“Sick” in a special context

Just struggling to overcome the COVID-19 pandemic, new economic “shocks” and global geopolitical instability have come. Along with that, changes in business conditions and new legal regulations have caused businesses, large and small, to “swim” in a whirlpool of difficulties.

Businesses after the Garment is one of the manufacturing industries that has been most affected by the "storm" of declining aggregate demand. Photo: Minh Hang

When "the rich also cry"

Hoa Loi Group is the second largest unit in the world's leather shoe industry, with a production capacity of 220 million products per year. In Thanh Hoa, after 10 years of investment, the group has 20 factories in operation, creating jobs for 120,000 workers. However, economic inflation along with the "wave" of order cuts from the second half of 2022 has lasted and become more severe in 2023, making it inevitable that this "giant" in the leather shoe industry will struggle. Mr. Tseng Jung Huei, Deputy General Director of Hoa Loi Group, said: “We have had about 40% of our orders cut this year. With 10 factories being invested in the districts of Thach Thanh, Ba Thuoc, Cam Thuy, Thuong Xuan, Thieu Hoa, Hau Loc, the investment and construction procedures are also taking longer due to new legal regulations. In this situation, we do not set a profit target but only focus on order adjustment plans with the motto of not having to cut labor.”

According to Mr. Trinh Xuan Lam, Chairman of the Thanh Hoa Textile and Garment Association, economic inflation has caused consumer demand in large markets such as the US and Europe to remain tight; while this is the market that accounts for a large market share of domestic and provincial garment and footwear enterprises. Following the decline in consumption since the end of 2022, in 2023, many enterprises have had their orders cut by 30%, even 50% in the European market. To "save" the situation, "large" and "small" enterprises in the industry have accepted many small, low-priced orders. Taking on more orders is not an advantage with the current labor level and facilities and equipment to create jobs for workers, and profits are almost zero".

Many economic experts have commented that the current period is the most difficult period for enterprises in the past 30 years. In 2023, the total revenue of enterprises in the Economic Zone and Industrial Parks decreased by more than 5%, and export turnover decreased by 23.4%. Along with the Nghi Son Refinery undergoing maintenance for 48 days, the difficulty in the consumption market and raw materials increased, causing the growth indicators in the industrial sector (IIP) of the province to increase by only 4.87%, not reaching the plan. The export value of goods in the whole province also only reached 92% of the plan; while previously the province's exports had continuously increased for many years.

Not as simple as the majority of enterprises, the ecosystem of Thanh Hoa Seafood Import-Export Joint Stock Company is multi-industry, from exporting seafood, wood to producing and trading clean food. According to the representative of the enterprise, the production fields of the unit all have a deep and wide level of integration; therefore, factors of international political and economic developments have a direct and immediate impact on production and business activities. In particular, the output markets of the enterprise are mainly developed countries such as the US, EU, Japan, Korea, China... and these are also the economies most strongly affected by the "shocks" that have occurred and are occurring. Therefore, the main export markets of the company have been severely affected. It is estimated that the output of goods consumed by the enterprise has decreased by 35 - 40% depending on each market "niche", typically clams decreased by 35%, surimi fish cakes decreased by 30%. In the wood industry alone, due to the US anti-dumping investigation policy on plywood products, there was a time when the market was almost "closed".

According to Nguyen Cong Hung, Sales Director of Thanh Hoa Seafood Import-Export Joint Stock Company: “When total market demand declines, maintaining output and sales poses many challenges for businesses. In the markets consuming clams and surimi fish cakes, consumers cut their spending to the maximum, causing retail distribution pressure to become fierce and importers require strong discounts on most orders. Input costs increase, the price reduction race to win orders is strong, this has eroded most of the profits of businesses when "trying" to sell to maintain the market".

In addition to the gloomy picture of the consumer goods production market, the "giants" in the real estate and construction sectors are also "standing" and "sitting" restlessly as the real estate market is almost "frozen". This figure is proven when according to the figures provided by the Provincial Tax Department, the tax rate collected from granting land use rights this year decreased by nearly 50%.

Along with tightened public investment, declining market demand both domestically and for export has led to difficulties for many industries producing construction materials such as cement, bricks, tiles, packaging, etc. Originally, this time is the "sprint" stage of production and consumption of these products, however, currently, many industrial factories inside and outside industrial parks are in a state of cutting capacity and production at a standstill.

