Analysis technical efficiency, technological gap and total factor productivity of vietnamese textile and garment industries

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ANALYSIS TECHNICAL EFFICIENCY, TECHNOLOGICAL GAP 
AND TOTAL FACTOR PRODUCTIVITY OF VIETNAMESE TEXTILE 
AND GARMENT INDUSTRIES 
Nguyen Van 
 Nguyenvan246.hh@gmail.com 
Faculty of Fundamental Science, Vietnam Maritime University, Hai Phong, Viet Nam 
Abstract 
The study used meta- frontier framework, data envelopment analysis approach and 
the global Malmquist total factor productivity index to analyse technical efficiency and 
productivity change as well as its components of Vietnamese textile and garment firms 
during 2013-2015. The results show that: (i) The total factor productivity of Vietnamese 
textile and garment firms fell in the period 2013-2015, and technical change is the main 
reason to constraint productivity growth. (ii) The private garment sector has taken real 
effort to improve technology. On the other hand, state-owned and FDI garment sectors 
have been significantly improving technical efficiency in the use of production factors.(iii) 
FDI textile firms have been improving effectively technology, whereas state-owned textile 
firms have showed improvements in technical efficiency. Meanwhile, the private textile 
sector has experienced a slowdown in all components of total factor productivity. (iv) 
There is a large technological gap among Vietnamese textile and garment sectors, which 
has become wide for the garment industry. And this gap is the reason for differences in 
total factor productivity between Vietnamese textile and garment sectors. 
Keywords: Data envelopment analysis, Global Malmquist total factor productivity, 
Meta-frontier, Technical efficiency. 
1. Introduction 
In recent years, Viet Nam has taken part in international economic integration by 
signing many free trade agreements (FTAs) such as: Viet Nam-Europe Union free trade 
agreement, Viet Nam- South Korean free trade agreement, Viet Nam-Asean free trade 
area, etc ... In negotiation to sign these agreements, Vietnam textile and garment industries 
have always been considered to be the industry that have national fundamental interests, 
and able to gain great income when these agreements being put into force. 
According to the statistics data of the Vietnam Textile and Garment Association, 
the average growth rate of export value in the last 5 years is 14.74% per year, export 
turnover in 2016 have got 28.5 billion USD, account for 16% of industrial production 
value and became the industry whose export turnover was the second position in the 
country (after telephone and telephone accessories), contributed significant part to the 
national export turnover, and became one of five world's biggest textile and garment 
exporters. Having more than 6,000 large and small firms, textile and garment industries 
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have created jobs for 5% of industrial workers, account for more than 2.5 million 
employees and one fifth of new jobs every year. Therefore Viet Nam has been considered 
the country whose textile and garment export capability ranked 4
th
 position in the world 
(after China, India and Bangladesh). 
Although the textile and garment industries play an importance role in the 
development of economy, the performances of these sectors in recent years has not met 
their potential. Foreign direct investment (FDI) textile and garment firms with the advantage 
of international integration and many preferential policies of the state just accounted for less 
than 20% of firms and about 4% of total labour force. However, the share of export turnover 
made up about 70%. State-owned textile and garment firms still have many limits in 
management, thus the production cost is high and productivity is low. In addition, private 
garment textile and firms are almost small and medium firms. As a result, It is difficult for 
them to access capital and land as well as attract high quality labour force in comparison 
with FDI textile and garment firms, leading to low production efficiency. 
According to the analysis of efficiency and productivity of Vietnamese textile and 
garment firms today, It is assumed that state-owned, private and FDI textile and garment 
firms have the same production technology at each period, which may lead to biased 
estimation of productivity. In order to overcome these drawbacks, the study will analyse 
the efficiency and productivity of Vietnamese textile and garment firms by using the meta-
frontier approach and the global Malmquist total factor productivity ( Malmquist TFP) 
index. Each type of textile and garment firms (state, private and FDI textile and garment 
firms) is considered to have different technological levels in each period. From that, 
technical efficiency, technological gap and total factor productivity of Vietnamese textile 
and garment firms are estimated. 
2. Method 
The concept of meta-frontier was proposed by Hayami (1969), Hayami and Ruttan 
(1970). Since then, Battese et al (2002,2004) have developed meta-front ... 
50 state-owned garment firms, 594 FDI garment firms and 1110 private garment firms. 
To estimate the productivity growth of textile garment firms as well as their 
components by meta-frontier approach, the study uses one aggregated output as added 
value, which is calculated according to the guidelines of GSO in the following: Value 
Added (VA) = Fixed Assets Depreciation + Total Employee Income + Profit + Indirect 
Taxes. Two inputs are labour (L) and capital (K). L is the average number of employees in 
the year, which is calculated as the average of the number of employees at the beginning of 
the year and the end of the year for each firm. K is the average assets at the beginning of 
the year and at the end of the year for each firm. Table 1 summarizes descriptive statistics 
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for three groups of the textile and garment industries in the period of three years from 2013 
to 2015. 
