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Expert Offers Recovery Strategy for Vietnam’s Hard-Hit Garment Sector

Vietnam’s garment industry—and its massive workforce—has faced stingingly harsh headwinds amid the Covid-19 crisis, a new study from the Vietnam Chamber of Commerce and Industry (VCCI) revealed.

Findings from the chamber’s 2020 business survey, administered in partnership with the World Bank, show that the spread of the coronavirus has had a serious impact on (more than 87 percent of the country’s businesses and corporations, including those run by domestic private enterprises and those with foreign direct investment.

What’s more, 97 percent of private companies in the garment industry reported a high rate of negative impacts, followed closely by information and communications firms (96 percent) and the electrical equipment manufacturing sector (94 percent). While the consensus across the board has been negative, small, nascent businesses that have been in operation for less than three years have found the business conditions presented by the pandemic to be particularly challenging, VCCI said.

About 65 percent of private enterprises and 62 percent of those dependent on foreign investment experienced declines in revenue last year, the group added, averaging between 34-36 percent. Micro, small and medium-sized firms saw the greatest losses.

A number of factors has contributed to those troubles, Dau Anh Tuan, legal department director for VCCI, said in a statement. Supply-chain disruptions due to coronavirus infections, as well as additional costs to implement protection measures, have cost firms dearly, with many also reporting work stoppages due to a drastic decrease in demand from customers, including order cancellations. Some reported having to delay planned investments and halt ongoing or future projects.

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Jacques Morisset, the World Bank’s chief economist in Vietnam, said that many businesses proved their resilience in the wake of the virus’ peak last spring, adjusting business models to favor digital processes that reduced worker contact and quickly responding to the needs of customers, reinforcing their value to the global supply chain. Still, sustaining this progress will require support from the country’s government, both in the near and long term, he said.

For now, “2021 remains a tough year for businesses,” VCCI president Dr. Vu Tien Loc added, noting that authorities must implement policies to create more favorable conditions for companies in Vietnam. While business support packages are available, there have been shortcomings in implementation and in rolling out aid to the sectors that need help most, he said. Regulation is central to post-pandemic survival in order to ready the country’s enterprises for “new competition” in the months ahead, he said. “This will be very important to help businesses find new opportunities in the context of the economy and enter the development stage,” he added.

While Vietnam’s manufacturing sector already serves many of the world’s most recognized brands, Dr. Loc also believes the nation should continue its work to develop its industries and services to rely less on external sources, concurrently reducing a longstanding outwork situation and increasing Vietnam’s value on the world stage. This will create more opportunities to benefit from free trade agreements with high domestically made content provisions, he added.

The country’s footwear sector, for example, serves household name brands and is largely regarded for its proficiency in creating well-loved styles like sneakers. But many of the upstream components that go into these silhouettes are manufactured in China, which continues to navigate choppy waters when it comes to trade with the U.S., making Vietnam’s dependence on the country for materials an inconvenient if not problematic truth. Vietnam narrowly skirted its own tariff hike on a range of products earlier this year due to allegations of currency manipulation.

In addition to developing more self-sufficient supply chains, Dr. Loc urged m Vietnam’s government take a long view with regard to new policy packages to support business recovery, investing not just in present improvements but in future advancements through 2025. The impacts of the Covid crisis could ripple outward for another four or five years by many experts’ estimations, he said, making forward-looking policy a must.

In developing those plans, he added, government should look to replicate the strategies that have worked for Vietnam’s businesses over the past year, spreading comprehensive business support policies that champion best practices. Business and trade associations should also share the lessons they’ve learned, he added, especially when it comes to identifying market segments, partners and resilience-boosting tactics that have served Vietnam’s firms well throughout the pandemic.