Nike and Adidas production booms as COVID-19 closes Asian factories

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(Bloomberg)—Some of the world’s biggest footwear and apparel companies are seeing their production cut as factories in Southeast Asia struggle to keep the lights on amid one of the deadliest Resurgences of COVID-19.

A number of companies that make products for global giants like Nike Inc. and Adidas AG have reported factory suspensions in Vietnam in recent weeks as authorities impose restrictions to stop the virus. Other industries, such as Toyota Motor Corp. in Thailand, are also reducing their activities, as several countries in the region see record numbers of cases and deaths.

“It’s going to get worse before it gets better,” with increased closures and disruptions to staff in Asia, said Deborah Elms, executive director of the Singapore-based Asian Trade Centre. “Places like Vietnam that have largely avoided lockdown cannot maintain an open posture. With painfully slow vaccinations, I guess more factory closures, with the ripple effects felt somewhere else.”

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The temporary shutdowns come as assembly lines prepare for the holiday shopping season in the United States and Europe. The delays could mean shoes, suits, sweatshirts and other clothes won’t be on department store shelves by Thanksgiving Day, the traditional kickoff of the holiday shopping season, Michael Laskau said. , founder of Paradigm Shift, based in Ho Chi Minh City, which operates as an intermediary between manufacturers and overseas customers.

Trade in goods has been a rare buffer for the Covid-ravaged global economy – especially for export-heavy Asian countriesbut the latest reports show cracks in this pillar of growth. The surge caused by the delta variant hit Southeast Asia particularly hardhighlighting the tricky choices for policymakers balancing vaccination campaigns and mobility restrictions while trying to keep their economies afloat.

The pain of manufacturing is particularly acute in Vietnam, where authorities have taken drastic measures to ensure factories can continue to operate. In some cases, electronics and technology companies have had workers sleep at night there.

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

Phan Thi Thanh Xuan, vice president of the Vietnam Leather Shoes and Handbags Association, said on Friday that more than 90 percent of the group’s 800 members among southern shoe manufacturers and exporters had temporarily halted their activities.

“Most of the factories that supply Nike and Adidas to Vietnam have suspended production,” Xuan said. The two companies’ production accounts for about 80% of Vietnam’s footwear exports and employs at least 500,000 workers, about half of the workforce in Vietnam’s footwear industry.

Xuan said the association is calling on the government to lift restrictions on overtime so factories can make up for losses productively once they reopen. It is also asking the government to allow companies to source their own vaccines, which are currently distributed by the government.

“The health and safety of our teammates, as well as that of our suppliers, remains our top priority,” Nike said in an emailed statement. “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” the companies are taking before releasing their results, which it will do on August 5.

Shipments of computers and electronics, as well as telephone equipment, contracted in the first half of this month compared to the same period a year ago, and manufacturers of footwear and clothing could follow in the second half of the month, she said. There could be some relief if factory operations in southern Vietnam are allowed to resume. An export powerhouse, Vietnam not only survived, but even thrived during the US-China trade war and the early stages of the pandemic. Still, its trading outlook was starting to show signs of weakness in the first half of July, said Linda Liu, an economist at Maybank Kim Eng Research Pte. in Singapore.

‘Hurt, delay’

“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 earlier this week that it would be “very difficult and challenging” to meet economic targets this year, including gross domestic product growth of 6% to 6.5%.

Other Asian countries have reported booming exports as the latest virus wave began to gather pace. South Korea and Taiwan have benefited from soaring global demand for semiconductors, with each recently enjoying a string of double-digit year-over-year export gains. On Friday, Thailand reported June exports jumped the most in more than a decade, although officials warned that factory closures could soon begin to halt shipments.

Industries other than footwear are also beginning to suffer from production problems.

A Vietnamese unit of automaker Nidec Corp. resumed production in Ho Chi Minh City after a suspension, but with less than 10% of its 6,000 employees. Prosperous Industrial Holdings Ltd. announced in a Hong Kong exchange filing that its production of bags and packs in Vietnam would stop from July 22 to August 22. 1.

Meanwhile, Toyota plans to close three factories in Thailand for a week as a wave of the virus affected parts supply, Japan’s Nikkei reported on Thursday.

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

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

“It’s hard to see how it’s going to turn out,” he said. “In the next two weeks, we will find out.”

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