HCMC – Local enterprises are facing huge risks of loss or bankruptcy as their importers, given impacts of the Covid-19 pandemic, may cancel outsourcing orders without any prior notices.
Do Quynh Chi from the Research Center for Employment Relations told a story of a footwear enterprise in Hai Duong Province with 500 workers, which took an outsourcing order from a large foreign enterprise.
One day, the importer sent an email at 3:00 a.m. to inform order cancellation, without mentioning payment or compensation. Two weeks later, the footwear firm closed business as this was one of its key customers.
Many enterprises have faced the same plight of the footwear firm mentioned above, according to two recent surveys on business reactions in the context of Covid-19 and relations in the footwear-apparel-electronics supply chain, Chi said at a recent seminar in HCMC. The footwear sector has suffered the most from order cancelations, followed by the apparel sector, while there are few cases reported in the electronics sector.
Firms that have been running production lines to fulfill those orders have got into big troubles as their customers did not care about payment issues. Some even declined to pay while others promised slow payment, without any specific time mentioned, Chi said.
According to a survey, aside from order cancelation, some customers even asked to defer shipping. Consequently, local enterprises could not prepare warehouses for those shipments while footwear products were damaged due to hot weather in Vietnam.
Further, some clients have still asked Vietnamese firms to suspend production while they had already purchased materials. Customers have even forced local firms to cut prices by 50% to 70%.
The problems reflect different relationships among industries and the key is poor communication. While firms in the shoe and apparel sectors rarely discuss issues with partners, electronics enterprises exchange regularly with clients to maximize efficiency of the supply chain. Therefore, the electronics sector has seen few order cancelation problems.
Facing the problem, many producers have had to cut labor costs as the biggest expense in the operation system, forcing them to fire workers. Up to 71% apparel factories and over 63% footwear firms have had to fire workers due to the reason, according to the surveys.
“Clients have passed the problem to factories and they have in turn passed it to workers,” said Chi.
Female or pregnant workers, those with short-term labor contracts or low productivity, migrant workers and elderly workers suffered the most from massive layoffs. As a result, they would face numerous financial difficulties, poor mental health and even domestic violence in their families.
By Minh Tam