Vietnamese tea makers are now faced with choosing to either renovate or leave the industry.
Vietnam’s tea export turnover in the first five months of the year decreased by 10.1 percent in comparison with the same period last year, according to the Import-Export Department, the Ministry of Industry and Trade.
Vietnam’s tea producers have suffered heavily from Covid-19 as export markets have shrunk.
Taiwanese, Chinese and Russian markets have become frozen since the epidemic broke out. As for other markets, Vietnam’s enterprises cannot sign new contracts, while partners have asked to lower the prices for old contracts, delay the delivery time, or cancel contracts.
The East African Tea Trade Association predicted that the tea price in the world market would decrease in the time to come. This, plus the limitations in cargo transportation, the lower demand in many markets, and the decrease in orders from EU partners all foretell big difficulties for Vietnam’s tea industry ahead.
|Taiwanese, Chinese and Russian markets have become frozen since the epidemic broke out. As for other markets, Vietnam’s enterprises cannot sign new contracts, while partners have asked to lower the prices for old contracts, delay the delivery time, or cancel contracts.|
This has forced tea export companies to think of restructuring their production activities and business strategies.
Long Dinh JSC in Lam Dong province is an example. The company now owns 50 hectares of high-quality tea growing area certified as meeting requirements for export. More than 90 percent of the company’s products are exported to Taiwan.
The company’s raw exports have decreased by 30 percent since March. It is now stepping up restructuring, making higher-end products, including True Organic, an organic tea for domestic consumption.
Long Dinh now has 10 hectares of growing area with True Organic certification granted by the US Department of Agriculture. However, with high production costs, selling domestically is a headache for the company’s managers.
Tea experts estimate that 90 percent of total domestically consumed tea amount is from small production workshops which have unstable quality. Only a few tea brands are well known in Vietnam, such as Cozy, Phuc Long, Cau Tre, Cau Dat and Vinatea.
Nguyen Huu Tai, chair of the Vietnam Tea Association, said on Nhip Cau Dau tu that it is not easy to set up a distribution network to sell processed products, because it costs three times higher than the setting up of a plant.
Meanwhile, the State’s current policies just focus on measures to support production, not distribution.
The Import-Export Department predicted that tea supply would fall short in the time to come and Vietnam’s exporters could grab an opportunity to boost exports.
Production activities in Vietnam have resumed as the country has contained Covid-19. Meanwhile, other big exporters including India, Kenya and Sri Lanka are still busy fighting against the epidemic.
Samsung workers in Vietnam bear brunt of slowdown in global demand for electronics
Samsung Electronics Co Ltd has scaled back production at its massive smartphone plant in Vietnam, employees say, as retailers and warehouses grapple with rising inventory amid a global fall in consumer spending.
America’s largest warehouse market is full and major U.S. retailers such as Best Buy and Target Corp warn of slowing sales as shoppers tighten their belts after early COVID-era spending binges.
The effect is acutely felt in Vietnam’s northern province of Thai Nguyen, one of Samsung’s two mobile manufacturing bases in the country where the world’s largest smartphone vendor churns out half of its phone output, according to the Vietnam government.
Samsung, which shipped around 270 million smartphones in 2021, says the campus has the capacity to make around 100 million devices a year, according to its website.
“We are going to work just three days per week, some lines are adjusting to a four-day workweek instead of six before, and of course no overtime is needed,” Pham Thi Thuong, a 28-year-old worker at the plant told Reuters.
“Business activities were even more robust during this time last year when the COVID-19 outbreak was at its peak. It’s so tepid now.”
Reuters could not immediately establish whether Samsung is shifting production to other manufacturing bases to make up for reduced output from the Vietnamese factory. The company also makes phones in South Korea and India.
Samsung told Reuters it has not discussed reducing its annual production target in Vietnam.
The South Korean tech giant is relatively optimistic about smartphone demand in the second half, saying on its earnings call last week that supply disruptions had mostly been resolved and that demand would either stay flat or even see single-digit growth.
It is aiming for foldable phone sales to surpass that of its past flagship smartphone, the Galaxy Note, in the second half. It is expected to unveil its latest foldables on Aug. 10.
But a dozen workers interviewed by Reuters outside the factory almost all said business is not good.
Thuong and her friends who have been working for Samsung for around five years said they had never seen deeper production cuts.
“Of course there is a low season every year, often around June-July, but low means no OT (overtime), not workday cuts like this,” Thuong said.
She said managers had told workers inventories were high and there were not many new orders.
