Nearly two months on, Vietnamese supply chains vital to the world’s phone and footwear industries are struggling to shake the damage from a Covid shutdown that shrank the economy at a record pace.
Factories in the industrial south serving brands from Intel to Toyota to Reebok were allowed to reopen on October 1 after hundreds had closed or had staff living on site. But in the stuttering recovery, companies say they still face labour shortages, sealed borders, inconsistent rules, costs of testing and disruptions when even a single worker contracts the coronavirus. Vietnam’s rebound will be “more gradual than expected”, with the impact felt into 2022, Bank of America has said.
That poses global risks for sourcing of goods like apparel and furniture, as well as for innovation as Vietnam aims to move up the value chain.
“Many companies including First Solar Vietnam are seeing a delay in the new technology and product introduction,” said KJ Ung, the company’s managing director. “This will put products made in Vietnam in a disadvantaged position in the global marketplace.”
He said his company, a top producer of thin-film solar panels, wants to bring in 300 specialists but entry rules are “complicated and time-consuming”. Vietnam scrapped international flights in March 2020 but currently accepts a limited number of vaccinated business travellers who must quarantine for a week.
Ung was speaking at an event hosted by the American Chamber of Commerce in Vietnam, which released a survey showing 37 per cent of companies were operating below 80 per cent of capacity.
This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.
Wanek Furniture, which bills itself as the biggest industry player in Vietnam, said 22 per cent of its employees left for their hometowns and the manufacturer is operating with 70 per cent of its pre-shutdown workforce. The summer shutdown meant tens of millions of people in Ho Chi Minh City and nearby provinces could not set foot out of their homes. When it ended on October 1, thousands of migrants fled to their families in the countryside. That led to a shortage of more than 100,000 workers in the south, according to the Ho Chi Minh City government.
Provinces and businesses in the region are offering transportation, housing and vaccines to lure back recruits.
“We support workers who are in other provinces but wish to come back to Long An, so they can receive the doses,” said Nguyen Minh Lam, vice chair of Long An People’s Committee.
Amid Vietnam’s uncertain recovery, investors worry that rivals like Thailand and Indonesia will speed ahead. Vietnamese remain reluctant to go back to work “due to both physical and mental health concerns”, Bank of America said in a November 15 research note.
“Expectations of a quick normalisation might be too optimistic, especially in the labour-intensive apparel and footwear sectors,” it said.
Those sectors could create a “butterfly effect,” the bank added, with prices rising 5 per cent in the first half of 2022 for shoppers in the US, Vietnam’s biggest export market. The communist country was the world’s second-largest shipper of garments, shoes and textiles in 2020, after China, according to United Nations Comtrade data.
Still, others believe the economy will bounce back quickly and the worst is behind it. “There’s been great confidence since Vietnam reopened,” Vietnam Textile and Apparel Association chair Vu Duc Giang said.
Intel, which has its biggest chip test and assembly site in Vietnam, said it worked with other companies at Saigon Hi-Tech Park to set up an isolation facility for asymptomatic virus cases. Vietnam is shifting away from its “zero Covid” policy, which had required whole plants to close if one worker became infected. Now plants are allowed to suspend a fraction of operations, but businesses complain that each province differs on how big that fraction should be and on how long to isolate contacts who test negative.
Provinces should work together to keep supply chains from breaking, said Ky Nguyen, CEO of Cai Mep, the largest port in southern Vietnam. He urged authorities to consider the Thai government’s recent “factory sandbox”, which coordinates vaccines, tests and quarantines so that companies can maintain production. Four provinces are in the sandbox, in theory reducing regulatory inconsistencies — and thus supply disruptions.
“It is painful to see the exports drop while Thailand’s are sustained,” Nguyen told the AmCham audience in Ho Chi Minh City. “We [have] a lot of similarities.”
A version of this article was first published by Nikkei Asia on November 24, 2021. ©2021 Nikkei Inc. All rights reserved.
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