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Vietnam companies struggle to escape outsourcing

Garmex Saigon went to the US recently to sign a franchise contract to exprt Gramicci, a brand of outdoor clothing and sportswear with a distribution network in seven states in the US and on Amazon. According to Le Quang Hung, chair of Garmex Saigon the company finds it necessary to follow a new development way in the context of deeper global integration, especially as the Trans Pacific Partnership Agreement (TPP) has been signed.

Hung says the franchise deal will take full advantage of both Gramicci and Garmex Saigon. Gramicci has advantages in distribution network, but it is weak in production. Meanwhile, this is the strong point of Garmex Saigon. What Garmex Saigon can expect from the contract is that it would be able to take the initiative in programming its production and looking for materials, minimizing risks and making fatter profit.

As per the contract, Garmex Saigon will exclusively exploit Gramicci brand for five years, for which it will pay 3 per cent of total annual revenue to the US brand. In the immediate time, Garmex Saigon will use Gramicci’s designers in the US, who understand the culture and taste of local consumers. Products will be made in Vietnam and then exported to the US to be distributed via Gramicci’s network.

Meanwhile, Garmex Saigon hopes it can earn $18 million in revenue from brand exploitation by 2018, which accounts for 10 per cent of the company’s total revenue. The move taken by Garmex Saigon is described as a ‘daring move’ in the current conditions of the Vietnam’s garment industry, where 85 per cent of companies just do outsourcing for foreign partners and pocket only 25 per cent of the product value.