2008 to 2013. However, the dependence of Vietnam leather footwear
on this export market has gradually decreased.
35. 27
Chart 2.2: Turnover ratio of three main export markets for leather footwear of
Vietnam from 2008 to 2013
Source: Author’s collection from data of LEFASO
As can be seen from Chart 2.2, there is a continuous decrease in the
proportion of export turnover from the EU compared with that from two other main
markets of Vietnam leather footwear, which are the US and Japan. The proportion
of exports to the EU out of total exports turnover of leather footwear has been
declining continuously from 52.02% in 2008 to 34.76% in 2013. The proportion of
export turnover from the EU out of total exports turnover from the EU, the US and
Japan of leather footwear also decreases from 63.5% in 2008 to 56.8% in 2013. This
is the result of the efforts to increase diversification of markets of leather footwear
sector. It confirmed Vietnam’s success in diversifying its exports to the EU and
reducing over-dependency on single commodities. One of the motivations for that is
the increasing complication and strictness of technical standards and regulations of
the EU, which poses considerable challenges to expand business in this market as
well as incurs additional costs for Vietnam leather footwear companies to adjust
production system for overcoming those stringent barriers. It leads to a change in
strategy of exporters to reduce focus on the EU market and develop exports in other
countries with lower technical barriers than the EU.
2.1.2. Market structure
Among EU Member States, Germany, The UK, Belgium, France and Italy
are main importers of Vietnam leather footwear with the largest export turnovers.
Overall, Vietnam leather footwear exported to the mentioned markets accounted for
0% 20% 40% 60% 80% 100%
2008
2009
2010
2011
2012
2013
The EU The US Japan
36. 28
54% to 65% of total export turnover from the EU market between 2008 and 2013.
Table 2.2: Vietnam leather footwear export turnover from the 5 main markets
in the EU from 2008 to 2013
Measurement units: million USD
Source: ITC Trademap
Export turnover from all five major markets decreased in 2009 due to the
negative impact of economic crisis in the EU. From 2009 to 2013, export turnover
from Germany, France and Belgium went up stably, while the UK and Italy market
shows slight decrease year-on-year.
Chart 2.3: Export turnover of Vietnam leather footwear to 5 major export
markets in the EU from 2008 to 2013
Measurement units: percentage
Source: Author’s collection from statistis of ITC Trademap
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013
Germany UK Belgium France Italy Other EU countries
2008 2009 2010 2011 2012 2013
Germany 515,037 372,414 408,115 500,447 500,705 553,578
The UK 448,636 377,389 375,949 349,254 305,822 307,216
Belgium 230,027 186,997 202,389 224,212 250,021 270,343
France 263,783 242,719 250,811 288,171 286,760 302,818
Italy 150,140 125,674 138,660 126,724 126,216 144,325
% of turnover from EU 64.75 63.50 57.24 57.06 55.45 53.25
37. 29
The five largest import destinations in the EU for leather footwear products
from all countries are The UK, Germany, Italy, France and Spain (CBI, 2012). The
UK, Germany, Italy and France are also four largest markets in the EU for Vietnam
leather footwear exports and has stably maintained this position from 2008 to 2013.
Although Belgium is not in the list of five largest EU imports for the leather
footwear, it remains the third main market for Vietnam products, partly due to long-
term trade relationship between Belgium and Vietnam.
The EU market for footwear is large and diversified. EU countries that are
particularly interesting for producers from developing countries are Germany, UK
and Denmark, as well as some of Eastern EU countries. Germany and UK are also
two largest export markets of Vietnam. However, in Western Europe countries,
there is growing preference of a part of consumers for products with origin marking
on a label such as ―Made in Italy‖ or ―Made in France‖, which have a higher
perceived value than products made elsewhere (CBI, 2012). It can be the reason for
decreasing proportion in total Vietnam leather footwear export turnover from the
EU of 5 main markets from 64.75% in 2008 to 53.25% in 2013, while turnover
from other countries, including Eastern EU markets have been keeping increasing.
