Leather and footwear is one of Vietnam's key export industries. Illustration photo: Internet

Export recovery trend

The leather and footwear industry is one of the key export industries that the Government pays special attention to and creates favorable conditions for development. The Government has issued Decree No. 111/2015/ND-CP on supporting industry development, in which leather and footwear are one of six industries that enjoy support policies that prioritize businesses investing in the production of raw materials and accessories. .

In 2022, the Government approved the Development Strategy for Vietnam's Textile, Garment and Footwear Industry to 2030 with a vision to 2035. The Ministry of Industry and Trade is also developing a Program for sustainable development of the Textile, Garment and Footwear industry, will be submitted to the Prime Minister for approval in the near future to orient the sustainable and long-term development of the industry.

According to the Vietnam Leather and Footwear Association (Lefaso), although footwear is Vietnam's main export industry, the current reality is that the industry is too focused on processing and leaves raw materials to the supply chain abroad, mainly China, Korea... The business market for buying and selling leather and shoe raw materials in Vietnam is almost non-existent. Therefore, the reality is that 60-70% of small and medium-sized enterprises in the Vietnamese leather and footwear industry have to struggle to find their own raw material sources or have to follow customer orders. This has many potential risks in the near future.

In fact, besides positive prospects, export businesses are facing many new challenges such as: order prices are not increasing while logistics costs, specifically shipping costs, have increased continuously in the past year. This leads to customers asking Vietnamese businesses to share part of the shipping costs, significantly affecting the business's profits.

Challenging environmental and social responsibility requirements

According to Ms. Phan Thi Thanh Xuan, Vice President of Lefaso, the leather and footwear industry is facing many big challenges. Many major footwear importing countries have introduced a series of new requirements on the import of increasingly socially and environmentally responsible products. Typically, the EU market, from March 2024, has begun to introduce new requirements such as ecological design with sustainable designs. Or like the issue of traceability and supply chain transparency. If importing raw materials from abroad, businesses will have to be transparent about the entire production process in the production area.

Also according to Ms. Phan Thi Thanh Xuan, changing policies in the import market will have a strong impact on businesses in the industry. Therefore, exporting countries, including Vietnam, need to quickly improve and make their product supply chain information transparent, starting from raw materials and sustainable production towards a circular economy with responsibility to society and the environment.

Mr. Trinh Anh Tuan, Director of the Trade Remedies Department (Ministry of Industry and Trade), said that the United States recently issued a policy allowing the application of cross-border subsidy investigations. This policy targets processing industries and many input materials. Accordingly, if Vietnam buys raw materials from a third country and this country subsidize the production of raw materials, then when Vietnam buys and uses the products for production and export, it will be taxed. Not only the United States, but the EU is also researching and implementing this policy. Therefore, having a trading center for raw materials and accessories is necessary for businesses to diversify their sources of input materials and avoid being dependent on one market.

Minister of Industry and Trade Nguyen Hong Dien said that major footwear importing countries have introduced new requirements for importing products with increasing social and environmental responsibility (such as EPR - expanding responsibility). Producer Responsibility, CBAM - Carbon Pricing Mechanism). Policy changes in the import market will have a strong impact on businesses in the industry.

Ms. Pham Thi Ngoc Thuy, Director of the Office of the Private Economic Development Research Board (Division IV), said that a successful business not only generates a lot of profits but also must pay attention to ESG factors (the department 3 standards E- Environment, S- Society, and G- Corporate governance measure factors related to the direction of sustainable development activities). Faced with this trend, Vietnamese businesses, especially those participating in global supply chains or exports, are facing increasing pressure to apply ESG practices to avoid falling behind or being affected or removed from the "game". Therefore, applying sustainable business models, as well as ESG practices, will help businesses meet the requirements of the market, partners and investors, access green investment capital sources, and enhance competitive ability to participate in the global value chain...

According to leaders of the Ministry of Industry and Trade, in order for the footwear and handbag industry to continue to develop rapidly and sustainably, the association needs to closely monitor the new leather and footwear strategy and the EU's circular footwear development trend; research experience in adjusting policies of countries with strengths and potential in footwear such as China, India, Bangladesh), then propose appropriate solutions to the authorities; At the same time, warn, orient, disseminate, share information and provide timely guidance to avoid being passive in the face of new policy adjustments and regulations from the EU and global markets.