Vietnam’s Garment Machine: Second in the World, Thin at the Margin

Vietnam’s garment industry is a machine for converting imported fabric and cheap labour into export revenue, and it is extremely good at the conversion and extremely bad at keeping the proceeds. The numbers are large: about $44 billion in textile and apparel exports in 2024, a return to the 2022 record after a sharp dip in 2023, and a top-three global position that Vietnam has held for a decade. But the structure behind the numbers is thin. Roughly six in ten factories earn a processing fee rather than a product price; the yarn and fabric arrive from China, Korea and Taiwan; and the brands, from Nike to Uniqlo to Zara, capture the design, the marketing and the margin. This article explains how the machine was built, who owns it, why it is stuck at the low end of the value chain, and what the 2025 tariff shock and the shift to Bangladesh and beyond mean for it. It is part of the Vietnam Company Stories hub.

How did Vietnam become the world’s second garment exporter?

Vietnam became a top garment exporter through three waves: state-owned factories sewing for the Soviet bloc in the 1980s, Korean and Taiwanese investors relocating from their own high-cost countries in the 1990s and 2000s after the US bilateral trade agreement of 2001, and the China Plus One migration of the 2010s that brought Chinese groups and the big brands’ sourcing offices.

The first wave left a legacy of state enterprises, later consolidated into the Vietnam National Textile and Garment Group (Vinatex), which was partly privatised in 2014 and remains the largest domestic player with roughly 100 subsidiaries and affiliates from spinning to sewing. The second wave is the one that built scale: the US–Vietnam bilateral trade agreement that took effect in December 2001 cut American tariffs on Vietnamese garments from around 40 percent to the normal rate of 10–20 percent, and Korean groups such as Hansae, Youngone, Panko and Hansoll, Taiwanese firms such as Eclat and Makalot, and Hong Kong groups such as Crystal, TAL and Esquel poured in, mostly to the south around Ho Chi Minh City, Đồng Nai and Bình Dương.

Exports rose from about $2 billion in 2001 to $11 billion in 2010 and $30 billion in 2017; the addition of footwear, where Vietnam had become Nike’s and Adidas’s largest source, roughly doubled the combined figure. The third wave, from about 2015, was Chinese: Shenzhou International, the world’s largest vertically integrated knitwear maker and a key Nike and Uniqlo supplier, built large complexes in Tây Ninh; Texhong put spinning mills in Quảng Ninh; and a stream of smaller mainland factories followed their customers. By 2020 foreign-invested enterprises accounted for roughly two-thirds of garment exports from a country whose own domestic firms had started the industry.

What Vietnam offered throughout was a large, disciplined, low-cost workforce, a government that treated garments as a strategic export, and, after 2001, market access to the United States that neighbours like Cambodia and Bangladesh had on different terms. What it did not build, and what still limits it, is the upstream.

What does the value chain actually look like inside a Vietnamese garment factory?

The typical Vietnamese garment factory receives fabric and trims nominated by the buyer, cuts and sews them into finished garments to the buyer’s pattern, and is paid a processing fee per piece. In this cut-make-trim (CMT) model the factory owns none of the design, none of the materials and only its own labour, which is why CMT margins sit at a few percent of the garment’s export value.

The industry’s own trade association, VITAS, has estimated over the years that CMT accounts for roughly 60–65 percent of Vietnamese garment output, FOB (where the factory sources materials itself, often from a buyer-approved list) for around 25–30 percent, and ODM and OBM (own design or own brand) for a low single-digit share. Moving up that ladder is the stated goal of every strategy document since 2010; progress has been slow because moving up requires working capital to buy fabric, design and merchandising capability, and relationships with buyers that the Korean and Taiwanese intermediaries already own.

The economics can be sketched from public accounts. A listed Vietnamese garment maker such as TNG in Thái Nguyên or May 10 in Hanoi typically reports gross margins in the 12–18 percent range and net margins of 3–6 percent, on revenue that is mostly processing fees. A large FOB exporter like Việt Tiến does somewhat better. A vertically integrated foreign group like Shenzhou, which spins, knits, dyes and sews, reports net margins in the high teens or twenties at group level. The difference is the fabric: whoever makes the fabric captures the margin, and in Vietnam that is mostly nobody Vietnamese.

Labour is the factory’s only real asset. The regional minimum wage in Region I (Hanoi, Ho Chi Minh City and their industrial neighbours) was raised to 4.96 million đồng a month from July 2024; garment workers typically earn 7–10 million with overtime. That is still perhaps a third of the cost in coastal China but roughly double Bangladesh, which is why the lowest-value basics have been leaving Vietnam for a decade while mid-range and technical apparel have been arriving.