2.1.3. Export structure
Chart 2.4: Export turnover of Vietnam leather footwear exported to the EU in
3 categories from 2008 to 2013
Source: Author’s collection from statistics of LEFASO
As shown in Chart 2.4, structure of Vietnam leather footwear exports to the
EU remains relatively stable. From 2008 to 2013, women shoes accounts for the
0%
20%
40%
60%
80%
100%
2008 2009 2010 2011 2012 2013
Others
Sandals
Men shoes
Women shoes
38. 30
largest proportion in export turnover from the EU, followed by men shoes and
sandals. In the EU, women shoes are the largest segment for leather footwear.
The proportion of export turnover from women shoes increased from 45.2%
in 2008 to 58.9% in 2013. It can be explained by the increasing ratio of working
women, which is the most important segment for leather footwear in the EU, from
53.5% to 59.1% between 2008 and 2013, according to Eurostat. The proportion of
turnover from men shoes exports decreases continuously from 38.4% in 2008 to
31.7% in 2013, relatively to the raising turnover from women shoes and also due to
stronger tendency of men to cut down on leather shoes, which can be considered
non-essential commodity to them, in financial difficulties.
2.2. Overcoming technical barriers to Vietnam leather footwear exported to
the EU market from 2008 to 2013
For the purpose of collecting primary data and information about the actual
situation of overcoming technical barriers to Vietnam leather footwear exported to
the EU market of Vietnam companies to analyze the strengths and weaknesses,
author conducted a survey. The author contacted by phone and sent email to 230
leather footwear companies in Vietnam in order to request them to complete
questionnaire from 10 March 2013 to 15 April 2013. A total of 72 responses were
received, in which 67 responses are valid, constituting a representative sample of
the population. In 67 companies with valid responses, 51 companies export leather
footwear to the EU. The result of the survey is processed by Microsoft Excel.
2.2.1. Meeting REACH
Vietnam leather footwear exporters play a critical role in the supply chain in
regards to the process of REACH compliance. In order to carry out registration and
notification with ECHA, EU leather footwear importers need to identify substances
in their products by obtaining information from their non-EU suppliers. If a
Vietnam leather footwear company is unable to provide information and
certifications required by EU importers leading to their failure in registration and
notification, their products will not be placed in the EU market and their EU
partners will be forced to look for new exporters.
In order to provide required information for EU importers, Vietnam leather
39. 31
footwear exporters need to identify the answers for the following questions:
- What chemical substances are included in their products?
- What chemical substances are intended to be released from products? If
there are, does the total amount exceed one tonne per year?
- What Substances of Very High Concerns (SVHCs) and Restricted
Substances (Azo dyes are often used in the coloring process of several leather
products. Their use is restricted in products marketed in the EU under REACH) are
contained in the products?
To obtain the above information, Vietnam companies need to set up a
chemicals management system (CMS) to collect, manage and report the presence of
substances in products from the first step of purchasing raw materials to the final
step after finishing leather footwear products. CMS reflects the ability of companies
to fulfill its obligation under REACH (Nguyen Xuan Vinh, 2011).
Chart 2.5: Evaluation of Vietnam leather footwear companies of their
chemicals management system
Measurement: Percentage of companies
Source: Survey result
According to survey results, 27.44% of producers are confident that they
have good and very good CMS. It demonstrates results of investment and taken
measures of these companies in building and enhancing their CMS for REACH
compliance. An effective CMS will optimize process and save time while all
chemical substances are well controlled and reported. Therefore, nearly a third of
companies can better ensure the fulfillment of their obligations under REACH.
However, it is notable that 21.58% of companies admit that their CMS is not good
and CMS of more than half of companies remains at average level. It shows that
3.92
23.52
50.98
21.58
00
10
20
30
40
50
60
Very good Good Average Not good Not at all good
40. 32
there are still difficulties in chemicals management process of a majority of
Vietnam leather footwear companies, which poses risks to meeting their obligations
required by EU importers for REACH compliance.
The effectiveness of CMS, and thereby the obligation’s fulfillment under
REACH, is decided by three stages, which are purchasing and controlling input
materials, production and inspection of finished products.
