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SUPPLY CHAIN

Long-term prospects outlast supply chain concerns

Vietnam’s rising involvement in global supply chain networks has been hampered by the pandemic, but its increasingly important role in the long term is not judged to be at risk.

The latest survey by the German Chamber of Industry and Commerce (AHK) found that 60 per cent of German companies in Vietnam were complaining about price increases or supply chain bottlenecks for raw materials, intermediate products, and other goods. The main reasons for raw material shortages as claimed are increased demand, low production capacity, and transport problems that continue through the COVID-19 pandemic worldwide.

The bottlenecks in the supply chain are causing numerous difficulties in terms of production activities for the surveyed companies such as higher input prices, longer waiting times, and even production interruption and operation halts.

The survey covered 3,000 German companies in various countries across all sectors. It pointed out that 90 per cent of German companies in Vietnam said seeking new or additional suppliers in Asia-Pacific and raising inventory levels are relevant solutions. Half of the companies surveyed have had no choice but to increase the manufacturing prices of their products, or they intend to do so.

Despite the challenges, Marko Walde, chief representative of AHK Vietnam, told VIR that Vietnam still plays an increasing role for German businesses as a manufacturing base in the mid-term. Thanks to the EU-Vietnam Free Trade Agreement, Vietnam is becoming increasingly essential for German investors in the Southeast Asia region.

Meanwhile, Prime Minister Pham Minh Chinh recently hosted a reception for Chargé d’ Affaires of the US Embassy in Vietnam Christopher Klein, as well as a number of US businesses and investors in this country. At the reception, the US representatives voiced their concerns about some challenges in sustaining the global supply chain from Vietnam, including transportation, production, administrative procedures, tax and fees, access to COVID-19 vaccinations, and foreign expert entry and travel visas.

The businesses stated that they want to make long-term investments in the country. Nonetheless, they expected future protocols at the local level to be more effective, detailed, and responsive to avoid supply chain headwinds.

Supply chain complexities are increasingly mounting as Vietnam is battling with its largest-ever coronavirus outbreak. In August, Vietnam’s economy fell for the fourth month in a row, marking the country’s longest period of recession since the pandemic began, according to the ANZ Vietnam Activity Tracker.

While the number of COVID-19 cases has generally been on the increase every day for the past few weeks, vaccination rates are still low. The vaccine campaign accelerated in the early half of August but has since decreased. Only over 20 per cent of the population has received their first dosage, and only 3 per cent of the population has been fully vaccinated, the lowest rate in Asia.

Last week, Hanoi in particular kick-started its vaccination drive in an attempt to reverse the trend, with wide-scale programmes taking place across various districts.

Analysts Dhiraj Nim and Khoon Goh at ANZ wrote that the pressure on exports is of particular concern in light of the weakening growth forecast. Specifically, exports had been the mainstay of growth until the ongoing pandemic wave caused manufacturing hubs to shut down earlier this summer.

In spite of the present deep slump in the domestic demand, the analysts still highlighted the role of Vietnam’s longer-term prospects in the global supply chain. “Beyond the near-term concerns, Vietnam’s medium-term economic prospects remain favourable,” they wrote. “The pandemic has had no effect on the country’s appeal as a manufacturing hub. There’s also plenty of room for policy support to help the economy recover even more.”

Filippo Bortoletti, senior manager of International Business Advisory at Dezan Shira & Associates, told VIR, “Due to restrictions imposed by the government to contain the pandemic, bottlenecks in the logistics infrastructure are hampering local manufacturing industry as manufacturers are challenged by the cumbersome restrictions and regulation on the circulation of goods. In the coming period, manufacturers shall implement safety measures at the workplace and devise appropriate contingency plans in case of outbreaks inside the factory.”

While the outbreaks have slowed down the scaling up of manufacturing orders in Vietnam, Bortoletti trusted that such delays are only temporary. “They have made multinational corporations realise it is paramount to diversify geographically to mitigate the risk of supply chain disruptions,” he explained.

“As soon as the situation in Vietnam stabilises, then orders are likely to flood into Vietnamese manufacturing as forecasted by analysts and as planned by such multinationals before the current coronavirus outbreak emerged.”

VIR