Companies scramble to shift manufacturing out of Covid-crushed Vietnam in time for holidays
- Vietnam has "completely collapsed" due to strict Covid mitigation policies, according to Zilingo CEO Ankiti Bose.
- The fashion supplier co-founder said it's "bad timing for Vietnam" because holiday season shipments "need to happen right away."
- "Bangladesh, India, Sri Lanka and Indonesia are all good options" as manufacturing alternatives to Vietnam, she said.
Vietnam has "completely collapsed" due to strict Covid mitigation policies, according to Ankiti Bose, co-founder and CEO of Zilingo, a fashion supplier to big brands that sell their products on Amazon and Shopify.
A rising number of Covid infections and low vaccination rates have prompted the Vietnamese government to shut down a number of factories that manufacture apparel and shoes.
"It's really bad timing for Vietnam. The holiday season shipments need to happen right away," Bose told CNBC.
She said clients are seeking to increase their manufacturing footprint in countries beyond Vietnam.
"Bangladesh, India, Sri Lanka and Indonesia are all good options," she said. They "are functional at the moment in terms of factory capacity ... so Vietnam could stand to lose a lot in the very short term."
Joyce Chang, global head of research at JPMorgan, said, "Despite a draconian quarantine policy, Vietnam's new cases of Covid-19 remain elevated, and the macroeconomic stress is spreading to the manufacturing sector."
BTIG analyst Camilo Lyon said the factory shutdowns have been more significant in the southern part of the country in cities such as Ho Chi Minh City, where a number of footwear and apparel companies manufacture their products.
Citing serious production issues for Nike since it last reported earnings, BTIG last week downgraded shares of the U.S. sneaker and athletic apparel giant. Supply chain challenges are expected to be a major focus when Nike reports its latest quarterly results after the stock market closes Thursday.
Multiple data points illustrate a worsening economic picture in Vietnam.
Customs exports, industrial production and manufacturing purchasing all fell sharply in August, prompting JPMorgan to cut its third-quarter GDP forecast for Vietnam to 3% from 4.1%.
For its part, Singapore-based Zilingo is scrambling to help clients move production to other manufacturing hubs. "Bangladesh and India went through major lockdowns," Bose said, "but almost everything returned to normalcy in terms of production within a few weeks," which minimized the effect on brands that manufacture in those countries.
Less than 10% of Zilingo's suppliers are in Vietnam. However, the country specializes in a type of material that's hard to find elsewhere, making it an important base. "Vietnam specializes in synthetic fiber, and China is the quick alternative for a lot of brands," Bose said. "We are facilitating that for most buyers very quickly through our digital channels."
Backed by Sequoia and Temasek, Zilingo has been growing its portfolio of fashion brands as companies look to diversify their manufacturing capabilities across Asia. Zilingo also provides technology used by companies on the factory floors to increase transparency and help businesses better track finished goods.
CDC urges people with weak immune systems to take extra precautions after Covid knocks out Evusheld
White House approves more than 16 million people for contested student loan forgiveness plan
Harvard neuroscientist: The 'most underrated' skill all successful people have—'especially introverts'
Frankie Muniz says it was easy to trade Hollywood stardom for NASCAR: 'I want to make it to the top'
U.S. should pay $14 trillion in reparations to Black Americans, say authors Darity and Mullen