Many global brands are finding that the Vietnam allure of cheaper overheads, lower labor costs and reduction in taxes isn’t really a profitable option for them over the long term. So they are increasingly seeing less benefit from outsourcing and are moving back to the direct to customer model.

The number of manufacturers selling directly to customers is expected to grow 71 per cent in 2017 to more than 40 per cent of all manufacturers. And over a third of US consumers bought directly from a brand manufacturer’s website last year. The textile and clothing segment in Vietnam could find themselves shrinking over the next decade if the transformation away from strictly outsourcing to the direct to customer model isn’t adopted.

Only a small portion of clothing produced in the Southeast Asian country is fabricated from materials sourced in the country. This needs to increase significantly. Boosting localization in the segments is a prerequisite to benefit from free trade agreements such as the Viet Nam-EU pact, which comes into force in 2018.

Vietnam needs to shift away from manufacturing low end products to creating innovative, quality, high value manufactured items and fashionable clothing. Also more efficient sourcing through vertical integration is essential, as well as an improvement in productivity by enhancing research, training and development.