Vietnamese and Swedish - opportunities and challenges

“The relationship between Vietnamese and Swedish apparel industries in the global value chains: Opportunities and challenges”


1. Background:

The massive trend of internationalization and globalization has combined countries from the most developed to the least developed ones into integrated chains of generating value-added goods. The most remarkable and salient example of production value chains on global-scale is in apparel industry, attracting the participation and coordination of both the Western World and the Third World, in which the low-labor-cost developing countries play as the suppliers and their developed counterparts as the buyers. The concept of global apparel value chains has been discussed and analyzed in a variety of studies. According to Gereffi 1999, globalization has brought in the establishment of two distinct types of international economic networks: the producer-driven and the buyer-driven commodity or value chains. The clothing industry is characterized as the buyer-driven value chains because garment marketers, distributors and retailers play major controlling functions in the mass markets via aggressive outsourcing in developing countries (Gibbon, 2001). The typology of buyer-driven chains composes of two production systems: the assembly (cut-make-trim or CMT) and the OEM (original equipment manufacturing) model (Gereffi, 2002). Though mastering the dynamics of buyer value chains and successful industrial upgrading, East Asian NIEs (New Industrializing Economies) and China have set up close relations with various lead firms (Gereffi, 1999).

Outsourcing has been a well-known phenomenon in apparel industry. Over the few decades, European Union (EU), due to exorbitant labor cost, has experienced a high level of outsourcing to Eastern European countries and non-European countries (Sørensen, Stig Yding, 2008). Recently, through restructuring process with the introduction of “lean retailing” paradigm (Gibbon 2001), the outsourcing determinants in apparel industry can also be illustrated by geographical proximity (Stengg 2001); and lead time is considered as increasingly important (Palpacuer et al 2004; Sørensen, Stig Yding 2008). The outsourcing traits of EU retailers are not homogenous. For instance, Palpacuer et al 2004 find that outsourcing networks in Scandinavian countries (Denmark and Sweden) can be described as concentration on some specific locations whereas the United Kingdom (UK) retailers are shown to be more active in searching new locations which makes entry to the UK retailing networks harder for newcomers. In addition, their research results also reveal that entry opportunities in Scandinavia still remain open for new potential clothing suppliers (Palpacuer et al 2004).

In Northern Europe, Sweden plays as a pivotal role in garments retailing and distribution. According to CBI 2008, in 2007 Sweden's outerwear imports were worth EUR2.1 billion, 45% of which came from developing countries, accounting for 2.4% of EU total imports. And the outerwear exports valued EUR760 million in the same year (CBI 2008). The Swedish apparel market is less concentrated vis-à-vis the Danish and the UK ones. Only 31% of total sales are contributed by the top five retailers while the top ten take account of 42% (Peter Gibbon & Lotte Thomsen 2002, Scandinavia). Most of the players are specialty retailers with business coverage both in national and regional levels. Some powerful Swedish retailers to be named include Hennes & Mauritz (H&M), Lindex, KappAhl, JC, Dressman, MQ, etc. Taking vertically-integrated roles in the value chains, Swedish retailers' business activities mainly focus on marketing, branding, retailing and distribution whereas the activities in the lower end of the value chains are outsourced in developing countries (Sundberg 2006, cited by Hague 2007; Sørensen, Stig Yding, 2008). Direct outsourcing is a preferred tendency among Swedish clothing retailers. Their existing major suppliers are primarily from China, Bangladesh and Turkey.

Entering the lower-end supply chains since the 1990s, Vietnam has been a potential garments manufacturer with considerable amount of clothing exports to EU markets (Nadvi and Thoburn, 2004a). However, the production capacity of Vietnamese apparel industry can only be limited with labor-intensive assembly processes of Cut-Make-Trim (CMT) (ibid). Vietnamese garments suppliers participate in the global value chains via multi-arrays of buyers ranging from retailers (direct outsourcing from the United States, EU and Japan) to producers and traders (intermediaries from Hongkong, Taiwan, South Korea) (Nadvi and Thoburn, 2004). However, it is quite difficult for Vietnam to directly penetrate into the end-market due to limited industrial upgrading. Rather, the process is more frequent to be taken through intermediaries in Asian garments hubs in Hongkong, Macau, Korea, etc, which Gereffi 1999 refer to as “triangle manufacturing”.

