Type of product 2002 2005* 2010*

SHOEProduction 350 470 720

Exports 290 428 655

LEATHERGOODS

Production 34 52 81

Exports 32 50.5 78

FINISHEDLEATHER

Production 25 40 80

Exports 12 25 65

Vietnam is currently experiencing sustained economic growth, second onlyto that of China, mainly due to exports and Foreign Direct Investments(FDI). Even though France may only be the seventh largest investor inVietnam, it is nevertheless the leading western investor.

In order to facilitate its entry into the World Trade Organisation, since2000 Vietnam has brought its legislation into compliance with the regulationson international trade. The country may not, however, be able to join theorganisation until 2007 if Vietnam and the USA fail to reach an agreementon the financial and telecom sectors. In only a few years Vietnam hasbecome one of the leading countries in the world for sports shoes in termsof production and exports.

Source: Leather and Shoe Association (*: estimate).Unit: millions of item

> VIETNAM IN FIGURES:Population: 81.4 million*GDP: US$ 39 billion*GDP per capita: US$ 480*GDP growth: + 7.7 %Inflation rate: + 7.7 %FDI flow: US$ 4.1 billionForeign official developmentassistance: US$ 1.8 billionTransfers from Vietnamese abroad:3 billion US$Exports: US$ 26.3 billionImports: US$ 31.5 billionTrade deficit: US$ 5.2 billionDeficit of the current accountbalance: - 4.4 % of GDPTrade with France in 2004:French exports: 0.15 billion eurosFrench imports: 0.45 billion euros

Source: French Embassy(2004, except*: 2003)

MARKET ORGANISATION

Vietnam is the fourth largestproducer of shoes in the world afterChina, India and Brazil, just ahead ofIndonesia. With a 19 % increase invalue, production reached 470million pairs in 2005, i.e. 2.3% ofworld production.

The leather and shoe sector accountsfor approximately 10 % ofVietnamese GDP. According tosources, it employs between 600,000and one million people (of which80% are women), which makes it thesecond largest sector after textiles.

Approximately 300 companies, threequarters of which are concentrated inthe region of Ho Chi Minh City,manufacture shoes. They producetwo thirds of the overall output andcreate half the export revenue.

Until recently the shoe industry wasdominated by the governmentcorporation Leaprodexim, whichplaced it under the control of theMinistry of Industry. However, inrecent years 70 % of governmentcorporations, including Leaprodexim,have been privatised.

According to the authorities, 70 % ofproduction is apparently linked toforeign capital. These producersspecialise in subcontracting sportsshoes and export their entireproduction in order to take fulladvantage of the conditions forexemption from customs duties onfactors of production. Asian groups,particularly Taiwanese, control over40 % of the production. They areusually bound by exclusive contractsto international brands such as Nike,Adidas, Reebok or Timberland which

Sources for the article: the French Embassy(PEE), the French Chamber of Commerceand Industry Overseas (CCIFE)

> The shoe market in Vietnam

International NewsletterN°2 - 2006

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PRODUCTION OF THE LEATHER AND SHOE SECTOR

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www.ctcgroupe.com

EXCLUDING ASEAN ASEAN

Category of product With certificateof origin

Without certificateof origin 2005 2006

GLUES 15 22,5 5 5

ACCESSORIES 25 40 10 5

FABRIC 40 60 5 5

LEATHER SHOE 50 75 5 5

FINISHED LEATHER 50 75 10 5

have their shoes produced in Vietnamthrough Asian investors.

70 % of production is dedicated to sportsshoes, which makes Vietnam one of theleading countries in the world in this sector.

Vietnam is, however, dependent onforeign countries regarding capital, marketopportunities and due to its massiveimports of raw materials. In particular, theimports of finished leather cover 80 % ofthe industry’s needs and those of the otherfactors of production account for over60 % of needs. Even though the officialobjective is to drop the imports of factorsof production from 70 % in 2004 to 20 %in 2010, this weakness is likely to constituteone of the limits to developing shoeproduction in the future.

The main local brand is currently Biti’swhich employs 7,500 staff and produces22 million pairs of town and sports shoesand sandals annually. Other producers,which are often positioned in the middlerange, have created their own brands andshop names: Vina Giay, T&T, Pasteur,Bita’s, Long Thanh and Hong Thanh.

It has now become necessary for nationalcompanies to create their own brands inorder to compete with the internationalproducers on the world market.

TRENDS IN FOREIGN TRADE

Vietnam is the world’s second largestexporter of shoes, far behind China butahead of Italy. Exports totalled nearly 3billion US$ in 2005, i.e. twice that of 2000,which has made the shoe sector Vietnam’sthird largest export item for several yearsnow.

Exports account for over 90% of localproduction of shoes by volume andapproximately 95 % in value compared with70 % in the first few years of the century.

Vietnamese shoe exports increased by19 % in value in 2005 compared with9.3 % by volume. Moreover, there was a55 % increase in value between 2002 and2005 whereas the increase by volume was39 %, which indicates a significant shifttoward higher quality exports.

In 2005 Vietnam exported 527 millioneuros’ worth of shoes to France, i.e. afigure that has increased eightfold in tenyears. Vietnam is France’s third largestsupplier after China and Italy and Europe’ssecond largest shoe supplier.

