z VIET TRADE - LEFASO VIETNAM THE ABC’S OF FOOTWEAR MARKETING MARKETING GUIDELINES FOR VIETNAM FOOTWEAR PRODUCERS (Making the Transition from Shoe Processing to Full Production) Produced by: LEFASO VIETNAM Assistance Provided by: INTERNATIONAL TRADE CENTRE UNCTAD / WTO 37 INTRODUCTION In developing this product, a great deal of material was reviewed including international marketing textbooks, export marketing guidelines generated by various international experts, and material contained within the websites of many companies and international organizations. While this information was helpful and generated ideas, it was not of the practical, step by step, nature needed by a company trying to determine if export marketing is a viable option. Virtually all the information contained in previously mentioned export marketing publications deals with marketing branded products rather than the private label products that Vietnamese companies are called upon to produce by international buyers. This guidebook’s primary focus is on marketing private label or customer branded footwear. This does not mean that Vietnamese companies should not make a greater effort to produce products for the domestic market nor does it mean companies should not consider developing their own brand names. Both of these are viable options and could be a more profitable alternative for many companies now attempting to export. This guidebook uses the methodology of analyzing individual companies from the viewpoint of an international buyer, who has a choice of thousands of factories worldwide to produce any individual product. The questions asked are the ones the buyer would ask and the infrastructure and material referenced are what would be expected from companies with which he plans to develop a relationship. Section A is perhaps the most important part of the guidebook. It contains a quick start analysis with numerous questions a company should answer to determine where it should focus the efforts of its business. There is no right or wrong answer to these questions but a company with many negative answers, should consider the steps necessary to rectify these before attempting to expand its marketing effort. The questions asked in this section are critical for companies to discuss internally as they develop short and long term strategy. These questions could easily become the foundation for a company’s annual strategic planning session. Section B discusses the steps in process, knowledge, and human resources that are necessary to successfully move from producing shoes under export processing contracts to full product production and marketing. Also discussed are the same considerations for a company who wishes to focus on the Vietnamese market. 38 Section C contains the basic marketing guidelines and suggestions for those companies who wish to pursue the export market. The Guidebook Appendix includes information sources and important examples of Vietnamese companies who have become success stories in developing and exporting footwear to international markets. This guide is by no means a full fledged marketing textbook but is designed as a product to help Vietnamese companies approach the international footwear market in an effective and professional manner. A. Quick Start Company Analysis Domestic  Are you currently producing footwear for the Vietnamese domestic market?  Do you have your own retail outlets?  Do you have your own sales organization or a network of wholesalers covering the entire country or regions of the country?  Do you produce goods under a brand name?  Is this brand name recognized and legally registered?  If 10 consumers were asked if they were aware of your brand name would at least 5 likely say yes?  Do you participate in domestic bids and tenders from government and private companies and are you aware of most of these opportunities?  Do you have a process for determining the exact cost of shoe’s you produce?  If you produce products under a brand name can you explain what the brand name stands for and do you try to develop products around that theme?  If you produce products under a brand name do you know how much of your business the top 10% of the shoe styles represent?  When developing new styles, do you first meet with your dealers or focus groups of consumers to get their reactions?  Do you understand how to identify the footwear you produce in categories other than men’s, women’s, children’s?  Do you understand the meaning of niche markets? Do you compete in at least 3 niche markets and how do you make your customers aware of this?  Is someone in your company responsible for meeting and dealing with your customers 100% of his/her time and is that person willing and able to give you bad news as well as good news concerning customers? 39  Is someone in your company responsible for understanding and developing new products and technology?  Do you attend at least one trade fair a year with the focus being on seeing new products, technology, and materials?  Have you met the managers of the large foreign production companies and offered your services for subcontracting?  Have you ever tried to sell cut and fit uppers?  Do you attend at least one trade fair a year with the focus being on sales?  Do you read and apply to your business at least one international publication per month dealing with footwear/clothing fashion?  Are you using the same production processes to produce over 75% of your shoes that you used 5 years ago?  Do you have access to the internet and use it for business research?  Do you know your leading suppliers and customers e mail address?  If a customer calls your company or sends you an e mail, do you have a system in place so that the call or e mail is always promptly answered?  Have you ever developed a fashion show combining your footwear and clothing / accessories for your wholesale or retail customers?  Are you able to identify your expenditures on sales, advertising, and R&D on a yearly basis and compare them to your sales growth?  Are you a member of LEFASO and /or a local footwear association and are you aware of the benefits of membership? Export  Are you currently producing footwear for the export market?  