Vietnam – Better or Worse?
Late last month we noted that Vietnam, the home of a number of large CE assembly complexes, was hit by a serious COVID-19 outbreak and had limited travel in a number of major cities and regions to contain the spreading infection. In that note a survey taken by the American Chamber of Commerce – Vietnam had indicated that by August 23, 13% of businesses had ceased operations or were operation with a skeleton crew to keep the lights on, while another 36% had reduced operations by at least 50%, a big jump from a previous survey only 20 days earlier, where only 8% had ceased operations and 23% had reduced operations by at least 50%.
At that time the government of Vietnam had implemented a “3 on Site” model a month earlier, which involves eating, sleeping, and working without leaving the factory site, however as the outbreak became worse, particularly in the more populous southern provinces, the wisdom of such a policy was questioned and suspended in Ho Chi Minh City where over 3,700 businesses had spent considerable sums to implement the practice. The Vietnam government recently lifted such measures and travel restrictions in Ho Chi Minh City and nearby villages, allowing those who had been unable to travel to once again have the option to leave the city and return home after months of ‘artificial’ confinement.
While this should have had the effect of relieving some pressure on commerce in the city, it had the opposite effect, with an estimated 2m+ workers leaving the city and returning to their home towns, leaving factories unable to fill production lines with workers. In Ho Chi Minh City it is estimated that over 12,000 factories have suspended operations, with most being mobile phone, semiconductor, or electronics firms, and more than 40,000 have suspended operations across the country, worsening delivery schedules that had already been delayed during the summer. The fear now is that it will be difficult for companies in Vietnam’s cities to attract workers back to the factories, with them now fearing that another outbreak will cause them to lose their jobs and be unable to return home. Whether they are able to find work outside of the cities at a pay rate comparable to what they were being paid in the city remains a question, but the initial reaction of workers who had been stranded in the city was to get out as quickly as possible.
Again, with semiconductor shortages still a factor, cargo ships stacked up in harbors, and trucking firms desperate for drivers, longer assembly times seem just another convenience that will have to be faced during the holidays this year, along with higher prices, but the CE space seems to have reached a point where overall demand had hit a barrier, be it price or availability, and CE companies are throttling back on their expectations for the holiday season. While that will do little in the near term, if demand remains slow through Chinese New Year (Feb 1, 2022), there is the possibility that some CE price deflation could occur in 1H, leading to a better 2H ’22. Semiconductors will be the key however given the expense and long lead times for capacity expansion, but a broad slowdown in demand could ease those shortages a bit, especially at the more mature nodes. We can always hope.
At that time the government of Vietnam had implemented a “3 on Site” model a month earlier, which involves eating, sleeping, and working without leaving the factory site, however as the outbreak became worse, particularly in the more populous southern provinces, the wisdom of such a policy was questioned and suspended in Ho Chi Minh City where over 3,700 businesses had spent considerable sums to implement the practice. The Vietnam government recently lifted such measures and travel restrictions in Ho Chi Minh City and nearby villages, allowing those who had been unable to travel to once again have the option to leave the city and return home after months of ‘artificial’ confinement.
While this should have had the effect of relieving some pressure on commerce in the city, it had the opposite effect, with an estimated 2m+ workers leaving the city and returning to their home towns, leaving factories unable to fill production lines with workers. In Ho Chi Minh City it is estimated that over 12,000 factories have suspended operations, with most being mobile phone, semiconductor, or electronics firms, and more than 40,000 have suspended operations across the country, worsening delivery schedules that had already been delayed during the summer. The fear now is that it will be difficult for companies in Vietnam’s cities to attract workers back to the factories, with them now fearing that another outbreak will cause them to lose their jobs and be unable to return home. Whether they are able to find work outside of the cities at a pay rate comparable to what they were being paid in the city remains a question, but the initial reaction of workers who had been stranded in the city was to get out as quickly as possible.
Again, with semiconductor shortages still a factor, cargo ships stacked up in harbors, and trucking firms desperate for drivers, longer assembly times seem just another convenience that will have to be faced during the holidays this year, along with higher prices, but the CE space seems to have reached a point where overall demand had hit a barrier, be it price or availability, and CE companies are throttling back on their expectations for the holiday season. While that will do little in the near term, if demand remains slow through Chinese New Year (Feb 1, 2022), there is the possibility that some CE price deflation could occur in 1H, leading to a better 2H ’22. Semiconductors will be the key however given the expense and long lead times for capacity expansion, but a broad slowdown in demand could ease those shortages a bit, especially at the more mature nodes. We can always hope.
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