Original by Dr. Steve Wong
May 18, 2023
From a recent news article about Vietnam’s economic development, signs of a fallback in economic growth have surfaced. Garment and shoe factories are operating below capacity due to insufficient production orders. Signs of recession also appear in other sectors, with unemployment rates at an all-time high since its economic reform. Also, the GDP growth rate has slowed down. It brought back memories that Hong Kong had its economic boom in the sixties and seventies with the help of the garment industry. When China opened its economic reform, Hong Kong gradually lost its competitiveness, and eventually, Hong Kong’s garment industry moved to China. After Vietnam opened up its economy, it replaced China’s garment industry’s competitiveness with lower production costs. And now the competitive position takes a turn. Garment orders are moving from Vietnam to South Asia, such as Bangladesh, India and Pakistan, where labour supply is abundant while the production cost is relatively low.
Competitiveness phaseout is a typical process for all industrial countries. Some countries focus on high-tech products and high value-added and high-margin products. They deliberately exclude low-value-added and low-profit products from their core development projects. Thus, such industries moved away to other countries. Some countries lost competitiveness due to high labour and production costs.
If we look back at history, many industries, such as the electrical appliances of Japan, the Nokia phone and the light industries of Hong Kong and China, etc., cannot resume their market positions once they are out because they lack cost competitiveness, design capabilities etc. Besides, I also observe that, for the development of electric cars and micro-chips technology, whoever controls technology, raw material resources, production cost and market share, is bound to be the winner.
On my recent business trip to Tunisia in North Africa, Turkey in the Mediterranean Sea and the Eastern European countries, I realized that North Africa and Turkey had become the manufacturing centres for Western Europe. In contrast, the positions of Southeast Asian countries, including China, Malaysia and Thailand, have been overtaken by India, Bangladesh and Pakistan. Judging from the trading of waste metals and plastics, India and Turkey’s competitiveness is better than ours. Backed by the downstream markets in the neighbouring countries, they can offer higher purchase prices. But on the other hand, the peer players in our industry who used to sell to Malaysia, Vietnam, Thailand and Indonesia are losing their markets due to the price gap. It is a great pity that the market share for the Chinese is getting smaller.