Dai Duong Packaging Factory in Nghi Son Economic Zone (KKTNS) has been operating stably since 2018. The factory's products are supplied to The Vissai Cement Group, large cement factories and exported about 5%. When the real estate - construction chain was affected, the factory's packaging product supply was also disrupted with orders decreasing by 30%. The factory had to cut and rotate orders from workshops to stabilize workers' income. Mr. Nguyen Ba Phuong, Manager of Workshop 5, said: "The factory's production workshops are currently operating at a low level. With our Workshop 5, at many times we had to accept inventory so that workers could have jobs." According to the representative of this company, revenue in 2023 decreased by about 20% compared to the same period last year.

According to statistics from the Management Board of the Economic Zone and Industrial Parks, in 2023, enterprises were forced to cut more than 3,761 workers. In particular, some enterprises were forced to temporarily suspend operations such as Cong Thanh Cement Joint Stock Company and Innov Green Company in the Economic Zone. Many enterprises had to reduce working hours, take turns off work, and not work overtime, typically 12 enterprises in Bim Son Industrial Park. Difficulties in production and business have caused the situation of prolonged insurance arrears with large arrears that have not been completely resolved, typically Cong Thanh Cement Joint Stock Company owes 5.7 billion VND, Beoyin Vina Company Limited owes more than 4 billion VND, Thanh Hoa Shipbuilding Industry Company Limited, Song Chu Mechanical and Construction Joint Stock Company...

On a provincial scale, many key and traditional manufacturing industries of the province continued to decline, such as sugar down by approximately 50%; cassava starch down by 21.7%; beer of all kinds down by approximately 20%, construction bricks down by 12.2%... Not only did output decline, but input costs also increased, while selling prices were low, causing businesses to have almost no profit or very low profit.

The numbers "talk"

In a context of current difficulties, it is "surprising" that Thanh Hoa still achieved "record" numbers in establishing new enterprises. According to data from the Provincial Steering Committee for Enterprise Development, as of March 31, 2023, the whole province had 3,611 newly registered enterprises, ranking 6th in the country and exceeding the construction plan by 20.4%, bringing the cumulative number of registered enterprises in the province to more than 27,000.

"In addition to the objective reasons of the global economic recession, businesses are also in this difficult situation due to internal shortcomings of the economy. First of all, it is the institutions and policies that are not yet complete, if not contradictory. The boundary between "right" and "wrong" is very fragile, causing businesses to operate in a state of anxiety. Along with that, the reform trend has slowed down, causing the business environment to not meet expectations, and business conditions are facing more barriers than before" - Do Dinh Hieu, Director of the Vietnam Federation of Commerce and Industry, Thanh Hoa - Ninh Binh Branch.

However, behind this "beautiful number", in 2023, the whole province also recorded 1,245 enterprises temporarily ceasing operations, equal to 34.5% of the number of newly established enterprises. Along with that, there were 631 dissolved enterprises, an increase of 66.5% over the same period. The number of enterprises returning to operation also decreased by 29.5% over the same period.

Furthermore, if we look at the number of enterprises entering the market to assess the vibrancy of the business environment, it seems to be inaccurate, because the "vitality" of enterprises needs to be assessed by parameters related to operations, including indicators of revenue generation, profit, and payment to the State budget. In fact, the rate of enterprises generating these indicators is very low compared to the number of enterprises with business registration.

The mountainous district of Cam Thuy has 189 registered businesses. However, the number of businesses generating revenue is only 107. Of these, the number of businesses generating tax is only 89. Mr. Tao Ngoc Canh, Deputy Head of Cam Thuy Tax Department, said. In 2023, the revenue generated by businesses in the area is only 78% compared to 2022. The total number of businesses operating in the business sector is only more than 1,000, equal to 45.5% compared to last year, even lower than in 2019 (before the COVID-19 pandemic). The reason is that garment businesses in the area do not have orders, leading to many workers having to quit their jobs. Ngoc Ninh Production and Trading Company Limited alone has stopped operating, leading to 1,200 workers having to quit their jobs.

As an area with vibrant economic and commercial activities, in 2023, Thanh Hoa City - Dong Son area established 1,662 new enterprises, exceeding the assigned plan target; but during the year, there were also 532 dissolved enterprises and 619 enterprises temporarily suspended business.

According to Chairman of the Provincial Business Association Cao Tien Doan: “Enterprises are facing a harsh context, struggling with challenges every day. A very sad reality is happening when the number of enterprises having to close down and withdraw from the market is increasing. In Thanh Hoa, after more than 2 years of being severely affected by the COVID-19 pandemic, while on the road to recovery, a series of enterprises had to close down due to problems in the regulations of the law on fire prevention and fighting. Next, the complicated world economic and political situation, high inflation, scarce input materials, skyrocketing market prices, falling orders due to weakening global and domestic demand; tightening credit causing capital flows for production and business to stagnate are factors that have a "double" impact on the health of already weak enterprises".

Minh Hang

Lesson 2: The policy "pie" is hard to hold.

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