Table 1: Data summary for value added and inputs of Vietnamese textile and 
garment firms in the period 2013-2015 
 Variable State-owned 
firms group 
 Private firms 
group 
FDI firms 
group 
Textile 
industry 
Value Added (VA) 
Mean 
Std.Dev 
34365.28 
98187.08 
8342.76 
30741.81 
86771.34 
407948.80 
Capital (K) 
Mean 
Std.Dev 
207296.60 
954948.90 
37914.80 
120602.60 
354949.30 
1594758.00 
Labor (L) 
Mean 
Std.Dev 
244.08 
663.28 
67.17 
197.44 
294.56 
606.65 
Garment 
industry 
Value Added (VA) 
Mean 
Std.Dev 
32635.79 
52742.67 
15100.21 
62182.35 
91798.70 
141394.90 
Capital (K) 
Mean 
Std.Dev 
57765.41 
127072.00 
25635.98 
109930.00 
103452.00 
193588.90 
Labor (L) 
Mean 
Std.Dev 
370.52 
539.48 
173.18 
567.73 
1019.96 
1354.71 
Source: The author‟s calculation 
3.2. Results of the global TFP Malmquist Index. 
Based on the theoretical model given above and firms survey data of GSO in the 
period 2013-2015, the author used DEAP 2.1 software (Coelli, 1996) to solve linear 
programming problems. Then the author calculated the global Malmquist TFP index and 
its components TEC, BPC and TGC. The table 2 presents summary of the estimated results 
for the global meta-frontier Malmquist TFP index and its components by groups of 
garment industry in the period 2013-2015. 
Table 2: Meta-frontier Malmquist total factor productivity and its 
decompositions of garment industry 
Type of firms TEC BPC TGC TFP 
State-owned garment firms 1.009 0.981 0.999 0.989 
Private garment firms 0.935 1.069 1.002 1.002 
FDI garment firms 1.154 0.873 1.000 1.007 
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Mean 1.033 0.974 1.000 0.999 
Source: The author‟s estimation from DEAP 2.1 outputs. 
The results show that the meta-frontier total factor productivity of the garment 
industry has decreased on average by -0.1% per year. In which, mean technical efficiency 
has increased by 3.3% per year, technical change has decreased by -2.6% and there was no 
change of technological gap. 
As mentioned above, due to differences in production technology between different 
types of garment firms, the tendency to change total factor productivity as well as its 
components for each type garment firms are also different. FDI garment firms have the highest 
total factor productivity growth rate of 0.7% per year. This was followed by the figure for 
private garment firms, at 0.2% per year. Meanwhile, state garment firms showed a decrease of 
-0.11% per year in total factor productivity. State-owned and FDI garment firms have better 
results in improving their technical efficiency, while private garment firms have better results 
in technical change. However, the contribution of the average technical change of the garment 
industry decreased by -2.6% per year. This suggests that technical change is the main reason 
for being constrained to productivity growth of Vietnamese garment firms. 
The technological gap ratio change (TGC) estimations show that state-owned 
garment firms are shifting farther away from production technology. This means that they 
relatively more backward in garment production technology. Otherwise, private garment 
sector shows its fastest growth in applying new production technology with 0.2% increase 
in technological gap ratio (TGR) and there is no change in TGR for FDI garment sector. 
The estimations of technical change show that state-owned garment firms are 
backward in technology compared to private and FDI garment firms. Meanwhile, private 
garment firms take the lead in technical change. Although the results of technological gap 
ratio change are significant, it is only the relative rate of change in the lead in technology 
among the types of garment firms. The position of the production technology of each type 
of garment firms is more clearly indicated in the calculation of the technology gap ratio. 
Table 3: Technological gap ratio (TGR) summary in the meta-frontier DEA of 
garment industry 
Type of firms Mean S.D Min Max 
State-owned garment firms 0.685 0.019 0.640 0.712 
Private garment firms 0.914 0.035 0.862 1.000 
FDI garment firms 0.952 0.023 0.650 1.000 
Source: The author‟s estimation from DEAP 2.1 outputs. 
FDI garment firms have the best technology with average TGR of 0.952, following 
by private garment firms and state garment firms that have the most backward production 
technology. 
Combining the findings of the technological gap ratio and the results of the 
technological gap ratio change, we can see that the FDI garment sector has the leading 
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technology, however this position may be lost because of slow technical change (BPC). The 
private garment sector which was leader the in technological gap ratio change has played an 
important role in the development of garment industry, with significant technological change 
(6.9% per year). Meanwhile, the state owned garment sector was the least one in production 
technology and has become more backward compared to private and FDI garment sectors. 
Table 4: Meta-frontier Malmquist total factor productivity and its decompositions of 
textile industry 
Type of firms TEC BPC TGC TFP 
State-owned textile firms 1.046 0.941 0.996 0.980 
Private textile firms 0.999 0.992 0.999 0.990 
FDI textile firms 0.993 1.018 0.999 1.010 
Mean 1.013 0.984 0.998 0.993 
Source: The author‟s estimation from DEAP 2.1 outputs. 
