Financial Associated Press, September 2: High inflation and an unprecedented energy crisis once in decades—recently, when people in Europe and the United States are frightened by the high prices on supermarket shelves and the terrifying electricity bills, their legs are weak. A “cold wind” caused by the possibility of a deep recession in the global economy is also beginning to sweep towards distant Asia…
Recently, reports of some manufacturing factories around the world encountering “order shortages” have appeared from time to time, and this scene is becoming more and more common in Vietnam, the OEM center in Southeast Asia. Although in the first quarter of this year, many Vietnamese factories claimed that orders were so “hot” that they could be queued all the way to the end of the year, in just a few months, the situation seems to be changing subtly!
According to Vietnamese media Vnexpress, since the second half of the year, many Vietnamese manufacturing factories have received significantly fewer orders. In addition, the expansion of production lines and recruitment has been too fast in the past period, resulting in many factories now having to reduce production time and arrange Workers take vacations on a rotating basis.
As incomes plummet due to insufficient working hours during compulsory leave, the “return wave” of Vietnamese workers that once appeared at the peak of the epidemic last year is also quietly happening in some areas. Even this time, for some low-end manufacturing industries in Vietnam, the “cold winter” encountered by the external market may be more terrifying than the original epidemic…
(Vnexpress: Due to a shortage of orders, factory workers are facing unemployment and returning home) According to data from the General Bureau of Statistics of Vietnam on August 29, Vietnam’s total exports of goods in August 2022 are expected to be US$33.38 billion, a month-on-month increase of 9.1%, which is expected to temporarily reverse the month-on-month growth rate. A decline of 7.7%.
However, Vietnam’s official media, the Vietnam News Agency, also mentioned that the world economy is expected to face many difficulties in the remaining months of 2022, and some major economies may even fall into recession. Inflation rates in many countries and regions continue to rise sharply, which will affect the consumption of non-essential goods, leading to a decline in demand in various countries, including Vietnam.
The tiger fell in “Pingyang”?
Binh Duong Province, located in the southeastern region of Vietnam, is the region with the highest average salary in Vietnam. This province can also be called the most economically competitive province in Vietnam – it has 29 industrial zones and 12 large industrial parks under its jurisdiction. Its level of internationalization and infrastructure is a typical model for Vietnamese industrial cities.
But it is in this leading region of Vietnam’s economy that the chill currently being felt seems to be even more piercing.
According to the Binh Duong Federation of Labor, more than 330 manufacturing companies in the region have encountered difficulties since the second quarter and have had to lay off workers, suspend contracts and give workers unpaid leave. The total number of affected employees exceeds 41,000.
Dang Tan Dat, deputy director of the federation’s legal policy department, said some goods exported mainly to the EU and the United States, such as wood products, textiles, footwear and electronic products, are facing huge challenges. He said orders for many factories have dropped by 30-50%, finished products cannot be exported and revenue has dropped significantly.
He added that when workers in these companies lose their jobs, many of them will choose to pack up and go back to their hometowns, because the basic salary of 4 million to 5 million Vietnamese dong (approximately 1,170 to 1,470 yuan) makes it difficult for them to survive in the city.
Huynh Van Toan, a 40-year-old migrant worker, recently returned to his hometown of Ca Mau Province because orders from his previous company, Hoang Thong Wood, were reduced by half. Since May, as business slowed, the company has been operating at half capacity and no longer requiring employees to work overtime.
Although the company is willing to continue to pay their basic salary, the total income of Toan and his wife, who also works in the factory, has been significantly reduced by nearly 7 million VND (approximately 2,060 yuan). With their income barely enough to survive, the couple ultimately decided to keep only one of them, while the other took their son back home. If the company’s orders continue to drop, the whole family will go back.
Toan said, “You don’t have to pay rent in rural areas. If you are hungry, you can just pick vegetables from the fields and eat them.”
According to Duong Quang Hiep, the company’s human resources director, the company’s orders grew rapidly at the beginning of this year. At that time, they even spent more than 3 billion VND to travel to different provinces to recruit nearly 1,500 employees. If these employees live far away, air tickets will be advanced for them. In April this year, due to the surge in demand, its business partners even sent trucks directly to the factory to wait for delivery.
But less than a month later, order volume began to plummet. “We spent a lot of time and money recruiting people and now we have to accept that they are leaving,” Hiep said.
According to him, most of the workers who resigned returned to their hometowns because wood products factories in the same industry could hardly find jobs, and many companies had closed down due to lack of orders.