2. Problem:

According to Nadvi and Thoburn et al 2003, thanks to the trade agreement with EU in 1992, Vietnamese apparel industry enjoyed a preferential quota for exporting clothing products into the country members. In Swedish market, Vietnamese apparel exports surged from EUR1.1 million in 1990 up to EUR10.8 million in 2001, accounting for 0.5% of total Sweden's apparel imports (Peter Gibbon & Lotte Thomsen 2002). However, when the quota regime was lifted off, Vietnamese manufacturers have to face with harsh competition, especially with China and Eastern European countries. Given the small apparel import/ export values, it is hard to say that a mutually tightened value-added chain is established between Vietnam and Sweden, not to say, it is in the risk of decreasing.

3. Aims and research questions:

It arises some questions related to this issue. First, is there any chance to strengthen the direct production networks between Vietnamese manufacturers and Swedish retailers and enhancing the profitable roles of the two actors in the apparel global value chains? Second, when the “lean retailing” paradigm with preference in geographical proximity predominates at the current time, what are the challenges and opportunities for suppliers and retailers who are quite distant in terms of geography? The thesis's purpose is to answer those questions by examining the roles, capacities and strategies of both Swedish retailers and Vietnamese suppliers in the global value chains framework and in the current international trade context. The thesis also aims at providing some implications for Vietnamese garments manufacturers to identify an appropriate industrial upgrading strategy.


CBI, 2008, CBI Market Survey: The outerwear market in Sweden

Gereffi, G, 1999, International trade and industrial upgrading in the apparel commodity chain, Journal of International Economics 48 (1999) p37-70

Gereffi, 2002, ‘The International Competitiveness of Asian Economies in the Apparel Commodity Chain', ERD Working Paper No. 5

Gibbon, P, 2001, At the cutting edge: UK Clothing Retailers and Global Sourcing, Centre for Development Research Series, Vol.1 No. 4

Gibbon, P & Thomsen, L 2002, 'Scandinavian Clothing Retailers' Global Sourcing Patterns and Practices', Centre for Development Research Series, Vol. 2 No. 14

Hauge A, 2007, Dedicated Followers of Fashion: An Economic Geographic Analysis of the Swedish Fashion Industry, Geografiska Regionstudier nr 76, 44pp. Uppsala

Nadvi, K, Thoburn, J, Thang, B T, Ha, N T T, Hoa, N T & Armas E B D 2004, `Vietnam in the Global Garment & Textile Value Chain: Impacts on Firms and Workers` Journal of International Development, Vol. 16, No. 1, pp. 111 - 123

Palpacuer, F, Gibbon, P & Thomsen, L 2005, 'New Challenges for Developing Country Suppliers in Global Clothing Chains: A Comparative European Perspective', World Development, Vol. 33, No. 3, pp. 409-430

Stengg W, 2001, ‘The textile and clothing industry in the EU- A survey', Enterprise paper No.2

Sørensen, Stig Yding, 2008, EU textile & clothing sector-location decisions, European Foundation for the Improvement of Living and Working Conditions, European Monitoring Centre on Change (retrieved: 14 Feb 2009)

Thoburn, J, Nadvi, K, Edwards, C, & Eberhardt, M 2005, 'Challenges to Vietnamese firms in the global garment and textile value' in E Giuliani, R Rabellotti, & M P Van Dijk (eds.), Clusters facing competition: The importance of external linkages, Ashgate, Aldershot, pp. 85-105


Gibbon, P & Thomsen, L 2002, 'Scandinavian Clothing Retailers' Global Sourcing Patterns and Practices', Centre for Development Research Series, Vol. 2 No. 14

This paper reviews the Swedish and Danish retail sectors' global sourcing patterns, and the changing sourcing strategies of leading actors. It provides detailed features of Danish and Swedish clothing retail scenes, the supply base, Swedish and Danish retailers' expectations of suppliers and supplier management policies and instruments, and important information on how these retailers chose new suppliers. This literature is very relevant to our research as it provides an overall scenario of Swedish clothing retailers and their expectation from the suppliers overseas. In addition it also provides the impression of Swedish and Danish on Vietnamese clothing retailers and manufactures. This research paper serves as a base to our research project.

