01/10/2021
Footwear and garment manufacturers in Vietnam are considered to be the worst affected in the supply chain (Source: Internet)
The disruption in the domestic supply chain
According to CNBC, the long-lasting "3 on-site" option in Vietnam have caused a significant reduction in production capacity, greatly affecting the revenue of global brands. In particular, footwear and garment manufacturers in Vietnam are considered to be the worst affected in the context of the year-end shopping season.
The consumer staples sector is said to have enjoyed good sales during the pandemic. However, manufacturers in this industry are also affected by the transportation and distribution of goods. According to Mr. Do Thai Vuong, Vice President of Unilever Vietnam: "For four days, 44 trucks carrying nearly 500 tons of our consumer goods were stuck on the road."
Shipping and distribution is one of the biggest challenges many businesses face. According to Mr. Vuong, each locality requires different procedures and documents, some places require a quick test but other places need a PCR test.
In addition, the implementation of "on-site housing" not only reduces production capacity, but also increases labor costs such as living expenses, testing fees, electricity and water, etc.
The disruption in material supply chains
According to Mr. Vu Duc Giang, Chairman of the Vietnam Textile and Apparel Association: “A textile product is not only fabric, needle, thread, but also many other auxiliary materials. Meanwhile, these auxiliary materials are considered by Disease Control and Prevention agencies as non-essential goods, so businesses are not allowed to go through checkpoints."
In August, Richard Hayne, CEO of fashion retailer Urban Outfitters, said that the company's biggest concern is receiving goods, especially dresses, pants and skirts ordered in Vietnam. “We order a lot of products in Vietnam, and now we have to work really hard to get them,” said Mr. Hayne.
That's why we understand, it's not a coincidence that a little while ago, 90 CEOs of famous American businesses including: Adidas, Nike, Gap, Coach, ... proposed to the administration of President Joe Biden to promote the transfer of vaccines for Vietnam.
In a letter to the President of the United States, the CEOs of these companies emphasized that Vietnam is an important economic and supply chain partner of the United States.
The letter said Vietnam "is currently the second largest supplier of apparel, footwear and travel accessories to the US market. Moreover, Vietnam has become a major supplier of input materials for the US market" the letter said, about 3 million US workers are connected - through value chains - with millions more in Vietnam. Therefore, the success of these businesses directly depends on the condition of the Vietnamese industry.
In addition to the names mentioned above, BTIG's analysis shows that the retail companies with the greatest dependence on manufacturing in Vietnam are Deckers Outdoor - the parent company of Ugg and Hoka; Capri Holdings – the parent company of Michael Kors; Tapestry – Coach's parent company; Columbia Sportswear; Under Armor and Lululemon, will be linked to many negative outcomes.
Back to China
The disruption in the supply chain in Vietnam has caused many businesses to urgently look for a way out in other countries. The European Chamber of Commerce in Vietnam (EuroCham) estimates that 18% of its members have moved some production activities to other countries to protect their supply chains, while another 16% are also considering similar moves, although no businesses have left Vietnam.
The biggest beneficiary of this trend is China. In the past few years, in order to avoid the US-China trade war and take advantage of cheap labor, multinational companies have moved part of their production activities out of China to Southeast Asian countries, including Vietnam.
Now, however, this process is being rapidly reversed. On September 9, Charles Roberson, CEO of protective clothing maker Lakeland Industries, said that firms had hired new executives to help "shift production capacity from Vietnam to China within a few days or weeks”
According to Mr. Alain Cany, President of EuroCham, "this is mainly a transfer of orders and is a temporary decision of businesses", and "currently no European businesses have left Vietnam".
In the first eight months of the year, Vietnam attracted over $19 billion in foreign investment, down 2.1% over the same period last year. In addition to the decline in global investment flows or selective investment attraction policies, the main cause of this decline in FDI is believed to be due to long-term restrictions on entry and isolation. This has prevented expert delegations and project development groups from abroad from entering Vietnam to survey and carry out investment procedures.
Mr. Nguyen Chi Dung, Minister of Planning and Investment said: “Due to the factory closure and labor shortage for production, many orders have to be moved to other areas in the supply chain. Although this is only a temporary solution, if this situation is prolonged, it is likely that investors will shift production to other countries."
Expectations on the prospect of recovery
At the moment, many businesses are observing how the Covid-19 situation and production activities in Vietnam will develop. Challenges are expected to increase as the year-end holiday approaches. BTIG analyst Camilo Lyon said that production challenges in Vietnam may not have much impact in the third quarter, but the impact will be evident in the fourth quarter and possibly the first half of 2022. “Many firms have actively reduced orders because they anticipate capacity constraints and backlog of orders once factories reopen after the lockdown,” Ms. Lyon said.
Although growth forecast figures have been cut, economic experts still think that Vietnam is still a favorite destination for foreign investment. For example, HSBC recently cut its forecast for Vietnam's economic growth in 2021 from 6.1% to 5.1%. However, according to HSBC economist Yun Liu: "Despite the immediate challenges, Vietnam's recovery prospects are still very positive with solid fundamentals."
General Director of CEL Consulting, Julien Brun, said that although factories in Vietnam are currently stalled, those difficulties are temporary. This prospect is not only in Vietnam, but also in Asia, especially Southeast Asia.
“Apparel brands like Nike or Adidas will also have to wait. There is no story that Vietnam's competitiveness will be reduced, unless the epidemic lasts for 1-2 years," added Mr. Julien.
Opportunities
Currently, Hanoi and Ho Chi Minh City are planning to reopen their economies by the end of September. Both of these cities are speeding up vaccination for people, especially giving priority to vaccination for workers in industrial zones.
In addition, the Prime Minister also established two special working teams to remove difficulties for production, business and foreign investment projects.
On September 9, 2021, the Government issued Resolution No. 105/NQ-CP on supporting businesses, cooperatives and business households amid COVID-19 pandemic. Accordingly, in addition to financial support policies, tax exemption and reduction, the biggest challenges faced by firms such as the circulation of goods, foreign experts, foreign investment, etc. will be resolved.
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