Businesses seek alternative sources of raw materials in face of COVID-19 threat

Businesses seek alternative sources of raw materials in face of COVID-19 threat

Despite these challenges, numerous businesses based in Ho Chi Minh City have come up with solutions in order to overcome these difficulties, keep production activities going, and stabilise jobs for workers.

Based in Binh Tan district of Ho Chi Minh City, Pouchen Company Limited employs over 62,000 people. Each month, the company produces approximately five million pairs of shoes for export with 60 per cent of the company’s material source for production being imported from other countries, mainly from China.

Due to the COVID-19 outbreak negatively affecting the company's material source for production, the firm is seeking alternative material sources domestically whilst simultaneously finding raw materials imported from other countries.

Kim Vinh Cuong, Vice Chairman of Trade Union Pouchen Co., Ltd. in Binh Tan district of Ho Chi Minh City, stated that in order to maintain employment for workers and ensure production, the company must seek alternative sources of raw materials from other suppliers based in the Republic of Korea, Japan, or Chinese Taiwan. Indeed, the company prefers to make use of domestic raw materials rather than endure a shortage of raw materials.

To cope with the shortage of material sources, many companies based in the Ho Chi Minh City High-Tech Park such as Nidec Vietnam, Jabil Vietnam, and Samsung have been co-ordinating alongside their parent company to seek raw material sources from factories in other countries as a means of stabilising production activities.

Simultaneously, these companies have also sought materials from new sources to avoid heavy reliance on China, while many companies are also aiming to increase their use of raw materials from domestic sources.

Amidst the ongoing COVID-19 epidemic, many enterprises plan to use approximately 50 per cent of the domestic raw materials in their products, as opposed to the 25 per cent previously used. This increase has served to create opportunities for domestic raw material manufacturing firms to participate in the supply chain of foreign-invested enterprises.

Le Bich Loan, Deputy Head of Management Board of Ho Chi Minh City High-Tech Park, said along with solutions aimed at co-ordinating the source of raw materials from the parent company, businesses have also found alternative sources from other nations such as those in Europe, Japan, and the US.

These countries have higher raw material costs, making FDI enterprises turn to look out for raw material sources domestically.

Meanwhile, local enterprises have been devising their own solutions aimed at overcoming this problem. For example, Vietnam Flour Corporation has yet to be affected by the current situation due to raw materials such as wheat grain being imported from the US and Europe.

In fact, the company’s export markets in 30 countries have yet to be affected, but there has been a downward trend of approximately 20 per cent in the domestic market as a result of the epidemic. Therefore, in order to maintain jobs for 500 employees, the company has launched dragon fruit noodles as a new product.

At present, the company has supplied roughly two tonnes of these products to restaurants, bars, and small traders in markets throughout provinces and cities in the south of the nation.

Huynh Kim Chi, Chairman of the Management Board of Vietnam Flour Corporation, said that the introduction of new products has served to improve the value of agricultural items and increase consumption in the domestic market during a challenging period.

In the shoes industry, Tien Phat Co., Ltd has also been able to maintain jobs for 300 workers by doing outsourcing activities for other businesses.

Most notably, for the company's new orders from Italy which involves more than 120,000 pairs of rice husks, the company has negotiated with partners to extend the delivery time so they can import raw materials from other countries.

For example, the company has made the switch to import PU materials from Thailand rather than from Chinese sources as they had done previously. In the long term, the firm will persify its supply sources for all production activities.

Nguyen Ngoc Vu, Director of Tien Phat Manufacturing and Trading Co., Ltd, proposed that the southern city worked out policies of reducing taxes for local businesses whilst supporting them through loans.

With some of these solutions in mind, many enterprises based in Ho Chi Minh City have been able to successfully overcome the initial difficulties caused by the COVID-19.

However, in order to overcome this problem over the long term, businesses need support from the State, especially in terms of policies relating to tax reduction and loan support packages.

Moreover, the current situation has also presented plenty of opportunities for raw material production businesses to improve the overall quality of their products, whilst engaging in the supply chain of FDI firms.