Production for direct export contracts will be affected more by REACH than
manufacturing as processors. In 2012, according to General Department of Vietnam
Customs, 52.7% of export turnover of leather footwear is from processing for
foreign importers. Survey result shows that 45.10% of companies have direct export
contracts with EU importers, while 54.90% manufacture completely as processors.
Under processing contracts, EU buyers provide materials or demand Vietnam
producers to use material of prestigious suppliers appointed by them. EU buyers
then obtain information about chemical substances intended to be released and
SVHCs from these suppliers. Vietnam producers undertake less responsibility by
managing chemicals used in production and inspecting finished products. In direct
export contracts, Vietnam companies have to source and purchase all materials.
Domestic producers still heavily rely on material imports, as quality supplies in the
nation are not adequate to meet standards of the EU. Localization rate in 2013 is
45% and domestic tanneries can only supply for about 20% to 30% of total leather
demand for footwear production (Duy Phuong, 2014). Importing raw materials from
diverse and unsystematic sources reduces the level of engagement of Vietnam
companies with their suppliers in relation to REACH compliance. Therefore, it is
more difficult, time-consuming and complicated for Vietnam leather footwear
producers to obtain information about chemical substances in raw materials.
In production stage, a significant part of companies has implemented quality
management system according to ISO 9001, which further ensure the capability of
their system in manufacturing products that conform to required standards of EU
importers. Therefore, it is an advantage to enhance the effectiveness of CMS.
However, existing weaknesses in production system like outdated technology and
low skills of labor are still hindrances to the process of managing chemicals.
41. 33
In inspection of products, a substantial majority of companies (70.59%,
according to survey result) does not have laboratories to check chemical content of
raw materials and finished products. It is common practice to perform chemical
analyses of materials used for production or of final products, which can serve to
obtain information needed for compliance with REACH. The lack of internal
laboratories will result in insufficient control of chemicals in testing and inspection
not only of finished products, but also of raw materials and during production.
Chart 2.6: Percentage of companies that have decreased revenue from the EU
market due to REACH from 2008 to 2013
Measurement: Percentage of companies
Source: Survey result
As shown in chart 2.6, from 2008 to 2013, a majority of companies consider
REACH as one of the causes for the decrease in their revenues from the EU market.
In compliance with REACH, Vietnam companies have to modernize technology, set
up new systems or modify and enhance internal business processes. In addition,
they have to increase investment in human resources training to operate new
machinery and systems as well as in-house quality control and quality assurance to
intensify checks of chemical content. Price of raw materials also goes up since
suppliers have to incur additional costs due to REACH compliance, including the
cost to experiment and use new chemicals to substitute chemicals in Restricted
Substances List of REACH. All of them lead to substantial increase in cost.
Cost of initial investment and lack of awareness and preparation in the
beginning makes REACH become one of the reasons for the decrease in revenue of
100% companies in 2008 and 86.29% of companies in 2009. The percentage of
0
20
40
60
80
100
2008 2009 2010 2011 2012 2013
100
86.49
75 70
61.54 55.56
42. 34
companies with reduced revenue due to REACH continually decreased from 100%
in 2008 to 55.56% in 2013, which demonstrates the raising effectiveness of
measures leather footwear companies have taken to fulfill their obligations.
REACH compliance compels manufacturers to budget for chemical testing.
Leather is a chemical-intensive material that contains about 17 in 73 SVHCs in the
Candidate List of ECHA (Nguyen Xuan Sinh, 2011). Vietnam leather footwear
exporters may need to send products to test centers or laboratories for toxicological
or eco-toxicological tests and analyses in order to obtain the information needed for
chemicals to be registered and notified. New tests and analyses must be executed
according the prescribed guidelines and must comply with Good Laboratory
Practice (GLP) or other international standards recognized by the EC or ECHA. The
inspection and certification are typically conducted in Hong Kong or Singapore as
qualified certification bodies are not available locally, making costs surge.
