Vietnam Supply Chain Industry Maintains Its Resilience Amidst Headwinds

Photo by Nhac Nguyen of AFP

 

The recent and ongoing China’s power shortage has been taking a toll on the country’s economic activities, including in the manufacturing and supply chain. Although not immediately, the issue is expected to have effects on its neighboring countries, including Vietnam. 

 

How China’s Power Shortage Affects Vietnam Supply Chain Industry

China is dealing with a major energy shortage, owing primarily to increased pressure from its emission reduction goals and rising coal costs used in thermal plants. Many Chinese factories, including aluminum refineries, clothing manufacturers, and soybeans producers, have had to reduce or even shut down operations due to this incident. China was Vietnam’s largest exporter in the first half of 2021, with shipments increase by roughly 41 percent to US$81.2 billion. Machinery, equipment, tools, parts, and raw materials for the production of clothes, textiles, and footwear are among the most important imported goods.

Nguyen Ngoc Thanh, deputy head of the Ministry of Industry and Trade’s Industry Agency in Vietnam, stated that with Covid-19 destabilizing Chinese supply chains on an ongoing basis since 2020, Vietnamese manufacturers have found a way to deal with shortages, primarily by importing from other markets. The country’s construction steel manufacturers are able to meet demand, and it is no longer overly reliant on foreign raw material supplies for manufacturing. Garment, textile, and footwear manufacturers depend on supplies and accessories imported from China, but no shortages have been recorded.

 

Major Challenge: Vietnamese Textile and Garment Industry

Surviving from the effect of China’s power shortage does not make Vietnam immune from other challenges. One of the major challenges in its supply chain industry is the decline in production in Vietnam’s textile, leather and footwear industries due to the prolonged effects of Covid-19. Vietnam is the world’s third-largest producer of textiles and garments, following only China and Bangladesh. 

Nike, the international sportswear brand, is a great example of Vietnam’s significance in the global supply chain. The country is home to 88 of Nike’s 112 factories worldwide, which produce half of the company’s footwear products. However, according to the Vietnam Textile and Apparel Association, over 35% of the country’s textile and garment manufacturers have closed due to the pandemic.

 

Vietnam’s Opportunities Amidst Headwinds

Despite headwinds coming from the inside, with the textile industry struggling to bounce back, and the external one, with China power shortage, Vietnam can uphold its global prominence in the supply chain industry. Even amidst the supply chain and shutdown issues, Vietnam is going to do quite well commercially, and it is becoming a more vital part of the global supply chain. 

The pandemic has not weakened Vietnam’s appeal as a manufacturing centre, and there is enough potential for government aid to foster economic recovery, according to a statement by ANZ. In the first half of this year, Vietnam’s GDP increased by 5.6 %, which exceeded the projection set by Standard Chartered Bank and World Bank. The Standard Chartered Bank has reduced its GDP growth projection for this year from 6.5 % to 4.7 % while the World Bank has reduced it to 4.8 %. 

 

Although the vaccination rate is globally increasing and the number of active cases is gradually decreasing, industries still have not seemed to fully recover. This can be seen in almost all countries, including Vietnam. On top of this, the latest power and energy shortage of China seems to add more to the existing pressure of pandemic recovery. Despite these headwinds, Vietnam is doing its best to meet supply chain demands from all around the world.

 

Read Also: How E-commerce Positively Affects Indonesia’s Logistics Industry

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