Rising input costs gobble up export profits

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Despite record revenues this year, key export industries including textile, garment, footwear and woodwork are expecting meager profits due to rising production costs.

"We have many orders from foreign customers," said Le Ngoc Hoan, vice general director of the textile and garment firm Nha Trang. "However, due to the current high prices of imported materials, we stopped taking orders fearing low net profits."

Hoan's firm expects to take in some US$7 million this year. However, his firm imagines it will reap less than 5 percent of the turnover because it is bound to fulfill contracts that were signed when materials were considerably cheaper.

"Cotton prices have doubled since last year," he said. "We're only earning about 6-12 cents for every $2-4 shirt we export to the US or Europe."

Despite taking in export orders worth some $32 million, Vu Duc Dung, vice general director of garment producer Dong Nai, is not very happy.

For every $20 jacket Dong Nai ships to the US, 70 percent of that sum is spent on buying materials. Another quarter of the profit is spent on employee salaries and other fees.

"Profit is very low," Dung said. "We're expecting to net 5 percent of our export turnovers this year."

Import junkies

One director of a garment producer in Ho Chi Minh City who asked not to be named said everything that goes into his products - from cloth to buttons to thread - is imported.

His firm took in some $25.3 million from shipping mostly jackets, shirts and uniforms to the US and Japan in the first ten months of 2010 -nearly a 20 percent jump over the same period last year.

Unfortunately, the firm spent $20.2 million on imported materials alone.

Dung and Hoan said those who took in outsourced orders fared even worse.

The two businessmen said that the fees normally account for about 30 percent of the products' value. Most of the earnings are spent on covering labor and overhead costs.

Vietnam's footwear industry has also been hit hard, despite rising orders.

An Lac, a HCMC-based footwear firm, saw a 20 percent growth in export revenues this year, according to Vice Director Nguyen Xuan Cuong.

"However, the price of every imported material has surged," Cuong said. He said his firm usually exports a pair of cloth shoes for $10. Of that sum, material costs account for around 60 percent. Salary, banking interest rates and other fees eat up another 30 percent. And so the firm is left with just 10 percent profit.

If they are bound to fulfill outsourcing contracts for foreign trade partners, they receive about $2-3 per pair of shoes. After covering their labor costs, the companies only net about 10-15 cents per pair of shoes, he said.

Quantity over quality

Nguyen Ton Quyen, secretary general of the Vietnam Timber and Forest Products Association, said the spike in the price of imported materials, electricity, gasoline and the cost of labor have swelled production costs by 20 percent.

Thus, woodwork exporters net less than 5 percent of their revenues. With an anticipated export turnover of $3.1 billion this year, the net profits of more than 2,500 woodwork exporters nationwide will only amount to about $150 million.

Quyen said that years ago, the domestic supply of natural wood materials was still abundant. Now, woodworkers have to import up to 80 percent of their production materials.

"Now, woodworking firms are lucky to earn a profit of 3-5 percent," Quyen said. "Our export growth is driven by quantity, as the added value of each product is very small. So, we boost export volumes to ensure profits."

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