Vietnam is also Japan’s third-largestsupplier and the country exported 392million US$ worth of sport’s shoes to theUnited States in 2005 (out of 620 millionUS$ total exports).

Source: Ministry of Commerce and Information Service of the Central Post Office HCMC

2004 CUSTOMS DUTIES ON PRODUCTS FROM THE EU

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CTC™ VietnamYoco Building, 5 Floor41 Nguyen Thi Minh Khai StreetDist. 1 - HO CHI MINH CITYTel.: +84 (0)8 827 44 67 / 827 44 65Fax: +84 (0)8 827 44 68ctcvietnam@ctcgroupe.comwww.ctcgroupe.com

ASSOCIATIONLEFASO VN (Vietnam Leatherand Footwear Association)25, Ly Thuong Kiet Str. HANOITel: 84 4 9349593 - Fax: 84 4 9345374www.lefaso.org.vnhhdg@hn.vnn.vn

Vietnam Leather and FootwearProducers AssociationHead Office: 26, Le Dai Hanh Str. HANOITel: 84 4 8265715 - Fax: 84 4 8259216

PROFESSIONAL FAIRSSaigon Leather & Shoes, May31- June 4, 2006(Garments, Textiles and Fashion Accessories)www.bitec.net

International Shoes & LeaherExhibition, June 27-29, 2006(Leather Products, Shoes & Bags, Accessories)www.toprepute.com.hk

Vietnam Fashion Fair 2006, Sep27-29, 2006(Garments, Textiles and Fashion Accessories)www.cpexhibition.com

BUSINESS INFORMATIONFrench Chamber of Commerceand Industry in Vietnamhttp://www.ccife.org/vietnam

Asian Development Bankwww.adb.org/VietNam/default.asp

Vietnam Trade PromotionAgencyhttp://www.vietrade.gov.vn/

The State Bank of Vietnamhttp://www.sbv.gov.vn/

General Statistics Office of Vietnamhttp://www.gso.gov.vn/

MEDIAVietnam News Agencywww.vnanet.vn

Vietnam Economywww.vneconomy.com.vn

Courrier du Vietnamhttp://lecourrier.vnagency.com.vn

Vietnam Investment Reviewwww.vir.com.vn

Footwear items are included in a list oftwenty products for priority exportintended, in order of priority, for countriesin the Asia-Pacific zone, European markets,American markets followed by Africanmarkets and those of south western Asia.The authorities forecast increasing exportsto 720 million pairs worth 6.2 billion US$by 2010.

Vietnam currently presents itself as asubcontractor of developed Asiancountries (Japan, Taiwan, Korea) that are atthe origin of 46 % of FDI. Due to astructural weakness in the availability ofraw materials, accessories and installations,the investors import most of the factors ofproduction needed for their production.

Therefore, any export of finished goodsalways results in an increase in imports.They generally come from Asian countrieswhere most of the decision-making centresare based and they are imposed on theVietnamese producers. It is therefore verydifficult for Western companies to enterthe market. Finally, because the goods areimported for export purposes they areexempt from customs duties.

In 2004, the imports of factors ofproduction in the shoe sector totalled1.8 billion US$, i.e. 20 % of the totalVietnamese imports.

European shoe manufacturers haverecently filed a complaint against Vietnamfor dumping, the goods concerned beingleather-topped middle-range shoes. Themeasures proposed by the EuropeanCommission (the progressive applicationof tax up to 16.8 % by next October) areto be discussed on 9 March at an anti-dumping committee of the 25 memberstates and may take effect on 7 April 2006.

The Commissioner in charge of foreigntrade has also suggested that children’sand high-technology sports shoes beexcluded from these measures because theEuropean production of these items is tooinsignificant to have suffered a loss.

CONSUMPTION

The local market is only 70 million pairsof shoes per year, i.e. 0.8 pairs per personper year. 60 % of consumption is coveredby local production and the rest byexports from China.

In 2004 only 26 % of the populationlived in towns. The proportion of urbanpopulation is, however, increasing by0.5 % each year under the effect of themass rural-to urban migration which hasbegun and of the 1.18 % annualpopulation increase (i.e. one millionadditional inhabitants each year).

Ten or so smaller cities are beginning tohave living and consumption conditionssimilar to those of the two main cities:Hanoi (3 millions inhabitants) andHo Chi Minh City (conurbation of 7 to9 million inhabitants).

Ho Chi Minh City should reach thethreshold of 15 million inhabitants by2020.

Approximately 40 % of the population ofthe cities is either middle- or upper-classand their numbers are increasing rapidly.

A city dweller’s income is 2.3 timeshigher than that of somebody in thecountryside (up to ten times higherdepending on the zones considered).

Moreover, the average income of urbanhouseholds has increased by 55 % in fouryears, which means that a middle class iscurrently developing.

Even though few imported shoes arecurrently distributed in Vietnam, theluxury sector, which is still at theembryonic stage, should neverthelessdevelop significantly with the emergenceof an upper class.

It is estimated that 30 % of the nationalincome is already held by 10 % of thepopulation.

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