Due to the complication of REACH that requires considerable system
renewal and additional cost, REACH can increase the number of Vietnam leather
footwear companies that reduce exports to the EU and focus on other markets with
less strict regulation, especially SMEs. It will also hinder the development of direct
exporting to the EU. Leather footwear exporters will be likely to continue
subcontracting to avoid having to control chemicals in raw materials.
2.2.2. Meeting labeling requirements
Chart 2.7: Evaluation of Vietnam leather footwear companies of their
compliance to labeling requirements from 2008 to 2013
Measurement: Percentage of companies
Source: Survey result
17.64
56.86
25.49
0
0
0 10 20 30 40 50 60
Very good
Good
Average
Not good
Totally not good
43. 35
It can be seen from Chart 2.7 that overall, Vietnam leather footwear
companies have complied relatively well with footwear labeling requirements of the
EU market. A majority of companies (74.5%) have good and very good results in
adhering to the requirements while the level of compliance of the rest is average.
There are no companies evaluating that their results in conforming to footwear
labeling requirements are not good or totally not good.
Since a large number of Vietnam leather footwear companies produce and
export to the EU as processors, EU importers commonly provide full package of
information required on label, designs of label and instruction for Vietnam
exporters to follow. In cases of direct exports, companies already gain adequate
experience in meeting labeling requirements from processing for EU importers. In
addition, directive of EC covering footwear labeling came into force in 1994 with
only some minor adjustments in 2006 so Vietnam companies are well familiar with
the requirements. All of them are reasons for positive results of leather footwear
companies in complying with labeling requirements of the EU from 2008 to 2013.
2.2.3. Meeting ISO 9001
Table 2.3: Number of ISO 9001 certificates given to Vietnam
from 2008 to 2012
Year 2008 2009 2010 2011 2012
Number of certificates 3971 7333 2036 4779 6144
Growth rate (%) 84.67 -72.23 134.72 28.56
Source: ISO survey
ISO 9001 can be considered the most used and well-known standard for
QMS in Vietnam. Despite fluctuations from year to year, the number of certificates
given to Vietnam from 2008 to 2012 remains at relatively high level. There is a
dramatic increase in 2009 partly due to the tendency of companies to request
external audit from an accredited certification body after the publication of version
2008 in order to obtain an updated certification. It, along with the effect of
economic crisis, leads to a relevant decrease of 72.23% in 2010. From 2010, that
figure increases stably year-on-year and reached a peak of 6144 certificates in 2012.
According to survey result, only 11.76% of asked leather footwear
44. 36
companies are not preparing QMS with the seek for ISO 9001 certification. A
significant majority are choosing to adopt the ISO 9001, in which 37.26% of them
obtained certification and 50.98% are preparing and implementing required QMS of
ISO 9001. The figures demonstrate the widespread implementation of ISO 9001 in
the industry. The main motivation for adopting ISO 9001 is the requirement of
many EU importers. The most common benefits experienced by adopter of ISO
9001 management systems include higher conformity and reliability of products,
reduction of error rate and nonconformities (ITC, 2011). Therefore, EU importers
require ISO 9001 to ensure that leather footwear products manufactured by Vietnam
companies effectively comply with standards in quality.
Chart 2.8: The implementation of ISO 9001 of Vietnam leather footwear
exporters to the EU market
Measurement: Percentage
Source: Survey result
Besides improving conformity and reliability, QMS required by ISO 9001
has been acknowledged as enabling companies to standardize procedures and
technologies to control quality and process efficiency (ITC, 2011). Therefore, it
enhances the competency of Vietnam leather footwear producers in meeting other
technical standards and regulations of the EU. In addition, ISO 9001 certifications
help to overcome reputation problems of developing countries like Vietnam. ISO
9001 support entry in the EU market by signaling compliance with international
management rules for assurance of product quality, especially in industries with low
labor productivity like leather footwear. Pham Thu Huong - Director of Thuy Khue
Shoes Co. Ltd shared that thanks to the application of QMS ISO 9001, management
37.26
50.98
11.76 Obtained certification
Implementing required
QMS for certification
Not preparing to obtain
certification
45. 37
and production capacity of the company had shown remarkable improvement, the
ability to overcome strict technical barriers of export markets had been enhanced
and their leather footwear products received increasing recognition of importers.