Are you now or have you previously produced footwear under an export processing contract?  Are you currently engaged in a joint venture agreement? If not have you tried to locate companies who might be interested in forming joint ventures?  Have you developed a business card and basic written profile of your company in Vietnamese and English which provides information on your company (production, years in business, employees, etc.) to give to potential customers?  Have you ever attempted to export cut and fit uppers?  Do you have a specific plan to use the exhibitor guides of foreign trade shows for a marketing prospect list? Have you attempted this?  Are you aware of every foreign trading company that has an office in Vietnam and are they aware of your company and its capabilities?  Do you understand the various methods of pricing your shoes (fob, c&f, cif, etc.) and can you quickly produce quotes using these methods? 40  Have you made major upgrades to the machinery and processes in your factory over the past 5 years? Are your lasts and molds in European or American sizes? Do you understand the various international foot sizes?  Do you frequently visit the main country you export production to?  Are you aware of the foreign and domestic producers of raw materials and components located in Vietnam and have you approached them to see if their products are a good option for you?  Do you have a person on your staff that devotes 100% of their time to dealing with customers? Does that person speak English and have e mail capability?  Do you have a formal product costing system that lets you identify material and labor cost for each product you manufacture?  If you purchase your raw materials have you developed at least 2 sources for every product and do you receive competing quotes?  Do you have a person on your staff whose responsibility it is to use the internet for sales and material sourcing leads?  Do you have someone your staff with the ability to quickly and accurately duplicate a sample from either a picture or an actual sample?  Do you have an employee or an agent in a center of footwear materials (Taiwan / Hong Kong) who can supply you with the correct materials to produce a sample for a customer quickly?  Do you have an internet website and have you researched and listed your company with every internet search engine and internet footwear industry site?  Are you able to receive orders and bill customers using EDI? Do you have the capability of receiving customer patterns electronically?  Have you developed in your main office, an area that displays awards, citations, and certifications that your company has received and would want customers to know about?  Do you attempt to sell your products to markets closest to Vietnam rather than those the furthest away? Have you developed a list of your top 5 target markets? Have you tried to locate sales agents in these countries?  Do you exhibit at the HCMC International Footwear Exhibition?  Are you a member of LEFASO and aware of the services it offers to help you in exporting? B. Moving Beyond Export Processing Contracts It’s likely that over 95% of the footwear exported from Vietnam is what we call private label footwear. These shoes may have a famous brand (Nike, Doc Martens), the trade name of a chain store (Famous Footwear, K Shoes), 41 or no name at all. But the common factor is that a foreign buyer supplied the design, and possibly the components and dies to produce the product. This is the type of production that the majority of foreign buyers are interested in producing in Vietnam. In discussions with Mr. Nguyen Gia Thao, Chairman of LEFASO, a major objective of the industry must be the transformation of companies from processing export contracts to full shoe marketing and production. Many Vietnamese companies have been able to successfully make this move but many others have expressed concerns as how to accomplish this move and question whether their company should make the attempt. This section will discuss the steps a company should follow in order to make the move, the requirements in process and knowledge, and the challenges. In today’s business there are several phases in the life of a style of footwear: Concept Phase – Research, Design Production Phase – Engineering, Materials Procurement, Manufacturing Distribution Phase – Logistics, Wholesale Marketing, Retail Marketing These percentages aren’t this exact, but to illustrate our point let’s assume that each of the 8 tasks above represent 12.5% of retail value of a shoe. A company that operates under a processing contract has the opportunity to add only 12.5% of the value to a shoe whereas a company that is engaged in full production has the opportunity to add up to 60% of the value to a shoe depending on its ability to sell to the retailer or a distributor. The characteristics of a typical company operating under an export processing regime: 42 In order to be successful, companies operating under this type of process must have the skills to obtain and train a workforce, understand their production costs, and have access to a building and machinery. Some machinery and the product dies and patterns will likely be supplied by the customer. They are not participating in the concept phase or distribution phase of the shoe and only 30% to 50% of the production phase. They are adding a very small amount of value by selling only labor. Even so, they still may not be able to turn a profit as their labor cost will be compared to the same in countries all around the world. While the downside risk is limited for a processing company so is the profit potential. Many companies have decided they do not wish to make the investment in personnel and systems to move to the full production stage and are successful footwear processors. If a company can understand and control its production costs, try to increase its value by performing more functions in the manufacturing phase of the product, and develop a network of customers, remaining a shoe processor makes good strategic sense. In order to add value, many Vietnamese companies have attempted to move to full production. While some have been successful, many have had problems. This usually occurs because of a lack of understanding about the knowledge functions required to move to the next level. 