Tag: Vietnam

OM in the News: Rethinking the Vietnam Supply Chain

Manufacturers looking to shift production out of China during the U.S.-China trade war piled into Vietnam, attracted by its low wages and the government’s business-friendly reputation. But strict lockdowns to contain a Covid-19 wave in the largely unvaccinated country have crippled manufacturing since July, forcing companies such as Nike and Lululemon  to shift production to other countries. That is prompting some businesses to rethink their heavy reliance on factories in Vietnam, reports The Wall Street Journal ( Oct. 1, 2021).

Nike, which makes around half of its footwear in Vietnam, lost 10 weeks of production there

Factory shutdowns in Vietnam translated to 100 million pairs of Nike shoes not made. Nike anticipates demand for its products will exceed available supply for the next 8 months.

“Our experience with Covid-related factory closures suggests that reopening and ramping back to full production scale will take time,” said Nike’s CFO. Nike is maximizing footwear production capacity in other countries and shifting apparel production out of Vietnam back to China of all places. It is estimated that 1/5 of manufacturers have already moved some production elsewhere.

“What people are realizing is, whether it be China or Vietnam, you can’t have all your eggs in one basket, you can’t be vulnerable to one country from a supply-chain standpoint,” said an industry exec in Vietnam. Businesses have been left guessing about when Vietnam will lift its manufacturing curbs, which have included requiring factories to have their workers live inside their gates, or in some cases, outright factory closures.

Factories that wish to keep running are required to implement elaborate protocols, such as the “3-in-1-place” program, in which laborers eat, sleep, and work at their workplace. Large shoe and apparel factories with thousands of workers have found it impossible to house so many people on site. Many are shut down, or operating with skeleton crews.

The CEO of Crocs said it is moving some production to other parts of the world. Crocs was already planning to migrate some production out of Vietnam, and is adding facilities in Indonesia and India. “Ongoing diversification is essentially the name of the game,” he said. “When you think about the amount of effort everyone was putting in to getting out of China and now one of the places where you can get goods is China, I mean it really is crazy the roller coaster that everybody’s been on,” added the CEO of footware retailer, Designer Brands.

Classroom discussion questions:

  1. Why the return to China?
  2. What supply chain lessons are to be learned here?

OM in the News: Made in Vietnam

The trans-Pacific Partnership would mostly benefit developing nations like Vietnam and Malaysia
The Trans-Pacific Partnership would mostly benefit developing nations like Vietnam

Massive factories have sprung up in Long An to make goods for Western companies such as Nike, taking advantage of Vietnam’s young workforce and wages that are roughly half those in China. This agricultural province, located near Ho Chi Minh City, now has more than a dozen industrial parks, and is playing host to an increasing amount of manufacturing.

“This growth could accelerate if the U.S. and 11 other Pacific Rim nations ratify the Trans-Pacific Partnership agreement, a landmark trade deal concluded earlier this month,”  reports The Wall Street Journal (Oct. 19, 2015). The deal would eliminate certain tariffs between members, mostly benefiting developing nations whose growth depends heavily on exports. Skyrocketing wages and a growing labor shortage in China are heightening Vietnam’s appeal. If the trade deal goes through, Vietnam’s economy would be the single largest beneficiary, because it would gain much greater access to large consumer markets. Money pouring into the Southeast Asian economy could make Vietnam one of the world’s two fastest-growing large economies between now and 2050.

The trade agreement would benefit firms like Avery Dennison Corp., one of the world’s biggest makers of clothing labels and tags. The California company just opened a 300,000 square foot facility in Long An. Inside, sewing machines print tags for Japanese clothing brand Uniqlo, while workers pour red ink into giant machines that print the labels sewn into North Face outdoor-sports clothes. “The skills of Vietnamese workers are increasing exponentially every year,” says Avery Dennison’s VP, “and the country is able to accommodate ever more complex production. What took 30 years in China is taking 10 years in Vietnam to happen. That is why more and more companies are making bets on Vietnam.”

Classroom discussion questions:

  1. Why is the trade deal useful to Vietnam? To the U.S.?
  2. How does this impact  American garment makers?