The company progressed from completely processing for foreign partners to direct
exports to more than 20 countries, including the EU market.
2.2.4. Meeting ISO 14001
Table 2.4: Number of ISO 14001 certificates given to Vietnam
from 2008 to 2012
Year 2008 2009 2010 2011 2012
Number of certificates 325 541 306 500 775
Growth rate (%) 66.46 -43.43 63.40 55.00
Source: ISO Survey
Despite moderate level of ISO 14001 certificates given to Vietnam each year
from 2008 to 2012, the economic importance of ISO 14001 is gradually increasing.
The number of ISO 14001 certificates obtained in 2012 is more than double than
that in 2008. In 2010, due to difficult financial situation of Vietnam companies,
there was a sharp decline of 43.43% in the number of certificates. However, the
figure recovered impressively in 2011 reached a peak of 775 certificates in 2012.
Chart 2.9: The implementation of ISO 14001 of Vietnam leather footwear
exporters to the EU market
Measurement: Percentage
Source: Survey result
As can be seen from Chart 2.6, a majority (60.78%) of responding leather
footwear companies are not preparing their environmental management system
9.8
29.42
60.78
Obtained certification
Implementing required
EMS for certification
Not preparing to obtain
certification
46. 38
(EMS) according to ISO 14001 standard. Only 9.8% obtained certification, which
represents limited popularity of ISO 14001, and 29.42% are implementing required
EMS, which shows moderate enthusiasm to ISO 14001 among Vietnam leather
footwear companies. In general, Vietnam leather footwear companies mainly pay
attention to one immediate benefit, which is the possibility of signing contracts with
EU importers that require an ISO 14001 certification from importers. For big EU
importers, ISO 14001 certification appears to imply that an exporter is managing its
business well and showing environmental responsibility (ITC, 2011). The fact that a
Vietnam leather exporter was given the ISO 14001 by an independent entity
enhances perceived reliability. Therefore, EU importers feel more confident
engaging a new exporter, saving time and effort associated with clarification and
research prior to signing contracts with Vietnam leather footwear exporters. In
addition, EU consumers are increasingly interested in the environmental conditions
under which products are manufactured. The more that an importer believes that EU
consumers are environmentally conscious, the greater the likelihood that they will
choose ISO 14001 certified companies as exporters.
The number of ISO 14001 certification is projected to continue increasing
but not likely to show remarkable growth despite the increasing preference and
requirement of ISO 14001 from EU importers. Vietnam Government, Ministry of
Natural Resources and Environment and competent agencies have not adopted
practical policies to support Vietnam companies, including leather footwear
producers, in implementing EMS ISO 14001. In addition, low effectiveness in the
enforcement of national environmental regulations is a daunting deterrent to
companies that invest in environment management. Despite the above-mentioned
benefits, the costs of ISO 14001 certification to be sure are not trivial, and the
process is not easy. The cost - benefit analysis here shows that the returns of
investment are not attractive enough (ISO Vietnam, 2010). Since ISO 14001 is
generally a voluntary standard, except for mandatory requirements of importers,
Vietnam leather footwear companies are not willing to invest in ISO 1400.
2.2.5. Meeting SA 8000
According to statistics of SAI, as of June 2013, 79 Vietnamese companies
47. 39
are certified to SA 8000. Currently, there are more than 650 leather footwear
companies in Vietnam but only four of them have SA 8000 certifications, including
Dong Hung Industrial Joint Stock company, Hung Huy Co. Ltd, Vinh Thong
Manufacture – Trading – Service Co. Ltd and Dae Woo Vietnam Co., Ltd. The
number of SA 8000 certified leather footwear companies of Vietnam is too small in
comparison to the total number of leather footwear companies, especially with the
current favorable conditions to implement SA 8000 in Vietnam.
There are several similarities between SA 8000 standards and policies
relating to protecting labor right of Vietnam. For example, Ministry of Labor,
Invalids and Social Affairs (MOLISA) of Vietnam prohibits discriminating, abusing
and forcing labors; and controls the number of overtime working hours to the limit
of not more than 4 hours per day and 200 hours per year. SA 8000 regulates
standard number of working hours to be 8 hours per day or 48 hours per week.
