Exporters hit by China’s virus shutdown race to shore up supplies
Date: Friday, February 7, 2020
Source: The Washington Post
Despite Vietnam’s close economic and tourism ties with China, the human cost of the coronavirus outbreak in this country of nearly 100 million remains small, with 12 confirmed infections. But for companies with Chinese staff, or those reliant on materials and equipment from China, the pain is real.
Kaiser Furniture, a Taiwanese-owned manufacturer that has operated in Vietnam since 2004, falls into both of those categories. The company, which sells 95 percent of its furniture to the United States, has over 3.2 million square feet of production facilities and roughly 5,000 employees in Binh Duong province, a heavily industrialized region outside Ho Chi Minh City.
Dwayne Wood, Kaiser’s general manager of sales and marketing, says 120 of its workers are from mainland China, 50 of whom are trapped in Hubei province, the epicenter of the outbreak. The employees had been visiting home for the Lunar New Year holiday when the virus began to spread rapidly, prompting Chinese authorities to place Hubei under an unprecedented lockdown.
“They are all senior and middle managers,” Wood said. “Our production scheduling guys, our entire costing department. A couple of our purchasing people and two senior managers at our upholstery area are stuck, so we’re having to move things around to be able to get those areas to work.”
Other Chinese employees of Kaiser were able to return to Vietnam before flights between the two countries were suspended last weekend, though some had to fly via Malaysia or South Korea. Now, Vietnam is no longer granting new visas to Chinese nationals, and anyone arriving in the country who has been in China within the last two weeks faces 14 days in quarantine.
While travel restrictions have created personnel problems, Wood said, broader issues are gaining prominence.
“The bigger impact for us is that China really just hasn’t started back up [since the end of the holiday], and China is such a huge trading partner, and we still rely heavily on them for a lot of our component parts,” he said.
Furniture production for the U.S. market is well-established in Vietnam, with large-scale manufacturing dating back two decades.
While Vietnam’s economy has diversified and grown rapidly in recent years, driven in part by rising labor costs in China, businesses still rely on the huge Chinese industrial sector to churn out essential components. For Kaiser, that means parts such as drawer guides and specific fabrics or leather, though most of the lumber it uses is American.
“The biggest disruption of the coronavirus for a lot of people here will be how it affects the supply chain. It was already a stretch with Lunar New Year; our customers placed extra orders early to compensate for the break . . . But now we’re back, and we’re trying to contact our vendors in China, and they’re not even back to work,” Wood said.
Others in Vietnam say they have not felt the full force of disruptions but worry that it’s only a matter of time.
An executive at a large American footwear company based in Ho Chi Minh City said that while the business is not experiencing problems yet, managers are monitoring the supply chain closely.
“A lot of the athletic brands have already started moving out of China, but a lot of technical materials, whether knits or carbon plates, things like that, haven’t completely migrated out of China yet,” said the manager, who was not authorized to comment publicly and spoke on the condition of anonymity.
These parts are largely produced in Guangdong province, home to the industrial powerhouses of Shenzhen and Guangzhou, a region that so far has avoided significant disruptions from the outbreak. Nonetheless, the footwear producer is exploring contingency plans with other suppliers. Its factories outside Ho Chi Minh City have distributed masks and hand sanitizer to workers, while also quarantining Chinese employees for 14 days.
“There have been concerns voiced by the Vietnamese workers, some of which is perpetuating something kind of stereotypical, but we want the factories to be super transparent,” the executive said.
The footwear firm is not alone in taking such a step. The labor department in Ho Chi Minh City has ordered 187 companies to keep 1,069 Chinese employees in quarantine for two weeks.
New restrictions within China could further stress production lines. This week, officials in Zhejiang province announced that only one person per household would be allowed to leave home every two days for necessities. This includes three districts of the city of Hangzhou, home to e-commerce giant Alibaba.
“We’ve also heard that Hangzhou is telling factories they can’t open until March 1, and that’s a really key fabric area,” Wood said. “If that happens, then we’ll be greatly affected.”
Although China has largely weathered Trump’s trade war, many economists expect its annual growth to slump to below 4 percent for the first quarter as services halt and consumers avoid going out due to contagion fears.
“The tariffs have had a great impact on the exodus of manufacturing from China, but it’s been kind of a slow death, whereas if something like this happens where they’re physically not able to go back to work, it really forces people to quickly change their mind-set and move away from China at a much faster pace,” Wood said.