43 We call the next step, Full Stage I Production. This type of company is responsible for its own machinery, purchasing of raw materials, and producing footwear for a select group of trading or distribution companies that supply a sample or a picture of the product that they wish to purchase. It must upgrade the knowledge functions of its business but also must have modern production processes to make footwear of a more complicated nature. The size of the staff required need not be large, as its sphere of customers will be small and they are likely to be based in the home country as buying offices. This type of company has added the value steps of the entire production phase and a portion of the distribution phase to its resume and has the ability to charge higher prices than a processing company, but has taken on some higher risk. Many domestic Vietnamese companies are operating at this stage. Requirements for Processing Companies to Move to Full Stage I Production • Trained Product Development Commercialization Employees (link between design & manufacturing). • Trained Materials Sourcing & Purchasing Employees. • Trained Sales & Customer Service Employees. • Trained Export Documentation Employees. • Trained Finance Employees. • Upgrade of Production Process & Machinery. The next stage of the process is defined at Full Stage II Production. These companies take the previous stage a bit further and add value to the process by fulfilling the functions of the trading companies. Instead of marketing to trading companies, they are marketing their products to importers or volume retailers located outside of Vietnam. Several Vietnamese companies are operating at this stage. Many others have attempted the transition but have either not understood the process or have not allocated the necessary resources to be successful. Requirements for Stage I Production Companies to Move to Full Stage II Production • Upgrade of Product Development Commercialization Staff. • Upgrade of Materials Sourcing & Purchasing Staff. • Upgrade of Customer Service Staff. • Development of a Fully Trained Marketing Staff with International Offices and/or Agents. • Upgrade of Export Clerks to Fully Trained Logistics Staff. • Upgrade of Finance Clerks to Fully Trained International Credit Staff. 44 Companies at Stage II are able to add a portion of the concept phase, all of the production phase, and the majority of the distribution phase value steps to each shoe they produce giving them the ability to charge higher prices than any of the companies mentioned previously. There also comes more risk in that this company has a higher fixed overhead and a higher investment in plant and machinery than those of other company types. A company at full stage II production is exactly the goal Chairman Thao has in mind for many more Vietnamese companies. Building brands is usually a long and expensive process. It is best done in a home market where a company has experience and a feel for what its target customers prefer in style, size, and price range. Packaging, fashion trends, advertising, in store promotion and merchandising are necessary skills required in the marketing of branded goods. These skills and a heavy budget is the difference in a Japanese consumer paying $800 for a Prada purse at a fashionable store or $8 for an item looking much the same in the local market. It takes a huge amount of advertising and promotion to convince consumers that a Mercedes Benz automobile or an Armani suit gives the purchaser the look of elegance and success. Several Vietnamese companies have successfully been able to build wholesale and retail brands for the domestic market. These have not translated well when the attempt was made to transfer them to international markets. Many companies with a large domestic presence have a difficult time becoming successful in selling private label goods on an international basis. This is usually because the thought process necessary for success is so very different between the two. A long established business that manufacturers footwear for its own stores and independent retail network in a domestic market has likely built up systems and procedures, that while being necessary, slow down its market response and add cost to the products. The best example of this is the Canadian company Bata, which has a huge presence in many countries around the world in wholesale and retail but has never become a factor in the international sourcing and distribution of footwear, outside its own network. If this sounds like your company here are a few suggestions: 1. Consider forming a joint venture instead of attempting direct international marketing. Joint venture partners are not easy to find but the sphere of companies you will be contacting for this purpose will be small and can be done directly by you, as the company director. The joint venture partner will bring many strengths which combined with your will make you both better companies. 45 2. If you are committed to direct international marketing, consider hiring a manager from outside your company and let him/her choose the staff from within and outside your company. 3. Locate the operation in another building or another city. The new operation needs to be able to respond quickly to its customers and provide the services needed at minimum cost but maximum quality. The theme should be looking forward and not so much the history of the parent company. 4. Communicate well to everyone in the organization that the new international exporting operation may be the future of your company and it is imperative that its needs and requests are supported by the rest of the company. If this message comes from the top it has a much better chance of being understood and accepted. 