Leather exports to top US$12 billion

They were worth US$10.4 billion last year to rank third in the country's list of key exports, Diep Thanh Kiet, Lefaso's deputy chairman, said, adding, "The exports were very good in the first half of the year, with footwear exports going up by more than 14% and handbags by over 18%."

But Kiet and others at a June 23 seminar in HCM City agreed that small-scale production, poor development of supporting industries, and lack of skilled workers are making the leather industry's growth unsustainable.

The industry imported nearly US$4.2 billion worth of leather and other raw materials last year, which accounted for 40% of its total export revenues, Kiet said.

Up to 70% of the leather needed for footwear and handbag production was imported, mainly from the Republic of Korea, Taiwan, Italy, and Thailand.

Only 40% of fabric and other raw materials can be sourced locally, and the country spent more than US$3 billion to import fabric and other raw materials last year, mostly from China.

But there is a growing trend of shifting production of fabric and others from China to Vietnam to take benefit of the free trade agreements the latter is negotiating.

In the next few years local production can supply more than 50% and the rest can be procured from Taiwan, Thailand and Indonesia, he said.

With lower production costs compared with China, high demand both in the local and foreign markets, and advantages from the upcoming Trans-Pacific Partnership, the industry continues to have great potential for development, Pham Thi Thu Hang, general secretary of the VCCI, said.

To capitalise on development opportunities, companies should focus on improving the skills of their workers, diversify their export markets, and pay more attention to the domestic market, she said.

They also need to restructure their organisation based on competitive advantages, strengthen their design capabilities, build brands, and improve technologies to reduce energy consumption and protect the environment, she said.

Most importantly, firms should concentrate on developing their supply chain, especially for feedstock, delegates said.

Kiet said the Government should be more pro-active in setting up industrial parks for leather tanning, a key material for the industry.

Phan Chi Dung, director of the Ministry of Industry and Trade's Light Industry Department, said under the development plan for the footwear industry, the Government wants to raise local content in production to 60-65% by 2015 and 75-80% by 2020.

The targets are hard to realise, he admitted, but the signing of the FTA with the EU and the TPP is expected to provide a boost to the rate.

There are 812 firms are in the country's leather and footwear industry, he said.