Coronavirus: Vietnam lured factories during trade war, but now faces big hit as parts from China stop flowing

Vietnam became the destination of choice for firms looking to avoid trade war tariffs, but the coronavirus has left many cut off from their suppliers

The Southeast Asian nation is more exposed to China’s supply chain than any other country in region, research shows, with companies across the board set to take a hit

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Supply chains are complex, and despite Vietnam’s tariff-induced windfall, companies are now finding out how difficult it is to wean themselves off China. Photo: Reuters

Published: 1:02pm, 28 Feb 2020Updated: 1:45pm, 17 Apr 2020

A quick glance at the accounts of his 10,000-person packaging factory in the Vietnamese capital of Hanoi tells Stuart Donegan that the “big wave is coming”.

In addition to its Hanoi site, Donegan’s company, Sino Manufacturing, employs 1,500 at a plant in Ho Chi Minh City in the south of Vietnam, while three other factories in China and Indonesia make packaging for electronic goods, working with two of the world’s five biggest electronics firms.

But with component manufacturing in China – where many of the parts for assembly lines around the world are made – still in varying degrees of shutdown, many factories in Vietnam are expected to run out of parts over the coming weeks and months.

“If companies like Flextronics and Apple cannot produce products, then they do not need packaging,” Donegan said. “February numbers at my company will be a disaster. We want to get back on track for May or June, but it is uncertain at the moment. We do not have to make lay-offs for a while, we will see where we are at the end of March, but it is all depending on factories reopening in China.”

Along with the dragon fruit and papaya rotting in the sun because of closures along the country’s northern border with China, the apparel factories who cannot get fabrics out of Guangdong, and the electronics assembly lines blazing through components without being able to source replacements, Donegan’s example helps illustrate the massive hit Vietnam is set to take from the coronavirus epidemic that is ransacking Asian supply chains.