Research firm Gartner expects global smartphone shipments to decline by 6% this year due to consumer spending cuts and a sharp sales drop in China.
Samsung is Vietnam’s biggest foreign investor and exporter, with six factories across the country, from northern industrial hubs Thai Nguyen and Bac Ninh where most phones and parts are manufactured, to Ho Chi Minh City’s plant making fridges and washing machines.
The South Korean company has poured $18 billion into Vietnam, powering the country’s economic growth. Samsung alone contributes one fifth of Vietnam’s total exports.
Its arrival nearly a decade ago in Thai Nguyen, about 65 km (40 miles) from the capital Hanoi, transformed the area from a sleepy farming district into a sprawling industrial hub that now also manufactures phones for Chinese brands including Xiaomi Corp.
Generous benefits including subsidised or free meals and accommodation have lured tens of thousands of young workers to the region, but reduced workhours have now left many feeling the pinch.
“My salary was cut by half last month because I just worked four days and spent the remaining week doing nothing,” said worker Nguyen Thi Tuoi.
Job cuts are on some workers’ minds but so far none have been announced.
“I don’t think there will be job cuts, just some working hour cuts to suit the current global situation,” said one worker, declining to be named because she did not want to risk her team leader role.
“I do hope that the current cut will not last long and we will soon be back to normal pace.”
Government debt drops by VND57 trillion when exchange rate fluctuates
According to the Ministry of Finance, based on the selling rate of the State Bank, from the beginning of the year until August 1, 2022, one USD equals VND23,400 an increase of 1.1% compared to the beginning of 2022 estimated to increase the Government debt balance in USD in VND by about VND 5 trillion (compared to the end of 2021).
One EUR equals 24,385 VND, down 9.5% compared to the beginning of 2022. It is estimated to reduce the outstanding government debt in EUR in VND by about VND17 trillion ($727 million) compared to the end of 2021.
JPY is equal to 180 VND, down 13% compared to the beginning of 2022. It is estimated that the government debt balance in JPY in VND is about VND45 trillion ($1.9 billion) compared to the end of 2021.
According to the Ministry of Finance, only taking into account the exchange rate fluctuations of 3 main currencies USD, JPY, and EUR, the government debt balance by the end of 2022 is estimated to decrease by about VND57 trillion ($2.4 billion) down 2% compared to the last outstanding balance 2021.
Currently, the volume of domestic loans from the Government accounts for 90% and foreign debts only account for about 10% of the total annual value.
As reported by the Ministry of Finance, from the beginning of the year to July 31, 2022, repayment of government debt is about VND192,122 billion ($8.2 billion) (57.2% of the plan), of which domestic debt repayment is VND148,717 billion ($6.3 billion), foreign debt payment VND43,406 billion ($1.8 billion); direct government debt repayment is about VND 175,835 billion ($7.5 billion) (58.6% of the plan), on-lending is about VND16,287 billion ($696 million) (45.3% of the plan). The Government’s direct loan repayment obligation compared with state budget revenue in the first 7 months is about 16.1%.
Vietnam’s THACO and philosophy of no surrender
Truong Hai Auto Corporation (THACO), a typical successful firm in Vietnam’s automobile sector, has been investing heavily in mechanics and the manufacturing of accessories.
THACO leaders shared the firm’s journey to resolve the issue: increasing the localization rate or surrendering to auto imports flooding the local market.
They also shared the one-stop model to help other Vietnamese enterprises cooperate to develop, thereby improving the internal power of Vietnam’s industry.
THACO chairman Tran Ba Duong said at a meeting with mechanical enterprises that “you have technology and machinery. We will build factories and lease them at low prices.”
“If we fail to demonstrate our commitment, you can take your machinery away.
“We will not go back on our words. Only actual acts and thoughts will create values.”
Refreshing itself by enhancing investment
Returning to Chu Lai Industrial Park in central Quang Nam Province nearly three years after Tuoi Tre (Youth) newspaper held the forum ‘Last chance for Vietnam’s automobile industry,’ a series of factories mushroomed, and container trucks have been nose to tail.
The industrial park is home to not only THACO automobile assembly factories measuring thousands of hectares in area but also newly-built factories manufacturing accessories and mechanical products.
Enthusiastically sharing a project to develop THACO Chu Lai into a hub manufacturing mechanical products, accessories, and devices for industries in the central region, Do Minh Tam, general director of Truong Hai Supporting Industries and Mechanics Limited Liability Company (THACO Industries), an arm of THACO, expected the project to boost the development of Vietnam’s industry.
