Song Hong: Innovative apparel sourcing

Vietnam has become increasingly integrated into the global economy and its search for opportunities in the international community has led it to signing a number of new free trade agreements. How do you feel about Vietnam signing on to the CPTPP and EVFTA?

As a Vietnamese born after the war, we have a lot of feelings and emotions about our country’s development and further steps. After the war our country was closed for many years and it made us go backwards. Our government realized the importance of integration into the world’s economy and that’s why they take very bold actions to join those free trade agreements.

We have advantages in terms of low cost and a large population that is still largely very young. We are a hardworking country and our government sees a lot of potential in growing and joining the global economy. It's like opening more doors for companies like us. But it’s not for everyone. It’s only for those that are ready enough and those that are very committed to building stronger companies and stronger communities.

There are a lot of challenges. The war against bureaucracy and corruption within our country’s internal body is not serious enough.

Even though we are a member of those free trade agreements, a lot of policies and action needs to be taken or we will hurt ourselves. The private sector of Vietnam is not strong enough yet due to its efficiency being too low. It’s going to take time for most sectors to really get on board with those agreements.

With regard to the bureaucratic hurdles and adapting local to global standards, what do you think needs to happen next?

I think the government needs to grow tougher with provincial governments. Normally, the policies from the government come down to us; they are not really practical. From theory to practice is a very long way. Provincial governments need to be more proactive following the government's policies.

Is there a particular policy in the garment sector that is not being followed in Vietnam that is holding back growth in the sector?

They follow the policies but they follow very slowly. For example, the government knows this is one of the most crucial industries for us [Vietnam] in the long term. They have a policy to extend fabric mills and dyeing houses in several areas but when investors arrive, many provinces refuse, claiming it’s bad for our environment and it makes it very hard for investors to expand their capacity.

Is Song Hong ready to capitalize on these FTAs and the benefits they bring?

We are one of the most advanced companies in Vietnam right now. We can trade on our own - not through traders or agencies. We’ve been doing business with a lot of large American brands for many years.

Without an intensive investment in digitalization and automation, it’s hard for us to get into the European market or CPTTP market because other countries like Myanmar, Cambodia or Bangladesh have been enjoying free trade benefits many years before us.

I believe more and more companies have to leave China. Not just American companies but also European companies. They already find substitutions in other countries. Their first stop is always Vietnam. We are already on board. We have already been in touch with some big brands in Canada and Australia and they are already paying attention to CPTPP and we’re working on it.

Are you anticipating a lot of business being diverted to Vietnam from China?

A lot of Chinese companies cannot survive domestically and have to go outside China and go to Vietnam, Cambodia, Thailand, and many go to Africa to reduce the risks of the trade war between themselves and the US. So more and more companies are coming to Vietnam to invest. We are not afraid of them because it is not easy to open factories here anymore because it is too crowded and it’s hard to find enough workers.

You’ve said that workers can be hard to find, in what area of the labor market is it most difficult, skilled or unskilled?

Both. In the garment sector we have to compete with electronics firms like Samsung and LG and they need a huge number of skilled workers. Their salary is becoming more attractive.

The second is the labor export. A lot of countries have an old population, especially Japan and Korea, and a lot of skilled workers want to go there or even the Middle East to work for a few years because the salary is good. Even now the Eastern Europe market is open to our labor. The labor market is becoming very competitive. It’s very tough for small companies and new companies.

According to the Fitch Group, “Vietnam’s low labor cost’s allure for foreign investors is on the decline”. How concerned are you about rising wages?

It’s becoming more critical in big cities. But not in smaller cities like ours. For factories located in Hanoi or HCM it’s very tough to survive because the wages are escalating. But in smaller provinces like ours, we can still breathe. Increasing efficiency and productivity is the only way to mitigate the negative effects of rising wages.

Do you think labor reforms necessary to access the benefits of the CPTPP and the EVFTA will be implemented and enforced?

We are still waiting for our government’s next steps. I think we have to wait for the government to see how they are going to organize these regulations. We cannot do anything in advance. We have to wait for the government’s instructions.

All of our buyers are very tough in terms of workers’ rights. They audit us every month. Basically, we don’t have any problems, we are just happier with the changes.

In Asia, it seems Vietnam is one of the best countries in terms of preserving workers’ rights. Working conditions in Vietnam are better than China, Cambodia, Myanmar, Bangladesh, and Indonesia among others.

What do you foresee as the next big thing in terms of technology in garments?

Automation is not a myth; it is something that is happening. In the garment sector, automation is not a big idea yet. Right now, automation benefits industries of a higher value.

Fashion changes every day; fashion consists of trends and it's a very complicated combination of all kinds of materials together. If there are fewer materials it is very easy to automate. But if it becomes more complicated or it changes very fast than it becomes very hard and robots cannot prevail over humans. There will always be a place for manual labor but it should be skilled.

In 2018, Hong Song acquired the image rights to a number of famous cartoon characters including Hello Kitty, Doraemon and a range of Disney favorites.  What was it that drew you to pursue licensing agreements?

Disney is the biggest entertainment company in the world and their characters are very popular in Vietnam. They only work with the top companies in the field so I took a chance to work with them. We’ve been working with Disney for three years and we have just renewed the contract for another three years and we are very happy with that.

With this agreement in mind, do you believe intellectual property reforms required by the CPTPP and EVFTA will benefit Song Hong?

Vietnam used to be a very poor country and we are next to China which is a counterfeiter's heaven. Chinese goods are easily and illegally imported over the borders and it makes it difficult for companies like us to survive because we make legal products whereas theirs are not legal. It makes it difficult for Vietnamese brands to grow.

But now with those agreements the government has to do it. They have to protect intellectual property rights to fulfill their pledge.

What is the most imported requirement for a buyer?

We can coordinate with anyone, anytime, anywhere in the world. This is how we have to compete. The global competition today is not about quality or price, it’s about speed and who is faster.

Everyone is changing their business model. They are working online and e-commerce is the only way to survive. Fashion brands are asking for shorter lead times and smaller orders and more seasons. It’s a game we have to play, it’s not about worry; it’s about surviving.

On the one hand, technology can help mitigate against rising wage costs. On the other hand, it can replace the need for workers in high-wage countries. How are you preparing for industry 4.0?

4.0 in the garment industry is not something new. A lot of software companies around the world have a lot of solutions for us to choose. The only job for us is to choose the ones most suitable to our current circumstances. We need non-stop investment in our management systems including inventory, sales, finance, human resources, machinery, and especially R&D. Innovative companies will have more advantages in the global supply chain.