The easing of Covid-19 restraints in Vietnam’s embattled industrial heartland may be backfiring.
The “gradual reopening” of Ho Chi Minh City, the epicenter of the Southeast Asian nation’s worst viral outbreak, was meant to promote economic recovery after four months of mobility curbs, yet an exodus of factory employees returning to their home provinces could plunge supply chains into greater turbulence ahead of the busiest shopping season of the year.
Tens of thousands have already fled Ho Chi Minh City and the adjoining provinces of Binh Duong, Dong Nai and Long An, stoking fears of a reverse migration that could see as many as 2.1 million of the region’s 3.5 million workers depart, authorities said. A labor dearth would not only compound the supply chain snarl wrought by congested ports, container shortages and other productivity bottlenecks, but it could also undermine years of investments by global businesses seeking a cheaper and less politically contentious alternative to China.
A slew of workers had also slipped back to their villages during an increasingly strict lockdown in the southern belt that saw suppliers coral their employees in a single location under the health ministry’s “three-in-one spot” guidelines, slow down production or close up shop altogether, leaving brands such as Adidas and Nike scrambling for merchandise in the ramp-up to Black Friday and Christmas. Migrant workers were either confined to their workplaces or left in a holding pattern with reduced or no pay that forced them to subsist on meager savings and government assistance until they ran out of money, patience or both. Unless authorities can inspire confidence among workers, coaxing them to return to Ho Chi Minh City, experts say, the prospect of long-dormant assembly lines catching up in time grows ever dimmer.
One case in point is Pouyuen Vietnam, a subsidiary of Taiwan’s Pou Chen Corp., the world’s largest athletic footwear manufacturer. The Adidas and Nike supplier restarted production last week with less than one-third of its workers, according to Vietnamese news outlet Zing. More than 400,000 of its workers have not returned, hindering its goal of returning to full capacity by mid-November.
“Tech and textile and garment producers may see an increase in production rate from mid-October to meet the delivery orders for the holiday shopping season in November and December for the U.S and EU markets,” May Yimon Aung, risk intelligence analyst at Everstream Analytics, told Sourcing Journal. “This, however, can only be achieved by working around the clock with sufficient labor capacity.”
Vietnam’s garment industry, briefly the second-largest exporter of clothing after China, could experience as much as a 37 percent reduction in workers for the rest of the year, Vietnam Textile & Apparel Association Chairman Vu Duc Giang told Bloomberg News, hampering its ability to meet its $39 billion export target for 2021. While the country’s footwear exports surpassed $13.3 billion in the first nine months of 2021, according to the Vietnam Leather, Footwear and Handbag Association, they tumbled 44.2 percent year over year to roughly $700 million in September.
Despite chatter that companies may be pivoting back to China, Aung says Vietnam will remain attractive for foreign businesses because of its low-cost labor, strategic geographical location and plans to achieve a “new normal” by the end of October. China, in any case, is grappling with its own manufacturing squeeze. “With China tightening its energy consumption rate for production, it is unlikely that manufacturers will move back,” she said.
But fears continue to abound. Though 98 percent of Ho Chi Minh City’s adults have received at least one dose and nearly half have been given two, Vietnam’s overall vaccination rate remains among the lowest in Asia, with only 16 percent of its 98-million-strong population fully inoculated. To date, the country has logged 843,000 infections and 20,670 Covid-19-related deaths. The American Apparel and Footwear Association, whose members include J.Crew, Patagonia and Calvin Klein parent PVH Corp., has urged the Biden administration to make more vaccines available to Vietnam.
Brands with significant sourcing in Vietnam are already steeling themselves for tough times ahead. Nike, which derives more than 40 percent of its products from Vietnam, recently slashed its sales forecast, citing the loss of 10 weeks of production that created a “gap to the flow of inventory” scheduled for delivery starting mid-October. Abercrombie & Fitch, Gap, Urban Outfitters and others have also warned of sparser shelves or delays. Even smaller brands aren’t immune.
“The global supply chain is in disarray, and like many brands, we have been impacted by various factories closing due to lockdown restrictions,” Michael Preysman, founder and until recently CEO of Everlane, which also sources 40 percent of its products from Vietnam, told Sourcing Journal. “This is causing production constraints and multi-week delays.”
Preysman says the industry is “living in a new normal” where the stability of 2019 may not return for another three to five years. “With the holiday season coming up, our team is doing everything possible to mitigate delays,” he said. “We’re partnering closely with our factories and booking capacity for transport, while continuing to make mindful decisions around health and safety.”