Vietnam’s Factory Closures Amidst Outbreak Affecting Global Supply Chain | Vietcetera
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Economy

Vietnam’s Factory Closures Amidst Outbreak Affecting Global Supply Chain

Having vulnerable factory workers, who work in tight spaces for long hours, fully immunized and protected from the coronavirus is crucial to economic recovery.

Vietnam’s Factory Closures Amidst Outbreak Affecting Global Supply Chain

Order backlogs and shipping delays caused by factory closures may not be quickly cleared in the coming months. | Source: Shutterstock

Major Nike supplier Changshin Vietnam suspended production in three of its factories from Thursday as Ho Chi Minh City’s coronavirus outbreak intensifies. The factories in Dong Nai, just 70 kilometers from the commercial capital, employ over 40,000 workers who produce top-quality shoes intended for export. The factory closure is said to last until July 20.

Several other factories such as Samsung and Intel in Saigon Hi-Tech Park in Thu Duc City have been forced to shut down after nearly a thousand COVID-19 infections were recorded in the area. Samsung Electronics on Wednesday closed three out of 16 factories, and was made to reduce its workforce to less than half.

Similarly, the worsening outbreak has forced more than 33,000 workers of Taiwanese-invested footwear maker Pouyen Vietnam. With authorities requiring tests and clearance from commuters, workers from neighboring localities entering the city are left with no choice but to stay home.

Ho Chi Minh City currently has over 1.6 million factory workers, and nearly 2,000 of them had already tested positive for COVID-19. Suspension of factory operations does not just affect the highly manufacturing-dependent Vietnamese economy (exported goods represent 30.3% of its overall GDP for 2020). As one of the major production hubs in the world, Vietnam’s outputs (or the lack thereof in this case) hugely influence supply chains across continents.

Electrical machinery and equipment (44.1%), computers (6.9%), footwear (6.8%) and clothing (4.5%) are the top exports from Vietnam last year. | Source: Shutterstock

Global supply chain

Vietnam wasn’t just a pandemic success story a year before, it also soared as one of the major players in manufacturing and export, redefining the sourcing landscape. The trade wars between major nations have resulted in multinational companies rethinking to diversify their production. With a skilled but inexpensive labor force and a business-friendly environment, Vietnam attracted sophisticated manufacturing enterprises trying to steer away from China.

In the first half of 2021, Vietnam’s export turnover hit $157.63 billion, up by 28.4%. Data from World’s Top Exports show that 71.9% of products exported from Vietnam were bought by importers in: United States (23.2% of the global total), China (15.7%), Japan (7.7%), South Korea (7.5%), Hong Kong (2.7%), Netherlands (2.6%), India (2.5%), Germany (2.5%), United Kingdom (2.2%), Thailand (1.9%), United Arab Emirates (1.8%) and Taiwan (1.7%).

Electrical machinery and equipment (44.1%), computers (6.9%), footwear (6.8%) and clothing (4.5%) are the top exports from Vietnam last year, with computers as the fastest grower with an 82.3% increase from 2019 to 2020.

With many parts of the world now recovering, demand for products from Vietnam is expected to continue to grow. The several free trade agreements that the country has implemented are also boosting the demand.

But the current COVID-19 situation in Vietnam — which sent shock waves through the international community that, for months, relied on the Southeast Asian country for some rays of hope amidst the dark times — is now causing serious disruptions on the global supply chain, with all the order backlogs and shipping delays that may not be quickly cleared in the coming months.

Vietnam is now scrambling to maintain its place in the manufacturing industry, as well as to safeguard its economy.

Nguyen Tien Duc, financial market analyst at BIDV Securities in Hanoi, says that the forced shutdown of operations could stagnate the global supply chain of commercial goods and raw materials in the third quarter of 2021 and will slow down Vietnam’s economic growth, according to a new report released by capital.com

Nguyen adds that the current waves of infections in Vietnam are different from previous ones with infection rates at unprecedented levels. According to Nguyen, the next 15 days will be “pivotal” to see whether the current epicentre, Ho Chi Minh City, can successfully contain the outbreak.

Vietnam's factory workers are highly vulnerable to the virus. | Source: Shutterstock

Factory sleepovers

To avoid full closure and suspension of production, some factories have opted to have their workers sleep within the premises, either inside the factories or in nearby hotels.

Nidec Vietnam, which was temporarily shut for a week after COVID-19 infections were confirmed among employees, now has over 4,000 employees sleeping on factory floors, some are housed in hotels within the Saigon Hi-tech Park.

Electronics manufacturers Intel and Jabil have rented hotels for temporary accommodation and buses to safely transport workers.

According to Bloomberg, about 22 companies with a workforce of 25,000 set up sleepover sites. Metal bunk beds with bamboo mats and cots as well as tents are arranged in makeshift dormitories.

A video shared by Gricha Safarian, founder of  Sustainable Cacao Institute, showed blue tents laid out in between desks.

“For about a week already, two of our factories in Vietnam are under the regimen of WFF - Working From Factory. A Bio-secured Bubble was the only way to avoid being closed by preventing any of our employees or workers getting positive for COVID. The decision was taken 9 days ago and implemented during a week-end. We did ask for volunteers, made it as comfortable as possible, supplied food, tents, sport activities were organized and those who volunteered are getting incentives. Everyone got a PCR test before joining the team inside. We do not know when this will be over,” Gricha captioned the video.

“We all want this crisis to end soon. The weight is very heavy on everyone's mind, including mine, but we will not give up for one second in the fight to protect our team, our business, the farmers who supply us and the thousands of customers we serve in Indochina.”

Vaccine priority

Vietnamese authorities started its mass vaccination drive intended for factory workers in early June, to keep operations of industrial parks running. The government has also asked manufacturing firms to find vaccines for their workers, as the country grapples with supply shortage.

It was just in May when employees at industrial parks were added to the priority list for COVID-19 vaccination, as the government’s focus shifted to large production facilities with a large number of workers.

Last month, Japan donated 900,000 doses of AstraZeneca vaccines to help Ho Chi Minh City’s fight against the outbreak.

"Vietnam is committed to using this batch of vaccines effectively and quickly. On Thursday the vaccines will be transported to HCMC to inject people in priority groups, especially factory workers,” said Health Minister Nguyen Thanh Long.

Chip maker Intel has already vaccinated 70% of its employees in the country. Samsung, meanwhile, has also inoculated thousands of its factory workers in its flagship facility in the northern province of Bac Ninh. Taiwanese manufacturer Foxconn was also said to have started inoculating its workers in Bac Ninh and Bac Giang.

Having vulnerable factory workers, who work in tight spaces for long hours, fully immunized and protected from the coronavirus is crucial, given the significant role they play in Vietnam’s economic growth and to the supply chains of global companies.

Vietnam has vaccinated about 4% of its 98 million people. The government targets to receive 150 million doses to cover at least 75%  of the population in early 2022. So far, the country’s Ministry of Health has approved the AstraZeneca vaccine, Russia's Sputnik V, China's Sinopharm vaccine, Moderna, the Pfizer/BioNTech vaccine, and most recently, Johnson & Johnson's Janssen. Vietnam is also getting support from Japan, China, the US and Russia, as well as through the COVAX facility.