Facilities for vocational education

The Hanoitimes – As one of the countries most affected by extreme climate events, climate change has multifaceted negative impacts on activities of Vietnamese enterprises.

Fifty four percent of enterprises in a survey of 10,356 participants conducted by the Vietnam Chamber of Commerce and Industry (VCCI) and the Asian Foundation in Vietnam said they had to suspend operation because of climate change.

This was followed by a decrease in labor productivity due to inclement weather and the decline of revenue (both at 51%).

Source: VCCI’s report.

Meanwhile, 46% of respondents reported disruptions in their transportation channels (46%) and 44% reported increase in production and business costs (44%).

The report, released on September 16, also revealed natural disaster risk and climate change caused stagnation in the distribution system of 38% of surveyed businesses, reduction of product and service quality (37%), damage to facilities (34%), manpower shortages (33%), and lack of supply in input production materials (32%).

“Vietnam is one of the countries most affected by extreme climate events,” said VCCI Chairman Vu Tien Loc at the launching ceremony, citing a World Bank study that climate change may affect about 1.5% of Vietnam’s GDP each year and the damage may increase in the future.

Overview of the conference. Photo: Ngoc Thuy.

In this context, Mr. Loc said enterprises in Vietnam’s central coast region are more exposed to natural disaster risk and climate change compared to other regions while those operating in agriculture, forestry and fisheries are the most vulnerable.

“Notably, newly created enterprises, or those with less than three years in operation, are more affected than the other groups,” Mr. Loc said.

Going further into impacts of climate change and natural disaster risks on activities of enterprises, Head of the VCCI’s Legal Department Dau Anh Tuan said 7,643 enterprises revealed the median number of interruption days in the past year due to climate change was about seven working days.

Source: VCCI’s report.

On average, the number of disrupted workdays was up to 16 days (on the average), Mr. Tuan added, while some enterprises said the number of interrupted days was over 100 days (confirmed by 1.5% of respondents), and there were some cases in which the total number of interrupted days was nearly half a year.

“Whether measured by median or average values, domestic enterprises had a much higher interruption time than their foreign-invested peers,” Mr. Tuan informed.

Compared to other regions, enterprises in the northern mountainous area, central highlands and central coast regions had significantly higher interruption intervals due to the phenomena of natural disasters and climate change, he continued. Among them, those in the mining sector had the highest rate of days interrupted, followed by the construction and agriculture, forestry, and fisheries sectors.

Source: VCCI’s report.

Meanwhile, 6,225 businesses when providing information on the total value of losses last year due to issues related to climate change said the common loss for businesses was about VND20 million (US$860) and the average value of losses for an enterprise was about VND95.2 million (US$4,100).

Mr. Tuan noted nearly 100 businesses reported losses of over VND1 billion (US$43,023), accounting for about 1.6% of the respondent businesses while the data also indicated that the losses of local firms were larger than that of foreign ones.

Active response to climate change

As the climate change issue is causing negative impacts on enterprises, Mr. Tuan said more and more local firms are responding to the risk, including changing their business practices or upgrading production technologies.

Source: VCCI’s report.

Mr. Tuan also said the fact that many businesses have participated in contributing and responding to the consequences of natural disasters, with cash being the most popular form of contribution, followed by the support of facilities/vehicles, human resources and services is the sign of business positive response to climate change.

Source: VCCI’s report.

Despite difficulties, enterprises have relatively positive assessments regarding government readiness in response to natural disasters. According to the report, up to 91% said they had easy access to local weather information and data. 90% of enterprises reported that right after a natural disaster occurred, basic infrastructure (electricity, water supply, and telecommunications) is repaired in a timely manner, and most of the time is ready to use immediately.

Source: VCCI’s report.

Additionally, they are also optimistic about opportunities in the context of climate change, in which they could restructure production, create new products and services, among others.

“On average, businesses are willing to pay up to 7.32% of their operating costs for being more environmentally friendly,” Mr. Tuan stated.

However, in order to further motivate businesses to increase their resilience against climate change, Mr. Tuan said the government plays an essential role, especially in creating an enabling business environment for businesses.

