Export: Looking back and moving forward – Part 1: A difficult year

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Vietnam's total rice export volume in 2023 will reach 8,131 million tons, worth nearly USD 4.7 billion.

In the context of slow growth in global trade, export businesses, in addition to facing difficulties in output, are also worry of increasing risks.

When your partners bankrupt,

Cam Ha Joint Stock Company - an enterprise in Quang Nam specializing in manufacturing furniture for export to European and American markets, last year announced information that a partner, Noble House Home Furniture LLC, had officially filing for Chapter 11 bankruptcy with the United States District Court for the District of Houston Texas. This company said that the average revenue of Noble House Home Furniture LLC customers accounts for about 50% of Cam Ha's total revenue. Currently, the Company is making efforts to participate in the Court's bankruptcy proceedings to recover receivables from customer Noble House Home Furniture LLC.

Noble House Home Furniture LLC is not the only case of bankruptcy in the face of difficult circumstances.

Recently, international media has continuously reported on the difficulties of businesses in the US and Europe due to the impact of inflation, rising interest rates and a stagnant economy. Statistics show that the number of insolvent companies in the US and Europe is at a record high in decades. Among these are many retail giants.

Typically, America's leading retail chain Bed Bath & Beyond has filed for bankruptcy protection under Chapter 11 at the New Jersey District Court since April. In Europe, famous retailer paperchase also fell into insolvency and was forced to sell its brand to the Tesco supermarket chain.

Difficulties, even from the other side of the hemisphere, are directly affecting manufacturing businesses in Vietnam. In the same situation as Cam Ha, a representative of a wood export business in Binh Duong (who asked to remain anonymous) also said that nearly 2 years ago, a partner in the UK went bankrupt, causing the company to lose nearly VND 100 billion. This person said that this year, many of his colleagues fell into a situation where customers owed money and did not pay.

Mr. Nguyen Chanh Phuong, Vice President of Ho Chi Minh City Handicraft and Wood Processing Association (HAWA), admitted that the difficult situation of businesses in the US and Europe is causing difficulties for many Vietnamese exporters. Accordingly, the signing of orders also becomes more cautious.

Mr. Nguyen Liem, Chairman of the Board of Directors and General Director of Lam Viet Joint Stock Company, said that after many months of stagnation, recently many customers have come to request orders but the company does not dare to accept due to fear of risks. Regarding prepayment, there is information that many wholesalers in Europe and the US are at risk of insolvency. According to Mr. Liem, as of October 2023, Lam Viet's orders have only reached about 70% compared to the same period last year, but are also much more positive than the average of only 55% in the first 6 months of the year. Most of them are old customers who place additional orders, but with new customers, the company is very cautious. This also makes recovery slower.

It's not easy to find new customers

To sell products is difficult; businesses also have to accept new "rules of the game" of the markets.

Mr. Nguyen Liem said that although the US is the birthplace of L/C payment (payment by letter of credit), US businesses do not accept L/C. American businesses accept negotiations for delayed payments of 30-60 days, or even up to 120 days. "Failure to meet this term means the business cannot sell products to that partner" - Mr. Liem said.

Mr. Vu Duc Giang, Chairman of the Vietnam Textile and Apparel Association, said that currently brands have very strict requirements on quality stability, competitive prices and delivery time, in addition to other requirements for greening, sustainable development, social responsibility... Meanwhile, payment times are very slow with some orders being paid up to 60, even 90 days late. This creates great pressure because businesses have to borrow from banks to buy raw materials.

Facing the difficult situation in the US and Europe, finding new markets to compensate for the decline is something that businesses have considered and actively implemented. But in reality it is not easy. According to Mr. Liem, the New Zealand market is very small, with only 4.5 million people. Although India has a large population, there are differences in products that are not suitable for Vietnamese production. With the Middle East market, each year Lam Viet's orders to this market are only 2 containers. "Enough for Lam Viet's workers to produce for about 2 hours" - Mr. Liem said.

Currently, partners only place short-term orders on a monthly basis. New items will be ordered to compensate for reduced inventory. Therefore, businesses must always be in a ready state. If they receive an order, they will immediately put it into production.

Mr. Vu Duc Giang also said that currently Vietnamese textile and garment enterprises themselves have to manage in some markets to maintain a stable workforce for recovery from 2024-2025. Accordingly, businesses must temporarily accept small orders that are not their strengths and are not profitable in order to have jobs for workers and to build trustworthy, long-term partnerships. Besides, efforts to exploit new markets, the businesses pay more attention to the domestic market. At the same time, find ways to minimize costs that are not really necessary.

Meanwhile, the wood industry has its own characteristics that make reaching new customers not immediately effective. According to Mr. Liem, from the time of meeting until the goods are exported, it takes the business at least one and a half years. From idea to design, it takes at least 6 months, then put into production and tested in Vietnamese labs and labs in the US and Europe. The sales partner then surveys the market before placing an order.