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In recent years, some companies have moved their manufacturing operations from China to neighboring Southeast Asian countries. Among them, Vietnam is one of the most popular destinations for opening new factories. But now, after the severe epidemic caused factories across Vietnam to close, these companies have moved their factories back to China.
After months of containment in Vietnam, the concerns of (multinational) executives are echoing in the company's earnings call. "A CEO (CEO) told me that the supply chain he spent 6 years (in Vietnam) building was abandoned in 6 days," said Rawlings, CEO of Brands, a Designer of American shoe group. "Think about how hard everyone has worked to leave China, but now one of the (few) places where you can get goods is China. It's crazy, (as if) everyone is on a roller coaster".
The Delta strain is rampant, overwhelming Vietnam, which has a full vaccination rate of only 4%. Factory closures have led to a sharp drop in Vietnam's manufacturing output and have begun to erode the profits of global brands. Adidas, for example, said delays in production in Vietnam would reduce sales by $0.6 billion this year.
In response, some companies are reversing their move to Vietnam as quickly as possible. Robertson, CEO of protective clothing manufacturer (US) Lakeland Industries, said in a September earnings conference call that the company has hired new executives to help "shift production from Vietnam to China in a few weeks". Some companies take a more cautious approach. "We do have a lot of diversification outside of Vietnam," said the CEO of (Italian furniture company) Hopewell, "and frankly, we have returned to China to some extent when necessary".
Some executives are in no hurry to return to China. Because it is costly and time-consuming to rebuild the supply chain in China, it is also necessary to consider the tariffs imposed by the United States on Chinese goods. But Jeremy Hoff, CEO of (U. S.) furniture maker LoveSac, said in a recent earnings call that the company had to shift production from Vietnam to China, "We know that inventory from China is affected by tariffs. But this (at least) allows us to have inventory, which is extremely important to us and our customers".
For many companies, returning to China is definitely the "least bad" option, because with the holiday shopping season (Christmas and New Year's Day) approaching, they have to increase production. After all, China has built up a reputation for stability during the pandemic. Shi Zhaowei, a professor of management at Harvard University, said that some companies began to return to China as early as last year. "There are many examples of this. The key problem is that if you want reliable manufacturing, China is usually the best choice."
(Source: Nicholas Rivero, author of American Quartz Financial Network, translated by Ding Ding Ding)
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