Policies about labor disciplines and wages of MOLISA are also similar to SA 8000
standards. Therefore, if Vietnam companies comply well with regulations of
MOLISA and Vietnam State, they already meet a majority of SA 8000 standards.
Despite the above-mentioned favorable conditions to get SA 8000, Vietnam
leather footwear companies currently do not decide to apply SA 8000 certification
since it is only a voluntary certification, not strictly required by EU importers and
potential benefits do not outweigh the high cost to obtain certificate. In details, cost
of making an application to be SA 8000 certified is approximately 15.000 USD and
the enterprises have to re-apply every three year (SAI, 2012). However, the
increasing concerns of EU consumers about working conditions and labor policies
of factories in developing countries will be likely to stimulate more EU importers to
require SA 8000 in order to create a competitive advantage in this difficult market.
2.3. Comments
2.3.1. Strengths
2.3.1.1. Increasing export turnover
Export turnover of Vietnam leather from the EU market has increased by
19.27% from 2,484.72 million USD from 2008 to 2,963.58 million USD in 2013.
Despite a decline in 2009 due to the strong negative influence of economic crisis,
48. 40
positive growth rate was maintained in the period. From 2008 to 2013, the EU
retained the position as the largest market of Vietnam leather footwear products,
being ahead of the US and Japan. A factor contributing to the steady development
of Vietnam leather footwear in the EU market is the efforts of Vietnam companies
to overcome increasing technical barriers of the EU. If Vietnam producers and
exporters fail to comply with required regulations or meet set standards, their
products will not be accepted by the EU market, which will certainly hurt the
revenue of each company and thereby, the export turnover of Vietnam leather
footwear. To a certain extent, sustaining growth rate demonstrates the effectiveness
of the measures the Government, LEFASO and enterprises have been implementing
to overcome technical barriers to Vietnam leather footwear exported to the EU.
2.3.1.2. Growing number of companies meeting EU standards and regulations
It can be seen from the survey result that there is an encouraging
improvement of Vietnam leather footwear companies in satisfying standards and
complying with regulations required by the EU market. In details, the negative
impact of REACH on export revenue of companies gradually decreased from 2008
to 2013, 74.5% of companies comply well with labeling requirements, a majority of
companies is implementing QMS ISO 9001 while 37.26% obtained certificate,
29.42% of companies are implementing EMS ISO 14001 and 9.8% are certified.
These positive results can be explained by measures taken by Vietnam
companies to enhance their ability of overcoming technical barriers. For example, in
order to comply with REACH, Vietnam producers need to set up an effective
chemical management system. To obtain ISO 9001 and ISO 14001 certification,
companies have to invest in upgrading infrastructure, modernizing machinery,
strengthening the efficiency of human resources, optimizing work procedures, etc.
In addition, Vietnam exporters through many lessons learned in the difficult process
of meeting strict standards and regulations of the EU market are becoming more
mature and experienced with broadened knowledge of international trade.
2.3.1.3. Supporting policies from the Government
The Government has introduced policies to promote the expansion of leather
footwear sector as well as support the sector in overcoming technical barriers of
49. 41
export markets. In details, policies are formulated to develop supporting industries
in order to raise localization rate and increase independence of raw materials.
Leather footwear sector has six prioritized products of supporting industries for
development including leather, artificial leather, tanning chemicals, salted leather
and sewing threads. As a large number of domestic leather footwear companies are
SMEs, support for SMEs by Decree 56/2009/NĐ-CP from the government is
essential. In addition, the Government established a specialized channel providing
information about technical barriers for Vietnam exporters. Overall, for systematic
and sustainable development of leather footwear industry, MOIT devises master
plan for each 10-year-period to determine orientation and goals for the sector.
