Analysis of Localization Challenges for Fuen Co., Ltd.'s Vietnam Manufacturing Plant

Based on public information, Fuen Co., Ltd. (Hangzhou Fuen Co., Ltd.) established a production base in Vietnam in 2024 as a key part of its global strategic layout. However, during actual operations, the company has encountered multiple localization challenges, which are analyzed in detail below:

Fuen (Vietnam) Co., Ltd. was established on June 26, 2024, with a registered capital of USD 5 million, located in Hai Ha Industrial Park, Hai Ha District, Quang Ninh Province, Vietnam[0][1]. However, the factory has faced significant losses since it started production in the first half of 2025:

• Net loss of RMB 5.9134 million from January to June 2025
• Expected full-year net loss of approximately RMB 10 million in 2025

This loss is mainly due to the factory being in the capacity ramp-up phase, with high fixed costs such as depreciation and amortization, and labor expenses. Based on the benefit calculation for the full-capacity year, the expected annual sales revenue is RMB 181 million, which can increase net profit by RMB 26.075 million, but the short-term financial pressure is significant[2].

The Vietnam plant has a designed annual production capacity of 10 million meters of colored spun polyester-viscose blended fabrics, but as of now:

• Insufficient order acquisition
  : Only 1.5 million meters of orders have been secured so far[2]
• Slow capacity release
  : Small-scale trial production only started in the second half of 2025, and full production is expected to be achieved in the first quarter of 2026
• Pressure on production-sales ratio
  : Although the production-sales ratio is expected to reach over 95% in the full-capacity year, the current order coverage rate is only about 15%

As a foreign-invested enterprise, Fuen Co., Ltd. has encountered compliance challenges in Vietnam:

• Tax penalty
  : Fuen (Vietnam) had one tax penalty during the reporting period
• Customs penalty
  : One customs penalty was imposed
• Contract adjustment
  : Due to business adjustment needs, Fuen (Vietnam) signed a supplementary agreement with the lessor, and some lease contracts were terminated[3]

Although these penalties are deemed minor violations and do not constitute major illegal acts under Vietnamese law, they still caused troubles for the company’s local operations.

As a supplier to international brands, Fuen Co., Ltd.'s Vietnam plant must meet strict certification requirements from downstream customers:

These certifications cover multiple dimensions such as environmental protection, social responsibility, and supply chain traceability, putting forward high requirements for the operation and management of the new plant[4].

The intensification of global trade frictions has brought uncertainties to Fuen Co., Ltd.'s Vietnam layout:

• Changes in US tariff policy
  : The US has imposed an additional tariff of approximately 20% on Southeast Asian countries including Vietnam, Cambodia, and Bangladesh
• Industrial chain transfer risk
  : If the textile industry continues to transfer to Southeast Asia, it may have an impact on the company’s order acquisition, transportation costs, etc.[4]

In response to the above challenges, Fuen Co., Ltd. has adopted the following measures:

1. Capacity ramp-up
   : Plans to achieve full production by the end of 2025, gradually releasing production capacity
2. Order expansion
   : Actively develops international brand customers, and has obtained certifications from major customers such as H&M, Uniqlo, and ZARA
3. Policy incentives
   : Utilizes Vietnam’s “four-year exemption, nine-year half reduction” corporate income tax preferential policy to reduce tax burden
4. Environmental compliance
   : Adopts advanced energy-saving equipment and intelligent management systems to reduce environmental impact

The localization challenges encountered by Fuen Co., Ltd. during the establishment of its Vietnam plant are multi-dimensional, including initial financial pressure, difficulties in capacity ramp-up, compliance risks, strict customer certification requirements, and uncertainties in international trade policies. These challenges reflect the common dilemmas faced by Chinese textile enterprises in the process of “going global”, which require enterprises to have strong local operation capabilities and risk response capabilities. As the plant gradually reaches full production and orders increase, these challenges are expected to be gradually alleviated.

[0] Initial Public Offering Prospectus (Submission Draft) of Hangzhou Fuen Co., Ltd. - Shenzhen Stock Exchange (http://reportdocs.static.szse.cn/UpFiles/rasinfodisc1/202506/RAS_202506_2421052CEFB80B563940BF82D1993C720264A8.pdf)

[1] Fuen Official Website - About Fuen (https://fuen.com/fuen-introduce/)

[2] Response to the “Audit Inquiry Letter on the Application Documents for the Initial Public Offering and Listing on the Main Board of Hangzhou Fuen Co., Ltd.” - Shenzhen Stock Exchange (http://reportdocs.static.szse.cn/UpFiles/rasinfodisc1/202512/RAS_202512_1716254ECEC4BAC88747C9A4DF16081736D5BF.pdf)

[3] Supplementary Legal Opinion (II) of Grandall Law Firm (Hangzhou) on the Initial Public Offering and Listing of Hangzhou Fuen Co., Ltd. - dataclouds.cninfo.com.cn (http://dataclouds.cninfo.com.cn/sjother2/documents/2025/20251121/3c1f0c89174047c6bf6865a519a4da33.pdf)

[4] Response to the “Audit Inquiry Letter on the Application Documents for the Initial Public Offering and Listing on the Main Board of Hangzhou Fuen Co., Ltd.” - Shenzhen Stock Exchange (http://reportdocs.static.szse.cn/UpFiles/rasinfodisc1/202511/RAS_202511_2015001C98CA70DFBC4C1B81B6C3ED30D20E09.pdf)