Why is the fabric problem so hard to fix?

Vietnam imports roughly 60–70 percent of the fabric its garment industry uses, most of it from China, because weaving and especially dyeing and finishing require capital, water, wastewater treatment and provincial permission that Vietnam has been reluctant to grant. Dozens of provinces have simply refused dyeing projects on environmental grounds, so the missing middle of the chain stays missing.

The gap has a specific shape. Vietnam has a substantial spinning industry, much of it built by Chinese and Taiwanese investors, that exports yarn to China; and it has a vast sewing industry that imports fabric from China. What it lacks is the weaving, knitting, dyeing and finishing in between, which is the most polluting, most capital-intensive and most technically demanding stage. Each textile-dyeing complex needs its own wastewater plant and a province willing to host it; after a series of pollution scandals in the 2010s, most provinces near the garment clusters would not, and the ones that would, such as Tây Ninh and Nam Định, could not absorb the whole industry.

The consequence is that the trade agreements Vietnam negotiated to give its garments an edge do not fully deliver. The CPTPP applies a yarn-forward rule: to qualify for preferential tariffs, the yarn as well as the fabric must originate in a member country, which China is not. The EU–Vietnam agreement uses a fabric-forward rule with a cumulation provision for Korean fabric, which helps, but Chinese-fabric garments still pay full duty. Industry estimates suggest only a modest share of Vietnamese apparel exports to CPTPP markets actually claims preferences for this reason; the dynamics are explored in our piece on how EVFTA and CPTPP rewired Vietnam’s exports.

Investors have tried. Texhong, Shenzhou, Far Eastern and several Korean groups built integrated mills in Quảng Ninh, Tây Ninh, Bình Dương and Nam Định; Vinatex has a strategy of vertical integration; and the government’s textile development plan calls for the domestic fabric share to reach 70 percent by 2030. Nobody in the industry expects that on that timetable.

How important are footwear and Nike to the wider picture?

Very. Footwear adds roughly $20 billion a year to Vietnam’s exports on top of textiles and garments, and Nike alone sources about half of its shoes and a quarter to a third of its apparel from Vietnamese factories, according to its annual filings. Adidas, Puma and the other sports brands are similarly concentrated, which makes Vietnam the most important single country in global athletic footwear.

The footwear industry differs from garments in structure. It is dominated by three Taiwanese groups—Pou Chen, Feng Tay and Dean Shoes—plus Korean groups such as Taekwang and Changshin, all of which run enormous integrated complexes in Đồng Nai, Bình Dương, Ho Chi Minh City and the Mekong Delta. Pou Chen’s PouYuen plant in Ho Chi Minh City has employed more than 50,000 people at its peak; Taekwang’s Đồng Nai complex is not far behind. Because shoes require moulds, soles and technical materials that these groups make themselves, local value added is higher than in garments, and margins, while still modest, are less exposed.

Nike’s relationship with Vietnam has been the most closely followed. The company’s 10-K filings show Vietnam overtaking China as its largest footwear source around 2010 and rising to roughly half of footwear units by the early 2020s. During the 2021 lockdowns, when southern factories closed for weeks, Nike lost an estimated ten weeks of production and its share price fell on the news, an unusual instance of a Vietnamese provincial policy moving a US large-cap stock. The company responded by diversifying towards Indonesia but has not reduced its Vietnamese footprint in absolute terms.

For Vietnam, footwear is the better half of the apparel story: more integrated, more stable, better paid and more defensible against Bangladesh, which has no comparable shoe industry. It is also more exposed to any US tariff, because almost all of the output is branded and a large share is US-bound, which is why the sports brands were among the loudest corporate voices in Washington during the 2025 negotiations.

What happened when demand collapsed in 2023?

In 2023, as Western retailers cut orders to work off pandemic-era inventories, Vietnam’s textile and garment exports fell about 10 percent to roughly $40 billion, hundreds of factories cut hours or closed, and an estimated several hundred thousand workers lost jobs or had shifts reduced. It was the sector’s worst year since the global financial crisis, and it exposed how little cushion a CMT model provides.

