Covid-19 Factory Closures Prompt Some U.S. Businesses to Rethink Vietnam

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Extended lockdown moves some manufacturers elsewhere, including back to China

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Nike, which makes about half of its shoes in Vietnam, said last week that it had lost 10 weeks of production there due to factory closures. According to US brokerage BTIG LLC, those 10 weeks haven’t translated to nearly 100 million pairs of Nike shoes. Nike now expects demand for its products to exceed available supply for the next eight months.

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“Our experience with Covid-related factory closures shows that it will take time to reopen and ramp up to full production scale,” Nike Chief Financial Officer Matt Friend said last week. The company said it is maximizing footwear production capacity in other countries and moving apparel production from Vietnam to places like China.

A survey conducted by the American Chamber of Commerce in Vietnam in late August of nearly 100 representatives of manufacturing sector companies found that a fifth had already moved some production to other countries.

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Jonathan Moreno said, “What people are realizing is, whether it’s China or Vietnam, or whatever, you can’t put all your eggs in one basket, you’re not vulnerable to a country from a supply-chain standpoint. can be.” Head of the Chamber’s manufacturing and supply-chain task force.

Western businesses are left to speculate about when Vietnam will lift its manufacturing restrictions, which require factories to keep their workers inside their gates or otherwise isolate themselves from society, or in some cases, Shut down the factory outright. Several noted in public statements that the restrictions were set to last until August or mid-September, only for those dates to pass without any significant change in policy.

Vietnam’s government – convinced of its success in containing nearly 1,500 cases of COVID-19 in 2020, partly through targeted shutdowns that sometimes include locking down entire villages – to get vaccines from many other countries progresses more slowly than

This year Vietnamese authorities, guarded by the pace of new outbreaks, went back into lockdown. When it became clear in June and July that the delta version of the coronavirus was spreading widely among the population, where less than 1% were fully vaccinated at the time, the government imposed restrictions that were already in effect. And those were tougher than some other countries with large manufacturing sectors.

While it makes sense for Vietnam to play to its strengths, the current problem is particularly complex, said Tuong Wu, a professor of political science at the University of Oregon. The lockdown has been less effective this time because the virus had already spread so widely before it began, and because the delta variant spreads faster than previous strains, he said.

In the south of the country, where much of Vietnam’s industry is concentrated, factories that want to keep running are required to implement elaborate protocols, such as a “three-in-a-place” program in which workers eat, sleep and work at their workplace. Large footwear and apparel factories with thousands of workers have made it impossible to keep so many people on site or in dorm bubbles. Many are laid off, or are working with skeleton staff.

Vietnam’s health ministry appears to have acknowledged mistakes on vaccine policy, posting an article on its website in June that said cumbersome bureaucracy and “fear of taking responsibility” had slowed down vaccine procurement. Have given. According to Our World in Data, today about 9% of Vietnamese are fully vaccinated, while Cambodians are 65%. The government did not respond to requests for further comment.

Some companies are working to reduce their dependence on Vietnam.

“We’ve actually gotten a lot of diversity out of Vietnam,” said Jeremy Hoff, chief executive officer of Hooker Furniture. corp

, which is dependent on the country for a significant part of its manufacturing. “We’ve even gone back to China if needed. If we think a country has more stability at present, that’s what we’re going to do.”

Crocs. CEO of Andrew Rees Inc.,

The shoe company said in mid-September that it was moving some production to other parts of the world. He said the company was already planning to move some production out of Vietnam, and is adding facilities in Indonesia and India. “Ongoing diversification is essentially the name of the game,” he said.

Recently, Vietnam’s Covid-19 cases and deaths have begun to decline, which the government says is a result of its stringent health measures. Vietnam’s daily cases peaked in early September with about 13,000 new daily infections, but have since dropped to around 9,000. Vaccination is picking up steam.

About a third of the population has now received at least one dose. Ho Chi Minh City, a manufacturing hub, will ease restrictions on Friday, officials said.

But companies and business groups have warned that it will take months to restore full production even once the green light is given to resume operations. Many workers have returned to rural villages and may be reluctant to return to urban areas if they do not get vaccinated. Companies say inter-provincial travel restrictions could create more barriers to replenishing the workforce, depending on how quickly they are lifted.

Some trade analysts said Vietnam’s tough approach to closing factories could hurt its competitiveness. In Indonesia, some export factories were able to continue operating at full capacity during its Covid-19 wave this year, and the shutdowns were short-lived. Chinese authorities have nipped the outbreak in the bud by using large-scale testing and targeted shutdowns of ports and specific factories, without resorting to months of lockdowns in manufacturing sectors imposed by Vietnam.

Others remain optimistic on Vietnam. Despite current difficulties, Vietnam had long-term benefits—including relative political stability, openness to foreign investment and a land border with China-makers, said Peter Mumford, head of Southeast Asia practice at Eurasia Group, a political risk consulting firm. continue to attract.

But the lockdown has begun to change perceptions about where goods can be reliably purchased in Asia.

Roger Rollins said, “When you think about how much effort everyone was trying to get out of China and now one place where you can get stuff is China, I mean it’s really a roller coaster. Crazy.” , CEO of Designer Brands Inc.,

A North American footwear retailer at a convention earlier in September.

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