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Garment, footwear exporters pocket modest profits   2010-10-04 - Tuoi tre

Garment and footwear exports are promising to bring tens of billions of dollars in export revenue this year. However, the actual profit they pocket is really modest.

 

 
Having received an order to make 12 million pairs of shoes worth $85 million, the director of a big shoe company estimated that, “If we can manage well, we will be able to obtain a profit of 5-6 percent.”

 

According to the director, the price of a pair of shoes exported under the mode of FOB is about $20. Of this amount, 60 percent is spent on input materials, 34-35 percent is listed as “production expenses” (salaries, bank loan interest and equipment amortization).

 

“The actual profit an owner can pocket is 5-6 percent of the export value,” he calculated.

 

In case a company only does outsourcing for foreign partners and does not have to pay for input materials, it will get $1.8-2.5 per pair of shoes. “After paying salaries, the owner makes 10-15 cents per pair of shoes,” L, the owner of a footwear company employing nearly 1000 workers in Binh Duong, remarked.

 

The garment industry confronts the same situation. H, general director of a garment company in HCM City, showed Tuoi tre reporters a ready-made shirt, stating that all the product’s input materials are imported. “The localization ratio of this product is nearly zero. The only “domestically-made part” here is the labor,” H noted.

 

M, a general director of a company specializing in garments for export to Japan, has factories in HCM City and Binh Dinh. His company has exported $21 million so far this year, but the company had to import $17.6 million in materials.

 

Kim Hong, a senior executive from Saigon 3 Garment Company, maintained that,  in exporting trousers to Japan under the mode of FOB, the price is $10 per pair and the added value is 30 cents. Meanwhile, if the company outsources for foreign partners, it gets only 3-4 cents per pair.

 

Most producers complain that production costs have been rising and, to make a profit, they must save on management fees.

 

A senior executive of a sport shoe company revealed that foreign partners always set the maximum profit for Vietnamese enterprises at 5-6 percent. If enterprises can profit higher than 5-6 percent, they can save fees on material management or they can negotiate good prices when purchasing input materials.

 

There are not many enterprises with export contracts under the mode of FOB with high export prices (tens of dollars per product), according to Diep Thanh Kiet, Deputy Chair of the Vietnam Leather and Footwear Association. Kiet added that most producers can only get $9-10 per pair of shoes

 

According to Tran Duc Sinh, Chair of Viforest, prices of timber materials, electricity, water, fuel and the labour have been increasing sharply since the beginning of 2010. This has resulted in lower profits in making wood furniture for export.

It is estimated that wood furniture producers will obtain profits of less than five percent of the export value. As such, if enterprises can obtain $3.1 billion worth of export revenue this year as forecast, they will be able to pocket the modest profit of $150 million.



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