The most visible casualty was PouYuen Vietnam, the Taiwanese-owned Pou Chen shoe factory in Ho Chi Minh City that is one of the largest single employers in the country; it laid off several thousand workers in 2023 in stages as Nike and Adidas orders shrank. Garment makers in the Mekong Delta and in the northern provinces reported order books down 20–40 percent, and the industry association’s own survey found a majority of members operating below capacity through the first three quarters. Because CMT factories are paid per piece, a 30 percent drop in orders is a 30 percent drop in revenue against fixed costs that barely move.

The recovery in 2024 was real but partial: exports returned to around $44 billion, helped by orders shifting from Bangladesh during that country’s political upheaval in mid-2024, and by brands rebuilding inventories. But the recovery came with the same structure. Factories that had survived by cutting hours went back to full shifts without having changed what they made or for whom, and the industry’s stated ambition to reach $47–48 billion in 2025 was framed entirely in volume.

The 2023 downturn is worth studying because it was a demand shock, not a competitiveness shock; Vietnam did not lose share to anyone in particular. The next one may be different. The country’s cost advantage over Bangladesh, Cambodia and increasingly Africa is negative; its advantage over China is shrinking; and its speed, quality and compliance advantage, which is real, is exactly the kind of advantage that a tariff can erase.

How does the 2025 tariff shock change the calculus?

The 2025 US tariffs hit garments harder than electronics because apparel had no product-specific exemption, because the sector’s US dependence is higher, and because CMT margins leave no room to share the cost. Buyers have responded by asking factories to absorb part of the tariff, by shifting basics to Bangladesh and Cambodia, and by demanding fabric-origin documentation that most factories cannot easily provide.

The immediate effect in the second half of 2025 was a scramble of front-loading and repricing. Brands pulled forward shipments before tariffs took effect, then negotiated. Public commentary from Nike, whose fiscal 2025 filings show roughly half of its footwear and about a quarter to a third of its apparel made in Vietnam, indicated it would raise US prices and diversify sourcing; Adidas, with a similar Vietnam weighting, said much the same. Neither can leave quickly: Vietnamese footwear capacity, built over two decades, has no substitute at scale.

For garments as opposed to footwear, the leaving is easier. Basic T-shirts, underwear and denim can move to Bangladesh, where the US tariff rate ended up similar but labour costs are half, or to Cambodia, Indonesia and increasingly Egypt and Kenya. What tends to stay in Vietnam is the technical, the fast and the complicated: performance sportswear, outerwear, lingerie, and anything that requires a compliant, reliable factory more than a cheap one.

The transshipment provision is the wild card. If US customs treats Chinese-fabric garments as transshipped, the whole CMT model becomes uneconomic for the US market and Vietnam’s fabric problem becomes an existential one overnight. If it does not, the 20 percent rate is a tax the industry will pass along, slowly and painfully, to American consumers. Our analysis of the 2025 US–Vietnam trade deal goes into the negotiation and its loose ends.

What does the garment story mean for founders, investors and operators?

It means the money in Vietnamese apparel is upstream, in services, or in the narrow ODM segment, not in adding another sewing line. Fabric and dyeing, compliance and traceability software, technical textiles, and buyer-facing design capability are the gaps; commodity CMT capacity is a business with three million competitors and a customer who can leave.

For founders, the most credible route out of CMT that Vietnamese firms have actually taken is FOB with a strong merchandising team, then gradual ODM for mid-sized brands that lack their own design departments. Firms such as May 10 and Việt Tiến have built domestic brands too, though the domestic market, at perhaps $6–7 billion, is small relative to exports and dominated by Chinese imports and foreign fast fashion. Digital traceability, driven by the US Uyghur Forced Labor Prevention Act and EU due-diligence rules, has created a real market for compliance tooling that Vietnamese software firms are only beginning to serve.

For investors, listed garment makers on the Ho Chi Minh and Hanoi exchanges are thin-margin, order-book-driven cyclicals with high labour intensity and limited pricing power; they can be good trades on a demand recovery and poor long-term compounders. The more interesting listed exposure is often the landlord: industrial park developers whose southern parks house the Korean and Taiwanese garment and footwear groups, described in our piece on how Becamex, VSIP and Kinh Bắc sell Vietnam by the hectare. Vinatex, though listed, remains majority state-influenced and slow.

For operators sourcing from Vietnam, the practical conclusion is that Vietnam is now a mid-cost, high-reliability origin rather than a low-cost one. It competes with China on politics and with Bangladesh on quality. That is a defensible position, and it is a very different one from the country the Korean investors found in 2001. Vietnam’s other export-manufacturing champions, from Samsung’s phone plants to Apple’s contractors, have been making the same transition on better margins.

Frequently Asked Questions