5. Consider licensing an international brand name for distribution in select countries. Licensed brand names in footwear and clothing have become multi billion dollar businesses. Many international licensing agencies have been skeptical about the distribution of their products in many Asian countries, including Vietnam, because of potential illegal use of brands and trademarks. An established domestic company has a much better chance of obtaining the licensing rights to an international brand than an upstart company. Accurate records and timely licensing payments made and domestic success can allow expansion to countries within the region. There are examples in Vietnam of companies who have begun as processing companies, formed joint ventures, and have begun direct export marketing. Those companies have continued to operate on all three levels. This gives the company a good foundation and allows them the security of having a secure amount of business to absorb overhead when other portions of the business are not going as well. This type of business requires exceptional top and mid level management to insure that all areas of the business run smoothly without undue conflicts. Much credit should go to companies who can make this complex operation work and their methods should be studied by others. This section of the guidebook has focused on showing you the steps necessary to move from export processing to some form of full production and marketing. Most of these steps are knowledge based and can be accomplished by even a small company who is willing to properly train its employees in the critical tasks outlined. There are examples in Vietnam of the largest companies failing to continue to upgrade the knowledge processes of its staff and even though they had the resources of plant and equipment and were well known with access to capital, could not keep up with smaller, more nimble companies. 46 [...]... company choosing Vietnam for a sourcing location or the location of its next factory This should be a concerted effort to make Vietnam a natural visit for every international shoe buyer This type of promotion takes resources and LEFASO needs the support of all the footwear and related industry companies in Vietnam in order to obtain the resources The industry members should also focus the efforts of LEFASO... and the major footwear industry websites such as shoeinfonet.com If you are selling products in the domestic market, a more substantial effort in creating and marketing your company’s website is appropriate Produce a material folder for each style For reference as well as to show professionalism you should create a tri fold that contains the cut pieces of material for every style produced for your customers... the ability to do so Footwear Industry Trade Press These publications are an invaluable source of information about what is happening in the footwear industry in potential target countries They should be used for information collection, as an avenue to locate agents and customers, and a place to submit press releases about what is happening at your company and in the Vietnamese footwear industry: 63... work for a year is a major achievement and can make the difference between success and failure of your company A Critical Mass Is Necessary for Long Term Industry Success Vietnam has made remarkable progress in its growth in footwear exports Some companies have benefited greatly while for others success remains elusive It is important to understand that one of the factors which increase the potential for. .. Appendix 1 Information Sources Reference Books on Footwear Marketing, Manufacturing, Design A source for printed material on various processes in the footwear industry was requested at the last roundtable meeting in Hanoi The company listed below has a large selection of industry publications and has a good reputation www.shoetrades.com Acceptable Quality Standards in the Leather and Footwear Industry... $31 In the Bag $23 Information Systems for Footwear Mfg $50 International Glossary of Leather Terms $60 Intro to Modern Footwear Technology $28 Judith Leiber, The Artful Handbag $45 Just Do It $23 Leather Apparel Design $65 Leather Manufacturer Directory 2004 $61 Leather Technician’s Handbook $60 Leather Technnologist’s Pocket Book $50 The Leatherworking Handbook $30 Market for Footwear $1495.00 Modern... potential for business of every company in Vietnam is developing a critical mass In order to achieve its production and employment goals, Vietnam needs to needs more successful footwear companies, making more pairs, who will hire more workers A large portion of the world’s major footwear buyers are still unaware that Vietnam is one of the world’s largest producers and exporters of shoes Many companies... training in export document preparation No experience in footwear 3 1 individual with design and patternmaking experience Can duplicate samples from pictures or supplied sample 4 1 individual with purchasing and material sourcing experience Can locate materials necessary for samples and select reliable sources 5 1 engineer with experience in formal costing 6 I (owner) speak Italian and Vietnamese My expertise... by using the information sources contained in this guidebook, information from LEFASO, information you can obtain from the Vietnamese embassy in France, and every other source possible including buying French fashion publications and looking at the ads from French companies The initial sales in many markets come about just by chance A buyer might find about your company and visit you in Vietnam or a... Leather Products Industry $75 Footwear Industry Informational Websites: An outstanding website and one that has been recently revamped is the site of the UN / International Trade Centre, the organization working with LEFASO on the footwear project The ITC site has an extensive amount of data, trade statistics, and copies of marketing reports produced by various organizations for many major markets www.intracen.org . z VIET TRADE - LEFASO VIETNAM THE ABC’S OF FOOTWEAR MARKETING MARKETING GUIDELINES FOR VIETNAM FOOTWEAR PRODUCERS (Making the Transition from. of foreign trade shows for a marketing prospect list? Have you attempted this?  Are you aware of every foreign trading company that has an office in Vietnam