Vietnamese firms suffer input material shortage fueled by China 'zero-Covid' policy

While many Vietnamese exporters and producers had orders for 2022, they are worried about a possible shortage of production materials because of supply disruptions in China.

The worst sufferers were the electronics, wood, textiles, and footwear industries, according to the Ministry of Industry and Trade (MoIT).

China is an important market for Vietnam's export and import activities as it provides the majority of input materials for production, especially electronic components, machinery parts, fabrics and chemicals.

MoIT said from 50 to 55% of raw materials and accessories for the textile, garment, and footwear industries originated from China.

The behemoth country is currently deploying a "zero-Covid" strategy, which forced many factories there to temporarily stop production to fight the pandemic. Import-export activities in China were affected a lot by the shortage of containers at ports.

Phan Thanh Xuan, vice chairwoman and general secretary of Vietnam Leather, Footwear and Handbag Association, said businesses in the industry had to slow down export deliveries because their Chinese partners lacked empty containers for transporting raw materials and accessories.

She added the supply of raw materials from China also decreased because many factories had to suspend operations.

Nguyen Duc Minh, director of Duc Minh Rubber Company and chairman of Ho Chi Minh City Rubber Plastics Association, said Vietnam's rubber industry depends on up to 70% of raw materials from China, especially chemicals.

"However, the supply from this market is being blocked due to China's implementation of a zero-Covid policy. If supply from this market continues to be interrupted, Vietnamese enterprises would be forced to import from the Japanese and Korean markets at 15-20% higher prices.

"With this input material price, enterprises are at risk of not being profitable, making it hard for their products to compete in the world market," Minh added.

Phan Anh Tuan, general director of Tan Phu Plastic Company, said besides the zero-Covid approach, escalating fuel prices forced plastic materials prices to rise, influencing his firm's input source.

Tuan said though operation costs were also pushed higher by higher logistics prices, Tan Phu Company has kept its product prices stable to support consumers. "We keep modernising the production process to improve products and cut the most costs."

The company also aims to use safe and high-technology materials so consumers could reuse them to protect the environment and avoid excess plastic consumption.

Tan Phu Company organised a campaign called "Live green, live Japanese style" to encourage customers to exchange old products for newer versions instead of buying new ones.

While the plastic company seemed to find a way to fix its problem, the textiles and garments, an industry dependent on a lot of imported materials, was still struggling.

Local media reported that Dap Cau Garment Corporation, specialising in garment processing for major markets and importing up to 80% of raw materials from China, got orders until September, but had to postpone many deliveries due to the lack of raw materials.

The company's leader said: "For orders that do not have enough materials, we have to renegotiate the delivery time. However, the delivery cannot be too slow because that makes businesses face payment risks."

In this case, MoIT asked local enterprises to adopt an appropriate strategy: "The most important task of enterprises at this time is to restructure production, find alternative sources of supply to offset the shortage of raw materials and outdated equipment. They also need to promote linkages, support and use made-in-Vietnam products to reduce dependence on external resources."

The ministry asked them to find new sources of supply outside of China besides negotiating with partners to share risks and extend the delivery time, but Nguyen Duc Thang, director of Dap Cau Garment Company, said: "It's not an overnight issue because China is the world's factory, supplying many raw materials and accessories at reasonable prices. In addition, most of the raw materials Dap Cau imports are pre-assigned by partners."

Vu Duc Giang, chairman of Vietnam Textile and Apparel Association, said that it was necessary to effectively promote the role of foreign trade counsellors to strengthen research and access to alternative markets to source raw materials at good prices.

"This not only increases competitiveness among local enterprises but also minimises the risks of dependence on a supply market," he said.

A representative of MoIT's department of industry emphasised that in the long term, there must be solutions to develop supporting industries and several important primary material industries in order to minimise dependence on imported raw materials, components and input accessories.