Schaumburg-Muller, H 2005, 'Cooperation and Upgrading in 'Small' Global Chains: Vietnamese and Danish Garment Firms', in E Giuliani, R Rabellotti, & M P Van Dijk (eds.), Clusters facing competition: The importance of external linkages, Ashgate, Aldershot, pp. 61-84

This book chapter reviews the cooperation among the Danish garment and retailers with the Vietnamese Garment firms in various aspect of apparel manufacturing. The author points out 3 models of cooperation exists between the Danish Retails/Garments and Vietnamese Garment industries which involves the production of apparels in Vietnam ranging from fraction of work to full production. This chapter also provides the review of profile and development of Vietnamese garment and textile industry. Thus this is an important literature to understand the existing cooperation among the European retailers (citing examples of Danish retailers) and Vietnamese garment and textile firms and also to understand its historical development.

Thoburn, J, Nadvi, K, Edwards, C, & Eberhardt, M 2005, 'Challenges to Vietnamese firms in the global garment and textile value' in E Giuliani, R Rabellotti, & M P Van Dijk (eds.), Clusters facing competition: The importance of external linkages, Ashgate, Aldershot, pp. 85-105

This book chapter provides the review of competitive advantage of Vietnamese firms over the leading garment and textile firms in the world including China. The article evaluates the advantages and disadvantages of Vietnamese garment and textile firms over Chinese Garment Industry and recommends the strategy for improvements. This article is very relevant to our research as it provides us the understanding of competitive advantages and disadvantages of Vietnamese garment and textile industry over the major exporters in EU which enable us to devise a strategy for Vietnamese apparels industries to penetrate into Swedish markets. Further this article gives us the scenario of Vietnamese Firm till pre-WTO (till 2004) which can provide us valuable information and literature to analyse the historical development of Vietnamese Textile and Garment industries.

Hill, H 2000, 'Export Success against the Odds: A Vietnamese Case Study', World Development, Vol. 28, No. 2, pp. 283 - 300

This article reviews detailed development of Vietnamese garment and textile industry. It has emphasized the strengths and weakness of the Vietnamese garment and textile industries over its Asian competitor notably China, Bangladesh, Indonesia, Sri Lanka and Thailand. This article is very much relevant to our research as it provides the better understanding of Vietnamese garment and textile industries from the scratch. It also provides an insightful observation of strengths and weakness prevalent in Vietnamese garment and textile industries which is very much relevant to our research for formulating the strategy for penetrating in Swedish Market.

Camuffo, A, Furlan, A, Romano, P & Vinelli, A 2006, 'The process of supply network internationalisation', Journal of Purchasing & Supply Management, Vol. 12, pp. 135-147

This journal article provides us the theoretical understanding of why and how retailers in Italy choose to re-locate their production unit to other countries. This article uses 9 case studies of Italian footwear and apparel companies involved in relocating some segments of their supply networks to Romania. The article analyses and provides a theoretical understanding why at the first place these Italian firms decided to relocate some segments of their supply facilities in Romania which provides our research an understanding what are the factors for these retailers to relocate their supply chain aboard which is very much relevant to the Swedish retailers. So we can compare with the competitive advantage Vietnamese apparel industries provides over the need of European retailers particularly Swedish Apparel Retailers and wholesalers.

Palpacuer, F & Poissonnier, H 2003, 'The Global Sourcing Networks of French Clothing Retailers: Organizational Patterns and Opportunities for Suppliers', DIIS/Gl. Kongevej Working Paper, Vol. 3, No. 17

This working paper presents a scenario of French clothing retailers and their preference for the production partners in developing countries. This paper shows that the emerging trends in the fashion retailers in France has shifted their focus from "Traditional Buying" (acquiring a final product that has been designed and manufactured by an outside provider without retailer input) to "Full Package" (buying a final product externally manufactured according to specifications provided by retailers or "CMT" (arranging for outside product manufacturing by providing product specifications, fabrics and components to cut, make and trim. In addition this paper also highlights the criteria of selection of suppliers/manufactures by the French clothing retailers based French retailers criteria and performance appraisal which states that the most important criteria's for these retailers are price, quality and timely delivery. Thus this paper serves as an important literature in our research to understand the needs of European Apparel Retailers citing the experience of the French clothing retailers.

