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Vietnam’s footwear industry struggling due to COVID-19

Vietnam’s footwear industry struggling due to COVID-19

Tuesday 14, 04 2020
Lack of finance and shortage in production materials are the difficulties that Vietnam’s footwear businesses are facing.

Scarcity of production materials

The outbreak and complicated developments of Covid-19 epidemic have made many businesses and industries face difficulties for nearly 3 months. Leather and footwear, one of Vietnam’s key industries, is also struggling to find ways to maintain operations until the Covid-19 “storm” is over.

Mr. Tran Quang Vinh, Chairman of the Phuc Yen Shoes Joint Stock Company shared that, since the Covid-19 epidemic broke out, the main consumer markets of this business including the US and the Europe have closed, stopped importing goods, and many orders have been canceled.

Currently, while China has reopened, trade have been back, and raw materials have been imported in mass, finished products cannot be sold, making the business situation more difficult than ever. Mr. Vinh said: “The current shoe production volume has decreased by 30-40% compared to the same period last year.

By the end of May, we do not know how and where we will be. Because most of the products are made for export, they are difficult to be sold in the domestic market due to high prices.”

Since the beginning of the year, this business has exported products to fulfil old orders while delivery time of newly placed orders has been delayed to June and July. With this situation, this business can only hold on to production until the end of April, then they will have to take a break, fire employees or give them an unpaid leave.

“With a staff of 1,500 employees, if the orders are still not shipped, and new orders are not signed, each month after April, we will still have to pay workers 70% of the regional minimum wage. That means paying more than VND 3 billion / month, which is a big amount in the current difficult time.” Mr. Tran Quang Vinh said.

Vietnam’s footwear industry struggling due to COVID-19

The situation is even more dramatic with Eurolink Joint Stock Company. Mr. Nguyen Huu Thanh, CEO of this company said that this is the "dark time" for his business. Specializing in the production of fashion items, both leather shoes and apparel, the difficulties that this company is facing are greater than many others.

By this time, the company's raw materials and supplies are almost out of stock and production has been delayed. It is expected that by April 20, there will be no materials for production.

The import of raw materials is now impossible because the European market has closed, while 70-80% of raw materials must be imported from Italy, which is currently the outbreak center of the EU. Business leaders are very confused, and not sure how to maintain the business operation.

Decreased number of orders

Another difficulty is financial shortage. Customer partners have asked to delay orders and showed no signs of placing more orders. Domestic shops have been closed, making businesses are facing exhausted capital. “Currently, our company employs 300 people. To ensure their benefits and retain them, we are still paying the minimum wage for them.

However, with the current financial situation, we can only maintain in 1-2 months. If the epidemic lasts any longer, we will have to temporarily suspend operation.” worried Mr. Nguyen Huu Thanh.

Phan Thi Thanh Xuan, General Secretary of the Vietnam Leather, Footwear and Handbag Association (LEFASO), said that the complicated movement of the Covid-19 epidemic has caused major export markets of Vietnam's leather and footwear products including the United States and the EU sharply reduce orders as these countries and regions had to close their borders.

Compared to the material shock, the output shock is much more serious because it affects not only the finances of businesses but also the employment and income issues of workers. In addition, it may cause subsequent labor fluctuations as well.

Many businesses said that new purchase contracts in the second quarter and even the third quarter have not been signed because the consumption in the EU and US has dropped sharply after the blockade orders, closing selling points in these countries.

In order to ease a part of difficulties for industrial businesses, Vietnam Leather, Footwear and Handbag Association and the Ministry of Industry and Trade have proposed the Government to extend the time limit for payment of corporate income tax of 2019 and 2020, and the payment of VAT until the end of the fourth quarter of 2020; extend, exempt and reduce land rent, industrial park infrastructure fee, wastewater treatment fee during the time factories and plants stop operating due to epidemics; approve 2020 union fee waiver for both employers and employees.

The Ministry also proposed that the Prime Minister request the banking industry to take measures to support reducing the margin ratio and reducing international payment fees for enterprises that import raw materials so that they can soon access capital and restore production; to extend working capital borrowing period to 11 months, etc.

>> What is the position of Vietnam's minimum wage in the region?

Source: Vietnambiz

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