COVID-19 restrictions impact manufacturing operations in VietnamEverstream Team
The number of new COVID-19 cases in Vietnam began to rise in May 2021. Clusters of infections in Bac Ninh and Bac Giang provinces led to production stoppages at major companies such as Samsung Electronics and Foxconn. Several clusters were recorded in the following weeks, including a hotspot in Ho Chi Minh City, where the Vietnamese government responded with strict COVID-19 lockdown measures from July 9. The new lockdown measures forced companies to temporarily close their plants or, if they remain open, to ensure compliance with the government’s measures.
In Ho Chi Minh City, companies in the apparel & textile, footwear, and electronics industries have been most severely affected. Major footwear manufacturers, including Chang Shin Vietnam Co. Ltd. and Pou Chen Corp., have suspended operations as part of the current lockdown. Although the measures were temporarily set until July 24, they have since been extended until August 1. Further extensions of the restrictions are likely should the number of COVID-19 cases continue to rise.
Authorities implement restrictions on manufacturing
Authorities in Vietnam have implemented strict lockdown measures to mitigate the spread of COVID-19 as cases in Vietnam increased sharply to exceed 5,800 infections on July 18, as seen in Figure 1. The increase is the highest yet since the start of the pandemic.
Restrictions were implemented in Ho Chi Minh City from July 9 for 2 weeks initially and have since been extended until August 1, with public gatherings banned for more than 2 people, while residents are only allowed to leave home for necessities.[i] Further restrictions have also been implemented in the Mekong Delta city of Can Tho for 14 days starting July 12.[ii]
In addition to the lockdown measures, the People’s Committee of Ho Chi Minh City announced restrictions on July 13 around the operations of manufacturing companies, which have come into effect on July 15 and are set to continue until at least July 23. The two types of restrictions that are to be implemented include those under the motto “3 tại chỗ” or “3 in one spot”, which require companies to allow employees to work, eat, and rest in one location. Other measures are those under the motto “một cung đường – 2 địa điểm” or “1 route 2 locations” where companies are to manage the transport of workers from the location of production to a concentrated place of residence such as a hotel or dormitory for employees. Moreover, companies are required to conduct periodical COVID-19 testing every 7 days at their own expense to continue operations. Companies that are unable to meet the requirements are to halt operations from 00:00 local time on July 15 until further announcements are made.[iii]
Companies forced to halt production due to insufficient safety measures
As authorities implemented COVID-19 restrictions in Ho Chi Minh City, manufacturing plants had to adopt safety measures at the sites to prevent the potential spread of the virus. Due to the short-notice of the announcement, many companies have been unable to meet the requirements in order to continue operations. Moreover, companies that can meet the requirements are reportedly required to register with authorities to be approved for the usage of the mitigation plans such as “3 in one spot”. According to the Deputy Head of the Management Board of Dong Nai Industrial Parks, situated east of Ho Chi Minh City, more than 310 companies located in industrial parks in the area registered to implement the plan by July 19. The management board reportedly approved about 157, with over 150 businesses awaiting approval.[iv] As more companies prepare to meet requirements, a backlog of approvals is likely to cause further disruptions to manufacturing.
|Nidec Sankyo Vietnam Corporation||Electronics||Ho Chi Minh||July 3 – N/A|
|Samsung Electronics HCMC CE||Electronics||Ho Chi Minh||Jul 13 – N/A|
|Solen Electric (Vietnam), Co., Ltd.||Electronics||Ho Chi Minh||Jul 9 – 24|
|Hung Way Co., Ltd.||Apparel & Textile||Ho Chi Minh||Jul 9 – 24|
|Kingmaker Footwear Holdings Ltd||Apparel & Textile||Binh Duong||Jul 12 – 31|
|Tahsin Group||Apparel & Textile||Ho Chi Minh||Jul 13 – 23|
|Pou Chen Corporation||Apparel & Textile||Ho Chi Minh||Jul 14 – 23|
|Taekwang Vina Industrial Co., Ltd.||Apparel & Textile||Biên Hòa||Jul 15 – 18|
|Chang Shin Vietnam Co., Ltd.||Apparel & Textile||Đồng Nai||Jul 15 – 20|
|Dony Garment Co., Ltd.||Apparel & Textile||Ho Chi Minh||July 15 – 23|
|Feng Tay Enterprises Co.,Ltd.||Apparel & Textile||Đồng Nai||July 17 – 23|
|Eclat Textile and Garment Co., Ltd.||Apparel & Textile||Đồng Nai||N/A|
|Kung Long Batteries Industrial||Consumer Electronics||Ho Chi Minh||N/A|
Figure 2: Temporary production halts due to COVID-19 in Vietnam. Source: Everstream Analytics.