Palpacuer, F, Gibbon, P & Thomsen, L 2005, 'New Challenges for Developing Country Suppliers in Global Clothing Chains: A Comparative European Perspective', World Development, Vol. 33, No. 3, pp. 409-430

This article reviews the analysis of clothing import patterns and sourcing practices of major clothing retailers in the United Kingdom, France, and Scandinavian countries. The paper highlights that the clothing industry has had a critical part in the industrialization process and been engine for economic development of a wide range of countries, over a period covering two centuries. This was the case with Britain and the United States during the early 19th century, with Japan in the first half of the 20th century, and with Hong Kong, South Korea, and Taiwan in the 1950s. The paper warns that the new players might not reap the same benefits due to the tougher trade regulations and high demands from the buyers end. This paper is very much relevant to our research as this provides an in-depth understanding of the functioning of global clothing industries. The example used by this paper citing European particularly Scandinavian Countries experience is very much relevant to our research project.

Dunford, M 2004, 'The Changing Profile and Map of the EU Textile and Clothing Industry' in M Faust, U Voskamp & V Wittke (eds.), European Industrial Restructuring in a Global Economy: Fragmentation and Relocation of Value Chains, Soziologisches Forschungsinstitut an der Universität Göttingen (SOFI), Berlin, pp. 295-318

This book chapter outlines the changing structure and geography of the European Union (EU) textile and clothing industry. This chapter provides the complete picture of the European clothing & textile industries. It also presents the changing trend of the clothing business in Europe and forecasts the future trends. This book chapter is very much relevant to our research as it provides trends and analysis of European clothing and textile business. Since this chapter as provided the futuristic trends which will be very helpful to our research.

Organisation for Economic Co-operation and Development (OECD), 2004, New World Map in Textiles and Clothing: Adjusting to Change, OECD Publications, Paris

This book reviews the most recent market developments throughout the entire supply chain, from natural fibres to retail distribution focusing on the adjustment challenges facing the textile and clothing industries across the globe. It examines the policy challenges in the fields of trade, labour adjustment, technology and innovation, and other regulatory dimensions that are important determinants of a country's drive towards global integration. It covers adjustment in both developed and developing countries (including Vietnam) and underscores the vulnerability of suppliers located in small developing and least developed countries that have specialised in the final assembly of clothing products using imported textiles. This book is an important literature to our research project as it highlights the global scenario of clothing business. Important statistical data of clothing business of Vietnam and Sweden are also found in this book which is very relevant for our research project.

Nadvi, K, Thoburn, J, Thang, B T, Ha, N T T, Hoa, N T & Armas E B D 2004, `Vietnam in the Global Garment & Textile Value Chain: Impacts on Firms and Workers` Journal of International Development, Vol. 16, No. 1, pp. 111 - 123

This paper assesses how Vietnam garment and textile firms are inserted into global garment and textile value chains. It reviews the present standing of Vietnamese textile and garment firms in the global standing and its contribution to the local economy. It also This paper is relevant to our research as it reflects the scenario of garment and textile industries during 1990s and 2000 (its peak period) which can be a lesson for the devising a strategy for penetration in the Swedish market.

Oteifa, H, Stiel, D, Fielding, R & Davies, P 2000, Vietnam`s Garment Industry: Moving Up the Value Chain, World Bank, Washington DC

This World Bank study report gives the comprehensive picture of the Vietnamese Garment Industry. This paper also has an elaborated chapter on SWOT (Strengths-Weakness-Opportunities-Threats) analysis of the Vietnamese Garment Industries thus this report is a major source of information to understand the complete picture of the Vietnamese Garment Industry in our research work. This report also highlights the key problems facing by the garment industries of Vietnam which can be an important factor for our research work to consider a realistic assessment regarding the capability of the Vietnamese garment firms to penetrate the Swedish Market.

McNamara, K (ed.) 2008, The Global Textile and Garments Industry: The Role of ICTs in Exploiting the Value Chain, The World Bank, Washington DC

This report presents case studies of companies that have successfully used ICTs (Information Communication Technologies) to move, for example, into higher-value activities such as design and logistics, or to access niche markets. These opportunities are derived from the ability of ICTs to open up parts of the supply chain (other than basic manufacturing and processing) to developing countries. This report can be a relevant literature to our research so that scenario can be build to adopt such good practices such as use of ICTs to give competitive advantage to the Vietnamese garment industry to enter into niche market such as Sweden.

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