In the estimates results productivity of textile industry show that, the average total 
factor productivity of this industry has decreased by -0.7% per year. In which technical 
efficiency has increased by 1.3%, contribution of technical change has decreased by -1.6% 
and technological gap has decreased by -0.2%. 
FDI textile firms have got the highest productivity growth rate (1% per year), 
whereas there has been a decrease of productivity in state-owned and private textile sector. 
State-owned textile firms have taken effort to improve their technical efficiency, while FDI 
textile firms have made better progress in technology. Moreover, the private textile sector 
has decreased in all components of total factor productivity. Following the estimates 
results above, the performance of Vietnamese textile industry has been incomprehensive in 
the last few years and backward in technology. All of textile sectors are negative in 
technical change as well as technological gap ratio change. These are two major reasons 
that cause to reduce productivity of Vietnamese textile industry. Presently, weave and 
dyeing processes are still the least developed sectors in Vietnamese textile and garment 
industries. In fact, nearly 70% of fibre output is exported because domestic weave and 
dyeing firms do not meet the demand of fibre consumption. Meanwhile, garment firms 
have imported a large amount of fabric from abroad. 
Table 5: Technological gap ratio (TGR) summary in the meta-frontier DEA of 
garment industry 
Type of firms Mean S.D Min Max 
State-owned textile firms 0.953 0.039 0.744 0.981 
Private textile firms 0.996 0.016 0.845 1.000 
FDI textile firms 0.849 0.030 0.716 1.000 
Source: The author‟s estimation from DEAP 2.1 outputs. 
However, only estimation TGC could not reflect positions in production technology 
of different textile sectors , that is better explained by examining estimated technical gap 
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ratio (TGR) of each sector in the period shown. The table 5 presents estimated 
technological gap ratio of each sector, which shows that private sector is leading by 
technology in the period 2013-2015. This is followed by state-owned textile firms and FDI 
textile firms that have the most backward production technology. However, because FDI 
textile firms have made a great effort in technical change (1.8% annual) while private and 
state-owned textile sectors decreased, FDI textile sector may develop strongly and become 
the best one. This can be explained by the fact that FDI textile firms investing in Vietnam 
have backward technology leading to low production efficiency. However, since the free 
trade agreements were signed by Vietnam, the wave of foreign investments in Vietnamese 
textile industry have become huge in order to gain benefit from export taxes of textile and 
garment products. Therefore, in the coming years, the FDI textile sector as well as 
Vietnamese textile industry might strongly develop. 
4. Discussion and Conclusion 
This study uses meta-frontier approach and a global total factor productivity index 
to analyse total factor productivity change as well as its components in the Vietnamese 
textile and garment sectors. The empirical results show that: 
The total factor productivity of Vietnamese textile and garment firms fell in the 
period 2013-2015, and technical change is the main reason to constraint productivity 
growth. The private sector has taken real effort to improve technology. On the other hand, 
state-owned and FDI garment sectors have been significantly improving technical 
efficiency in the use of production factors. It is opposite to textile industry, FDI textile 
firms have been improving effectively technology, whereas state-owned textile firms have 
showed improvements in technical efficiency. At the same time, the private textile sector 
has experienced a slowdown in all components of total factor productivity. 
There is a large technological gap among Vietnamese textile and garment sectors, 
which has become wide for the garment industry. This gap is the reason for differences in 
total factor productivity between Vietnamese textile and garment sectors. 
The study uses the data envelope analysis method to estimate the meta-frontier and 
total factor productivity. Therefore it is sensitive to the dominant observations and the effects 
of statistical noise are not taken into account. However, from the study results, some 
recommendations can be considered for Vietnamese textile and garment industries as: 
The State should have direct support policies and facilitate for textile and garment firms 
to raise their scientific and technological capacity as well as increase technology in the 
production process. Especially, The government should encourage to invest in weave and dyeing 
industrial parks in order to meet the conditions of infrastructure, environment, technology, etc., 
that promotes the development textile industry to meet the demands of the garment industry. 
In recent years, the government has offered preferential policies for state-owned and 
FDI textile and garment sectors. However, the estimated results show that the 
technological change as well as the productivity of these sectors are inadequate. By 
contrast, the private textile and garment sector is facing many difficulties in such policies 
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to develop production. As a result, the state should have fair policies for textile and 
garment sectors. 
In the process of developing Vietnamese textile and garment industries, it is 
necessary to focus on the private textile and garment sectors. Because they are important 
sectors that account for about 80% of the total Vietnamese textile and garment firms and 
attract a huge number of the labour force in the textile and garment industries. The 
government should have policies to support private textile and garment firms to access 
land, credit support, etc that motivate the private textile and garment sectors development. 
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