On July 13, several factories in the Saigon Hi-Tech Park, which houses 85 companies with over 45,000 workers, were ordered to temporarily shut down after over 750 new COVID-19 cases were reported there.[v] Among those affected was the Samsung Electronics HCMC CE Complex, which reduced its workforce from 7,000 to 3,000 and was working on plans to isolate employees at its complex. Other companies unable to house all employees on-site, including electronics manufacturer Intel, have reportedly rented hotels nearby and are using daily buses to bring employees in.
According to data from Everstream Analytics, as seen in Figure 2, several apparel & textile companies have been affected as well, halting operations for the duration of at least 1-2 weeks. Amongst those affected are Pou Chen Corporation, the world’s largest maker of athletic and casual footwear and a manufacturer for major international brands including Nike, Adidas, and New Balance, as well as Chang Shin Vietnam Co. Ltd., Feng Tay Enterprises Co. Ltd., and others.[vi]
Situation may worsen in the coming weeks
It remains unclear to what extent the production suspensions will impact supply chains, but production shutdowns at footwear manufacturers have already caused supply chain disruptions at Nike, Inc. Sources reported that the company has begun using air freight to get its products out of Vietnam as quickly as possible amid a shipping crunch.[vii] Also at risk of disruption are supply chains of other large companies that have their products manufactured in factories in Vietnam. The situation is likely to worsen in the coming weeks as the flow of cargo through Vietnamese ports increases. Should logistical operations deteriorate while production continues, there is a risk of warehouse space becoming scarce.[viii]
As many companies sustained operations at their manufacturing facilities amid stringent COVID-19 measures, thousands of workers have been ‘locked down’ at the factories with sleep facilities and food provided by the company. Should the situation continue, exhaustion of workforce may occur as not all workers are able or willing to spend a few months at the factory.
Due to the fluid and fast-moving nature of the developments and related restrictions around the COVID-19 situation in Vietnam, customers should have end-to-end visibility to help them identify disruptions and developments in real-time, conduct risk assessments, and monitor suppliers.
Customers should connect with suppliers to keep abreast of their operational status and to ensure suppliers’ ability to fully meet requirements, as restrictions on manufacturing are likely to be extended past the initial date of July 23 as COVID-19 cases continue on an upward trend. Suppliers should aim to swiftly register for approval of the implementation of suggested mitigation measures to avoid delays due to the expected backlog of approvals.
[i] Unknown. “Vietnam’s biggest city enters two-week coronavirus lockdown”. France 24, July 9, 2021. https://www.france24.com/en/live-news/20210709-vietnam-s-biggest-city-enters-two-week-coronavirus-lockdown
[ii] Lawson, Hugh. “Vietnam to expand movement curbs as coronavirus cases hit record high”. Reuters, July 11, 2021. https://www.reuters.com/world/asia-pacific/vietnam-expand-movement-curbs-coronavirus-cases-hit-record-high-2021-07-11/
[iii] Unknown. “Không thể ‘3 tại chỗ’, hôm nay nhiều doanh nghiệp tại TP.HCM sẽ phải ngưng hoạt động”. Thanh Nien Newspaper, July 15, 2021. https://thanhnien.vn/tai-chinh-kinh-doanh/co-noi-an-o-tai-cho-cho-cong-nhan-doanh-nghiep-tai-tphcm-moi-duoc-hoat-dong-1414556.html
[iv] Unknown. “Hơn 310 doanh nghiệp đăng ký “3 tại chỗ””, Dong Nai Electronic Newspaper, July 19, 2021. http://www.baodongnai.com.vn/tintuc/202107/hon-310-doanh-nghiep-dang-ky-3-tai-cho-3067996/
[v] Tuyet Le. “Saigon Hi-tech Park factories shut down over Covid-19”. VN Express International, July 13, 2021. https://e.vnexpress.net/news/business/economy/saigon-hi-tech-park-factories-shut-down-over-covid-19-4308946.html
[vi] Unknown. “Nike and Adidas supplier suspends production at Vietnam plant due to COVID”. Reuters, July 14, 2021. https://www.reuters.com/world/asia-pacific/vietnam-operations-footwear-giant-pou-chen-hit-by-covid-19-curbs-2021-07-14/
[vii] Hoang Lien. “Intel staff vaccinated as Vietnam prioritizes tech exports”. Nikkei Asia, July 13, 2021. https://asia.nikkei.com/Business/Companies/Intel-staff-vaccinated-as-Vietnam-prioritizes-tech-exports
[viii] Unknown. “Vietnam trade still booming, but new Covid restrictions may prove a threat”. The Load Star, July 7, 2021. https://theloadstar.com/vietnam-trade-still-booming-but-new-covid-restrictions-may-prove-a-threat/