“At first, everyone seemed dubious. They only thought of automobiles whenever mentioning THACO. However, we separated mechanics from the automobile segment in November 2021,” Tam said.
From 17 factories producing automobile parts, THACO Industries has developed a complex of 19 factories whose strategy is to concurrently increase the localization rate and supply accessories and mechanical products to the domestic and foreign markets.
It is a must to develop the factories on a large scale and in a methodical manner as in 2019, THACO and many other automobile manufacturing and assembly enterprises faced a selection: increasing the localization rate or letting car imports flood the local market due to their competitive advantage given import tariff cuts.
Fruitful results and development ambitions
Nevertheless, it is not easy to develop an empire.
In 2021, a meeting on the restructuring of the firm was held by key leaders to choose a new business model, restructure a board responsible for the company’s products because of its more diversified product portfolio, develop a research and development (R&D) center, and boost digitalization, Tam remembered.
However, the results surprised many people. With revenue from mechanics amounting to VND5.7 trillion (US$244.2 million) in 2021, THACO Industries set a target to generate revenue of $1 billion by 2025 and invest in 15 more factories, operating in the mechanics, automobile, agricultural mechanics, construction, household appliance, and product design sectors.
“Mechanical accessories, electric wires, car seats, specialty chemicals, and bodywork will be localized first,” Tam said.
“Once our staff are experienced and we can research and develop as well as design products, we will expand to industrial equipment.”
According to Tam, together with changes in supply chains, purchasers have had a higher demand for the one-stop model, which is like a food market with multiple dishes.
With THACO Industries’ advantages in a closed manufacturing chain with lower logistics costs, THACO has repeatedly secured orders of foreign direct investment enterprises, including those ordering a combo of molds, plastic injection equipment, paint and packaging services, instead of sourcing them from four to five separate suppliers.
THACO has a plan to develop industrial parks in the north and the south of the country, thus establishing new-generation specialized industrial parks to suspend the transport of huge volumes of products from Chu Lai to other provinces.
“The close connection and support in the three regions will contribute to optimizing the effectiveness of our value chain, reducing logistics costs, improving the competitiveness, and opening up new business opportunities,” Tam noted.
He added that THACO had also sought to develop a mechanical engineering outsourcing center in association with R&D to support small and medium enterprises in southern Binh Duong Province. The center will be developed under the one-stop model.
This will not be a normal mechanic engineering outsourcing center. R&D services and core technology will be invested in heavily.
|Employees monitor a spring production system at THACO Chu Lai Industrial Park in Quang Nam Province, Vietnam. Photo: Huu Hanh / Tuoi Tre|
The center is expected to attract enterprises with the same sense of purpose of getting involved in global production chains and forming a sustainable mechanical engineering ecosystem.
No rivals, only partners
In the past, THACO manufactured and assembled automobile models for KIA and Mazda and it could be considered a rival of Hyundai and Ford.
However, with the policy of making friends with partners, THACO is currently manufacturing plastic bumpers for Hyundai Vietnam and Toyota at a lower price than those offered by Thai manufacturers.
It is also a supplier of springs for Isuzu Vietnam, and will be a partner of Ford Ranger in the near future.
THACO has launched four cooperation models: partners manufacturing and outsourcing products for THACO; THACO manufacturing and outsourcing the entire or part of products for R&D enterprises; THACO offering R&D services and manufacturing, outsourcing and providing products for enterprises having their own markets; and THACO and partners joining hands to manufacture products.
These models are expected to enhance the cooperation and competitiveness of enterprises, creating a strong industrial ecosystem and manufacturing society to pave the way for the breakthrough of the mechanical engineering sector and supporting industries.
Methodical support needed
Tam said state agencies’ support should be more methodical and specific.
Amid the shift of foreign investment to Vietnam, if institutes and state agencies conduct macro-scale and specialized research, or assess the advantages and competitiveness of Vietnam’s mechanical engineering sector, enterprises will have more information to grasp opportunities.
It will be too late to make investments after securing orders.
In addition, the mechanical engineering sector requires large capital while the rate of return is low. Therefore, to secure orders, the state should issue appropriate preferential interest policies for each sector.
Moreover, it is advised to focus on labor training on the basis of support packages for schools and students in engineering majors to help them approach advanced technology and techniques.
Incentives in taxes, land, and site clearance are also needed for companies to scale up their investment.
Notably, the development of industrial parks should involve plans to connect them with value chains, associated with expanding markets and seeking new customers.
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