At the same time, it is necessary to focus on improving the quality of labor in localities, more specifically, the quality of universal education and vocational education to better meet the labor demand of enterprises.

The Hanoitimes – The success of Samsung and Intel has led to other tech giants, such as Google and LG, shifting their supply chain to Vietnam.

Supply chain diversion has increased tech giants’ interests in Vietnam, a trend that may have been stalled but not stopped by Covid-19, according to HSBC’s report.

“Vietnam has emerged stronger from the pandemic, in part due to its bourgeoning electronics exports,” noted the bank, saying consistent FDI inflows in tech manufacturing helped Vietnam successfully transform into a key tech production base, gaining substantial market shares in phone and processor chip exports.

In 2020, electronics exports reached a record of US$96 billion, or 34% of its total exports. Yet, it was only less than US$1 billion in 2000, accounting for 5.5% of total exports.

Much of the tech success is thanks to Samsung’s multi-year FDI in Vietnam which started as early as late 2000s, turning Vietnam into its key production base. With investment over US$17 billion over the years, Samsung now has six plants in Vietnam, including two phone factories in the North, producing half of its smartphones and tablets.

“While China still dominates global phone exports, Vietnam has nonetheless increased its market share,” noted HSBC.

This is particularly evident in Vietnam’s January exports, growing 50.5% year-on-year. While this was in part due to Tết distortions, the primary driver of growth was booming smartphone exports (+115% year-on-year), given the recent release of Samsung’s flagship Galaxy S21.

Although Samsung had an earlier-than-usual release in 2021 (usually in March), the growth in smartphone was still strong after smoothing out the volatilities.

Meanwhile, Vietnam has also emerged as a rising supplier of processor/controller chips (though the ones assembled by Vietnam are relatively lower value chips used in a wide range of electronics products). While China produces 70% of computers globally, Vietnam’s rising production of finished computers has supported chip demand.

On the other hand, this is likely due to Intel’s US$1 billion investment in a chip assembly and testing facility in Vietnam since 2006. Just recently, Intel was reported to have injected another US$475 million from the final half of 2019 to manufacture its 5G products and core processors.

“The expansion may well explain why Vietnam’s processor exports tripled its share in 2019,” said HSBC.

The success of Samsung and Intel has led to other tech giants, such as Google and LG, shifting their supply chain to Vietnam. The trend intensified during the US-China trade tensions, which has benefited Vietnam not only in terms of booming trade, but also FDI diversion.

Even though the process was somewhat disrupted by the pandemic, increasing FDI interests have resumed as conditions improve, in particular with Apple-related production. Apple has been producing Airpods since May 2020, and is reported to start producing iPads as early as mid-2021.

Indeed, two Taiwanese Apple suppliers, Pegatron and Foxconn, both have announced huge investment plans to ramp up their production capacity in Vietnam. Also, two mainland Chinese Apple assemblers, Luxshare and Goertek, have increased recruitment and started to build a new production facility from late 2020, respectively.

Vietnam’s competitive FDI regime and sound macro fundamentals should continue to attract quality FDI, which is crucial in helping it move up the value chain. Its tech ambition is far from just being a low-end manufacturing hub, thus, more needs to be done to grasp the coming opportunities.

Challenges ahead

The first task is to improve labor productivity through better-quality education and vocational training. While labor availability to move to the more productive manufacturing sector is an opportunity, as over a third of its workforce still concentrates in agriculture, lack of productivity presents a challenge.

After all, a large proportion (33%) of workforce is still in “unskilled” occupation, as there remains a lack of qualified workers to advance to higher positions. Thus, measures like improving tertiary education and developing industry-specific training programs for technical workers are just some of the examples needed to better equip its human resources.

The other priority should be ongoing infrastructure push, stated HSBC.

Vietnam’s infrastructure spending has been consistently high, but its quality still lags behind other ASEAN economies, hindering its manufacturing potential.

As Public-Private Partnerships (PPP) is an ideal solution to balance Vietnam’s growing infrastructure needs and elevated public debt burdens, “it is indeed encouraging to see the authorities’ ongoing structural reforms in this direction,” stressed HSBC.

“The effective implementation of the revised PPP Law will be key to attracting private investors in these mega projects,” noted the bank.