When Vietnamese factories started shutting their gates in the middle of 2021 following a Covid-19 outbreak that had finally burst through the country’s seemingly robust defenses, it made international news. With one of the world’s hottest suppliers of consumer goods finally succumbing to the full force of the pandemic, retailers around the globe were left grasping for solutions to meet their anticipated Christmas demand from first-world consumers who have long since been ready to leave the coronavirus behind.
For manufacturers operating within Vietnam, this is a nightmare scenario. Over the past two decades, Vietnam has slowly become the beneficiary of a “China plus one” supply chain strategy where distributors have pivoted away from complete reliance on Chinese commodity production while increasingly embracing opportunities here. Now that certain major brands, such as Nike, have temporarily moved their orders to another country, producers and industry observers have begun to wonder whether Vietnam’s golden days in the global supply chain are about to come to an abrupt end.
For co-founder of the Vietnam Supply Chain organization Eckart Dutz, things have hardly hit situationcritical yet, although the fall has come hard and fast. “We had a big event in December 2019, and all we talked about was how we don’t have enough people, we don’t have enough places to build factories, and everybody wants to come to Vietnam,” he remembers. “We were benefitting so much from all of these developments. So we came from super hot into Covid, which obviously cooled things down—but not that dramatically. We had a very strong and bullish situation, which has been building up over the years.”
According to Dutz, who has been teaching supply chain and working in the field for the past 25 years and based for the majority of that time in Vietnam, the factors that brought manufacturing opportunities to this country are still essentially unchanged.
“We need to look at it selectively,” says Dutz. “I would say the macro trends are not strongly impacted, and that means the overall positive development of Vietnam remains in place. In the short term, there have to be more technical considerations, yes. But for a brand to maintain a network of several source countries is very costly, and to move volume from one country to another— you only want to do that over a timeframe of maybe five years. If they close your factory and you’re not going to get supply for three months, it’s very painful, and you need to respond to that. But will that completely change your strategy? Probably not.”
TANGLED SUPPLY CHAIN
Dutz recommends supply chain participants take a sober and sympathetic look at the developments that have impacted the industry. The brunt of the pandemic has hardly been borne by Vietnam alone, and the pain of distributors and retailers not being able to get what they planned for is not without precedent, as severe and sudden as the impact of Covid may have been. It’s also the case that strategic decisions concerning supply and demand have been subject to considerations that have nothing to do with the pandemic— with environmental concerns, for example, becoming an increasingly important factor in decisions to source products from Asia or other centers of production.
The question at the immediate forefront for the industry at large, however, is whether or not the damage to the supply chain structure will recover soon enough to retake Vietnam’s gains on the field.
“If, for whatever reason, things get worse, then maybe we will see stronger or delayed impacts,” says Dutz. “And once someone’s decided, ‘okay, Vietnam is not the best place for me,’ and then makes an effort to move their volume elsewhere, it will not quickly come back again. But it’s more complex than that because when you look into sourcing, it’s not just that you’re looking for a factory. There’s normally a whole ecosystem of suppliers and other organizations connected to your activity. And that ecosystem doesn’t move so easily.” Overall, the macro-level factors influencing the global supply chain—the population, the cost ratio, the government policies— remain reasonably positive for Vietnam. Not many other countries offer the kind of package benefits that have made Vietnam an ideal rising location for manufacturing— including investor confidence in the administration to deal with problems and crises. As supply chain participants conduct their mental calculations over the coming months as Vietnam’s situation evolves, there will be a few casualties. Still, there are reasons to be confident about Vietnam’s prospects of recovering its stride before too long.
“Let’s agree that it’s fragile and that if another surprise comes up in the next six or 12 months, things may be different,” says Dutz. “But it’s always a differential. If you’re going to move, is whatever you’re going to get elsewhere clearly better? I would expect that most companies will be eager to do what they originally prepared for before even considering any major change. And those few distributors or companies who are impacted now may also be short on alternatives. They may be stuck now, but eventually, they will also respond positively when things go back to how they were. So I would be reasonably optimistic.” [C]
