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A shift wave of the supply chain

(VLR) COVID-19 has raised many worries for companies and enterprises, which is a catalyst for the completely change in the supply chain of the current world. If considering in positive way, this could be the time for enterprises to see the new chances or look deeper in the current shortages and difficulties in their supply chains.

The pioneer shift wave

In fact, it is clear that China is the biggest supply source for the whole world. The disruption in China’s supply chain has led many manufacturers to be deadlocked. Large manufactories are now struggling when the supply chain is temporarily discontinued. The COVID-19 pandemic has been reforming the world’s supply chain, both in management strategy and the chain structure.

According to the assessment of The Dun & Bradstreet Corporation (US), nearly 1,000 enterprises having strong potentials are all affected directly or indirectly by the risk of the supply chain from China. Mr Joeg Wuttke, President of the Europe Union Chamber of Commerce in China, stated that this epidemic has made many companies raise the aware

of the necessity of developing diversified supply chains, the era in which China has been seen as the only possible choice is gone. COVID-19 would be an useful lesson learn for enterprises who should have the back-up plans, avoiding the “put all eggs in one basket” that can cause the disruption or the breakdown of the current supply chain.

According to Bloomberg, on last 8th April, Japanese Government spent 2.2 billion, which is included in the 992 billion stimulus package, to support Japanese enterprises withdraw from China when COVID-19 broke the supply chain between two countries. China had been known as the biggest commercial partner of Japan, however, in Feb 2020, the import value from China dropped a half and many factories had to be closed during COVID-19, causing the lack of necessary parts providing for the Japan’s manufacturing companies. With this situation, Japanese Government discussed about moving the production of high value added products back to home country and removing the producing of other products to South East Asia.

Vietnam is a promising destination for the shift wave of manufactories out of China. Vietnam has made the difference, successful in the COVID-19 outbreak and maintaining the achievements in terms of foreign economic relations.

A source of Nikkei Asian Review (in Japan) acknowledged that Google and Microsoft are now quickly moving their production lines of phones, personal computers and other devices from China to other South East Asian countries, like Vietnam and Thailand. Before that, most of Microsoft’s smartphones and computers were produced in China.

In long term, many factories might change their production plans to ensure the continuing of supply chains and reduce risks due to the same shocking reasons in the future. With the initiatives to improve the sustainable efficiency and limit the environmental impacts from manufacturing activities, retailers are possible to choose produce and buy products from the domestic market.

Along with that, the biggest barriers which many businesspersons need to face are cost and labors that are still concentrated in China. Besides, most of countries are now impacted seriously by this pandemic hence this shifting wave is not easy, requiring the enterprises to have a potential strategy, even it may be a short-term trade off.

The wave towards Vietnam?

The US has currently have a plan for withdrawing the supply chain and moving the production line out of China, and Vietnam is expected to be a “spot light” for US’s selection. Late Mar 2020, a group of 4 countries, after 10 year disconnected, including Australia, Japan, Indian and America, has officially re-contact the discussion and invited three more other countries, including Vietnam, Korea and New Zealand to join.

Up to this moment, America does not yet identify which countries will be added in the wealth economic network. However, according to Mr Mike Pompeo, the US Secretary of State, mentioned that American Government has been cooperating closely with Vietnam, Korea, New Zealand, Australia, India and Japan, and America targets to these countries to rebuild the world supply chain.

In the past, prior to COVID-19 breaking out, there is already the pressure due to the new tax applied on exported cargoes from China to America. The assessment of AmCham Vietnam indicated that about a third of American companies operating in China will cancel or temporarily stop investing in China. Roughly 40% of enterprises said that they will move partly or completely their production lines out of China into some South East Asian countries, including Vietnam. Estimated in 2020, this wave will continue moving strongly, creating many big opportunities for Vietnam’s manufacturing activities.

Based on the evaluation of World Bank, Vietnam is a promising destination for the shift wave of manufactories out of China. Vietnam has made the difference, successful in the COVID-19 outbreak and maintaining the achievements in terms of foreign economic relations, stably remaining the export turnover, FDI and FII at high level.

However, to welcome the whole opportunity, Vietnamese Government needs to improve the administrative procedures, legal frame to support the specific areas in domestic production. In addition, Vietnamese enterprises shall strengthen to develop infrastructure, manufactory investment and logistics etc. to meet the demands and the shift wave in the next time. This could be considered as a promising opportunity that Vietnam should catch up, but on the other hand, it is also a challenge for Vietnam’s companies if does not update and prepare plan in time.

Quang Anh

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