Financial Mail and Business Day

Nike and Adidas production brought to heel as Delta variant batters Asia

Michelle Jamrisko

Some of the world’s biggest footwear and garment companies are seeing production pinched as factories in Southeast Asia struggle to keep the lights on amid one of the world’s deadliest Covid-19 resurgences.

A number of firms that churn out products for global companies such as Nike and Adidas have reported plant suspensions in Vietnam over the past few weeks as authorities impose restrictions to stop the virus. Other industries, such as Toyota factories in Thailand, are also scaling back as multiple countries in the region see record high cases and deaths.

“It’s going to be worse before it gets better,” with shutdowns and staff disruptions increasing in Asia, said Deborah Elms, executive director of the Singapore-based Asian Trade Centre. “Places like Vietnam that largely avoided locking down cannot maintain an open posture. With vaccinations painfully slow, I assume more shutdowns in factories, with the ripple effects felt elsewhere.”

The temporary shutdowns come as assembly lines gear up for the holiday shopping season in the US and Europe.

Delays could mean shoes, suits, sweatshirts and other clothes will not be on department-store racks by Thanksgiving Day, the traditional kickoff for the holiday shopping season, said Michael Laskau, founder of Ho Chi Minh City-based Paradigm Shift, which works as an intermediary between manufacturers and overseas customers.

Trade in goods has been a rare buffer for the Covidravaged global economy, especially for export-heavy Asian countries, but the latest reports show cracks in this growth pillar.

The Delta variant-driven surge has hit Southeast Asia

hard, underscoring the delicate choices for policymakers who are balancing vaccination drives and mobility restrictions while trying to keep their economies afloat. The manufacturing pain is acute in Vietnam, where officials have taken drastic steps to ensure factories can continue operating. In some instances, electronics and tech companies have had workers sleep overnight on-site.

OPERATIONS HALTED

The garment industry, with lower profits and more workers, has not been able to replicate that effort. Feng Tay Enterprise, Pou Chen Corporation and Sports Gear are among manufacturers that have suspended some operations in Vietnam.

Phan Thi Thanh Xuan, vicechair of Vietnam’s Leather Footwear and Handbag Association, said more than 90% of the group’s 800 members among shoe manufacturers and exporters in the country’s south had temporarily halted operations.

“Most of the factories that supply Nike and Adidas in

Vietnam have suspended output,” Xuan said. Production for the two companies accounts for about 80% of Vietnamese footwear exports and employs at least 500,000 workers, or about half of the Vietnamese footwear industry’s workforce.

Xuan said the association was asking the government to lift overtime restrictions so factories could make up for lost productivity once they reopen. It was also asking the government to allow companies to source their own vaccines, which are distributed by the government.

“The health and safety of our teammates, as well as that of our suppliers, remains our top priority,” Nike said. “We continue to work with our suppliers to support their efforts in response to the dynamic and unprecedented nature of Covid-19.”

Adidas declined to comment, citing a “quiet period” companies take before reporting earnings, which it will do on August 5.

An export powerhouse, Vietnam not only survived but even thrived during the USChina trade war and early phases of the pandemic. Still, its trade outlook was starting to show signs of faltering in the first half of July, said Linda Liu, an economist at Maybank Kim Eng Research in Singapore.

Shipments of computers and electronics, as well as phone equipment, contracted in the first half of this month from the same period a year ago, and footwear and garment producers could follow suit in the second half of the month, she said. There could be some relief if factory operations in southern Vietnam were allowed to resume.

“A prolonged suspension of factory operations would hurt and delay Vietnam’s economic recovery, which has been mainly driven by manufacturing,” Liu said. The country’s deputy prime minister acknowledged last week that it would be “very difficult and challenging” to meet this year’s economic goals, including GDP growth of 6%-6.5%.

Other Asian nations have reported booming exports as the latest virus surge began to accelerate. South Korea and Taiwan have benefited from soaring global demand for semiconductors, each enjoying a streak of double-digit yearon-year export gains. On Friday, Thailand reported that June exports jumped by the most in more than a decade, though officials warned factory closures could soon start to interrupt shipments.

Industries other than footwear are also starting to suffer production hiccups.

A Vietnam unit of motor manufacturer Nidec Corporation resumed production in Ho Chi Minh City after a suspension, but with less than 10% of its 6,000 employees. Prosperous Industrial Holdings announced in a Hong Kong exchange filing that its production of bags and packs in Vietnam would shut down from July 22-August 1.

Meanwhile, Toyota plans to shut three plants in Thailand for a week as a virus surge has affected parts procurement, Japan’s Nikkei reported.

Pou Chen’s Ho Chi Minh City unit Pouyuen Vietnam, which supplies Nike and Adidas, halted production on July 14 for 10 days, the company said. Cu Phat Nghiep, chair of the unit’s labour union, said the unit could not meet the city’s requirement to offer on-site accommodations for its 56,000 workers. There are no immediate plans to resume operations, he said.

Even if a factory can find accommodations for half of its workers, it probably will not be able to make more than 20% of its products, Paradigm Shift’s Laskau said.

“It’s tough to see how this will shake out,” he said. “In the next two weeks, we’ll find out.”

A PROLONGED SUSPENSION OF OPERATIONS WOULD HURT AND DELAY VIETNAM’S ECONOMIC RECOVERY

INTERNATIONAL BUSINESS

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2021-07-26T07:00:00.0000000Z

2021-07-26T07:00:00.0000000Z

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