Vietnam's textile and garment industry posted a seemingly stable performance in the first five months of 2026: exports reached $17.8 billion, up just 0.6% year-on-year. But beneath the surface, the sector is grappling with structural pains—eroding cost advantages, order diversion, and rising green compliance barriers. Hitting the full-year target of $50 billion will depend on Vietnam's ability to shift from low-cost assembly to high-value manufacturing.
Slowing Growth Amid Cost and Competition Pressures
While overseas demand remains resilient, the 0.6% growth rate is far below the double-digit gains of previous years. VITAS Chairman Vu Duc Giang admitted that the low-price strategy is no longer viable. Rising labor costs, coupled with competition from Bangladesh and Cambodia offering even lower quotes, are intensifying homogeneous rivalry. For buyers, this means Vietnam is no longer the sole or best low-cost option; order fragmentation will accelerate.
Green Compliance as a Hard Pass to Western Markets
The U.S. and EU are Vietnam's top two export destinations, but both are tightening entry rules—carbon emission controls, renewable energy use, and corporate social responsibility standards are being updated. Green production capability now directly determines whether companies can retain orders. For local small and medium factories, the high cost and long timeline of environmental upgrades may force them out of Western supply chains in the short term, shifting to Southeast Asian or Middle Eastern markets instead.
Supply Chain Gaps Limit FTA Benefits
Vietnam's textile localization rate is only about 50%, with upstream fabrics and accessories heavily reliant on imports, mainly from China. This shortfall prevents the country from fully leveraging its multiple free trade agreements—rules of origin require a certain local content for tariff breaks. As a result, export profits are eroded by imported raw material costs, and policy benefits remain underutilized. Filling upstream gaps has become a core task for industry upgrade.
Transformation Pathways: Digitalization, Greening, and Supply Chain Self-Reliance
Industry experts suggest three directions: first, government-guided investment in high-tech production lines and eco-friendly projects, phasing out outdated capacity; second, building centralized green textile industrial parks for low-carbon standardized production; third, establishing a self-sufficient raw material supply chain to reduce import dependence. Diversifying market exposure is also critical—over-reliance on the U.S. and EU concentrates risk; exploring ASEAN, Africa, and other emerging markets can mitigate trade volatility.