Learning from Competitive Vietnam

KOMPAS/ERWIN EDHI PRASETYA

Production activities of the garment division of PT Sri Rejeki Isman Tbk or Sritex in Sukoharjo, Central Java, Wednesday (13/02/2019). The textile industry still has many opportunities in the domestic and export markets but faces the challenges in efficiency and global competition.

JAKARTA, KOMPAS – The government and businesses must resolve several issues to boost the competitiveness of the country’s textile and textile products (TPT) industry.

Indonesia’s TPT products are less competitive than Vietnam’s due to a number of factors, including labor productivity, the cost of electricity and market access.

Indonesian Textile Association (API) chairman Ade Sudrajat said in Jakarta on Thursday that three main factors hampered Indonesia’s ability to compete with Vietnam. First, Vietnam had a workweek of 48 hours, while in Indonesia had only a 40-hour workweek.

Second, the API had obtained data that showed that electricity in 2015 cost only 7 US cents per kilowatt hour (kWh) in Vietnam, while electricity cost 10.5 US cents per kWh in Indonesia. The price of gas was also more expensive in Indonesia. Gas cost US$7.50 per million metric British thermal units (MMBTU) in Vietnam, while it cost $9.30 in Indonesia.

Meanwhile, the terminal handling charge (THC) for 20-foot and 40-foot containers in Ho Chi Minh Port was respectively $46 and $69, while the respective THCs at Tanjung Priok Port were $95 and $145.

Trade agreements

In addition to the two factors above, Vietnam also had better market access than Indonesia. Vietnamese textile products have a zero percent import tariff with the US and European markets, while Indonesian products were subject to import tariffs of 5-20 percent.

Ade said that aside from removing domestic obstacles, the main task was for the government to conclude and sign international trade agreements.

Benny Soetrisno, the vice chairman for trade at the Indonesian Chamber of Commerce and Industry (Kadin), said that in addition to electricity rates and port fees, the country also needed to increase work hours and overtime pay to improve the competitiveness of its textile products. He also noted that the market was wide open for Indonesian textile products.

Indonesia exported $14 billion in TPT in 2018, a 6 percent increase from the previous year. However, this was much lower than Vietnam\'s 2018 textile exports of $36 billion, an increase of 16 percent compared to 2017.

Vietnam has targeted growth of $40 billion in textile exports this year to create an estimated 2.85 million new jobs in the industry. Vietnam is currently one of the three largest textile exporters in the world, along with China and India.

Vietnam Textile and Apparel Association chairman Vu Duc Giang said that textile orders looked positive this year. "The sector has gradually completed the supply chain thanks to increasing flow of capital invested in the textile and dyeing industry, making its products more competitive," he said as quoted in Vietnam News, a local English-language newspaper.

In January 2019, Vietnam began implementing the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership, which involves 11 countries including Australia, Canada, Japan and Mexico. The agreement challenges Vietnam to maintain its competitiveness. (CAS/AYU/WHO)