Nguyen Hoang Bao Tran, deputy chairman of the Binh Duong Federation of Labor, said the province’s union will soon coordinate with the labor management agency to find new job opportunities for migrant workers. She added that unions have called on companies to quickly implement support packages for workers.
order crisis
According to the Vietnam Ho Chi Minh City Business Association, in this round of “order shortage” in the manufacturing industry, labor-intensive industries such as electronics, textiles, footwear, and wood processing have been hardest hit by the reduction in orders from the United States and Europe.
vietnam textile clothingTran Thi Tuyet Mai, deputy secretary-general of the Decoration Association, pointed out that at the beginning of this year, companies had many orders but few suitable workers. However, in the second quarter, with the outbreak of the Russia-Ukraine conflict and rising oil prices and other factors, people’s purchasing habits began to change around the world. Brands began to reduce order quantities, which meant factories had to furlough workers.
Nguyen Huu Phuoc, marketing director of shoe manufacturer Nguyen Phuoc, said that the company used to receive orders one to two quarters in advance, but now orders are only placed 2-3 months in advance.
He said that while sales in the first half of the year were satisfactory, orders were expected to continue to decrease in September and October. Now many shoe-making companies can only “make ends meet”, and orders are no longer as abundant as before. Some partners even canceled orders due to the sharp drop in demand.
Nguyen Quang Vu, chairman of the Binh Duong Provincial Leather and Shoe Industry Association, also confirmed that orders for footwear products in August, September and October dropped by 30% compared to the same period last year.
In the field of electronic products, employees at Samsung Electronics’ Vietnam factory earlier last month also revealed that as global consumer spending fell, causing inventory backlogs, Samsung Electronics once reduced the output of its large smartphone factory in Vietnam. “We only work three days a week, and some production lines are adjusting to a four-day work system instead of the previous six-day work system. Of course, overtime is no longer required.”
Data show that the year-on-year growth rate of mobile phone component production in Vietnam from January to July dropped by about 1 percentage point compared with January to June, and the year-on-year growth rate of mobile phone component production in July dropped by about 16 percentage points compared with June.
Pham Thi Thu Lan, deputy director of the Institute of Workers and Trade Unions in Ho Chi Minh City, said workers will inevitably be hardest hit once orders slow down. Millions of people are now being affected by falling global demand, she said.
According to the latest estimates released by the World Bank last month, Vietnam’s GDP is expected to grow by 7.5% in 2022 and 6.7% in 2023. Although the overall forecast remains optimistic, the World Bank also highlighted several major risks facing Vietnam’s economy.
The World Bank pointed out that from an external perspective, a more severe than expected economic slowdown in Vietnam’s major trading partners will be the main risk. Epidemic lockdowns in major economies could prolong supply chain disruptions and affect Vietnam’s manufacturing exports. Rising geopolitical tensions have also increased uncertainty and could trigger shifts in trade and investment patterns, affecting Vietnam’s highly open economy.
global cold wind
In fact, the current “order shortage” faced by Asian factories represented by Vietnam is inevitably related to the global economic environment and even the early warnings issued by American retailers.
The nation’s largest warehouse market is already packed with goods, and major U.S. retailers such as Best Buy and Target have warned that sales could slow as shoppers tighten their belts after a spending spree early in the pandemic.
The epidemic continues to ferment, the conflict between Russia and Ukraine is difficult to stop, the financial environment is tightening, the power outage storm is raging, and external demand has hit the brakes – these have become common challenges for many Asian export-oriented economies. Behind the “dormancy” of Vietnamese factories, it naturally reflects the current decline in demand in the global market.
Nguyen Quoc Khanh, chairman of the Vietnam HAWA Business Association Federation, pointed out that the main reason for the current situation is rising global inflation. Consumers in the European Union, the United Kingdom and the United States are prioritizing purchases of essential goods, with high logistics costs driving orders to closer locations such as Mexico and Eastern Europe.
In countries such as Bangladesh and India that compete with Vietnam’s manufacturing industry, especially the textile industry, the current situation may even be even more miserable.
Some people in the Bangladeshi garment industry predicted last month that after experiencing an unusually strong growth of more than 30% in 2021, Bangladesh’s clothing export growth may drop to about 15% this year, as consumption by US and European customers has cooled significantly. Bangladesh is the world’s second largest apparel exporter after China, and its apparel industry exports account for more than 80% of Bangladesh’s total exports.
Affected by the global economic recession, the Indian textile industry has also been deeply affected. Export orders for clothing and home textiles from the United States and Europe fell by about 15%-20% in June as Western retail brands faced slow demand.
In fact, at the beginning of September, the sluggish performance of a series of global manufacturing PMI data can easily make people feel that “winter has arrived”:
Japan’s manufacturing purchasing managers index (PMI) fell to 51.5 in August from 52.1 last month, which is the lowest growth rate since September 2021;
South Korea’s August PMI fell to 47.6 from 49.8 in July, falling below the dividing line between boom and bust for the second consecutive month;
Note: Comparison of PMIs in Japan, South Korea and Vietnam, the blue line is Vietnam. S&P Global recently stated that customers are showing more hesitation when placing orders, leading to a sharp decline in new orders. At the same time, factories reported further increases in inventories as products were not sold.
Perhaps this time, how to “survive” in the economic winter has indeed become a top priority for many Asian textile factories.
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