Table 2.5: Legal documents relating to supporting Leather and Footwear
industry to overcome technical barriers
Number Published date Description
36/2007/QĐ-
BCN
August 6, 2007 Decision on the approval of Master Plan to
develop Leather and Footwear Sector to 2010
6209/QĐ-
BCT
November
25, 2010
Decision on the approval of the Master Plan to
develop Leather and Footwear Sector to 2020,
vision 2025
114/2005/QĐ
-TTg
May 26, 2005 Decision on the establishment of Vietnam’s
network of Notification Authorities and
Enquiry Points on Technical Barriers to Trade
and promulgate the Regulation on organization
and operation of the network
34/2007/QĐ-
BCN
July 31, 2007 The approval of the Plan to develop supporting
industries to 2010, vision 2020
1483/QĐ-
TTg
August 26,
2011
Decision on promulgating the list of products of
support industries prioritized for development
56/2009/NĐ-
CP
June 30, 2009 Decree on support for development of small
and medium sized enterprises
Source: Author’s collection from vanban.chinhphu.vn
Additionally, leather footwear sector of Vietnam is one of the beneficiaries
50. 42
of supporting projects from the EU such as MUTRAP Trade Assistance Program III
with a fund of 1.7 billion EUR, Unido and Switch - Asia (Thuy Ngoc, 2013).
2.3.2. Weaknesses
2.3.2.1. Underdevelopment of supporting industries and heavy dependence on
imported materials
Inferior capability of supporting industries leads to continuing dependence of
Vietnam manufacturers on imported materials, which is a major cause for
difficulties of leather footwear products in meeting strict standard and stringent
regulations of the EU. According to economic experts, the impact of the Plan to
develop supporting industries to 2010, vision 2020 is still limited (Tri An, 2013).
Especially, incentives for enterprises in supporting industries in Decision
34/2007/QĐ-BCN are not detailed and very similar to incentives for SMEs
stipulated in Decree 56/2009/NĐ-CP. Primary supporting industries for the sector
include tanning, leather chemicals and production of artificial leather and auxiliary
materials, all of which are experiencing slow development. Imports from a broad
variety of sources create obstacles in controlling quality of finished products and in
conformity assessment procedure to overcome technical barriers.
Chart 2.10: Evaluation of Vietnam leather footwear companies about the
importance of input material quality to overcoming technical barriers
Measurement: Percentage of companies
Source: Survey result
According to survey result, 54.9% of companies consider that quality of
input materials is an important factor contributing to the process of overcoming
technical barriers while 41.18% consider it as a very important factor. Regarding
41.18
54.9
3.92
0
0
0 10 20 30 40 50 60
Very important
Important
Neutral
Not important
Totally not important
51. 43
their attention to and investment in this factor, 40% of companies pay special
attention and make considerable investment while 52% pay adequate attention and
make investment though not considerable. The figures show that a significant part
of companies is well aware of the importance of raw material quality and willing to
make investment, but domestic sources cannot meet their demands.
There is strong evidence that domestic production of finished leather is
inadequate to supply for Vietnam leather footwear industry, especially for export
orientation. The total production capacity of domestic finished leather in 2013 is
350 mill sq feet per year, 3 times higher than that in 2006. Approximately 60% of
them are supplied to produce footwear for exports but can only meet 30% of total
demand. Each year, the sector has to spend 80 to 100 million USD to import leather
and 180 to 200 million USD to import artificial leather. In the period 2009 - 2013,
leather imports increased by 114% (Duy Phuong, 2014). In 2013, 97.3% of export
turnover of footwear are from footwear produced by imported raw materials, in
which 44.6% are from processing for foreign partners.
Chart 2.11: Proportion of three types of exports in total footwear export
turnover of Vietnam in 2013
Measurement: Percentage
Source: General department of Vietnam customs
Due to the lack of modern machinery and quality management system,
domestic tanneries encounter several difficulties in production to conform to export
quality standards required by leather footwear producers. Currently, there are only
35 tannery companies; most of them are operating in medium and small scale (Thu
Phuong, 2014). Outdated technique and limited scale result in inconsistent quality
52.744.6
3.7
Processing for foreign
partners
Produce by imported
materials and export
Produce by domestic
materials and export