Businesses Battered by Market Shrinkage

The Covid-19 pandemic has actually caused very serious impacts on business operations, with the hardest blow coming from market shrinkage. Up to 83.30% of enterprises said that the epidemic had narrowed the market. The private sector was most affected by the pandemic (85.17%), followed by foreign-invested enterprises (82.50%) and State-owned enterprises (69.39%). The loss of markets affected their capital and cash flows.

This information was stated in a brief report on “Impact of the Covid-19 pandemic on labor and employment in enterprises in Vietnam” conducted by the Vietnam Chamber of Commerce and Industry (VCCI) in March 2020. Recommendations were gathered from online meetings and reports from over 700 businesses and business associations in 46 provinces and cities across the country.

Private sector suffers most

According to VCCI's report, 52.47% of businesses surveyed said that the epidemic caused them to fall short of capital. The private sector was worst hit (58.61%). The plague caused input shortages for 45.14% of enterprises. Difficult production reduces labor demand and narrows the labor force of nearly 43.95% of respondents, especially private enterprises (48.56%).

Only 3.75% of businesses said that their estimated revenue in 2020 would increase over 2019, and 4.43% thought that their revenue would be equivalent to that in 2019. Meanwhile, nearly 92% thought that their 2020 revenue would be less than in 2019. Particularly, 21.47% expected a reduction of over 50%; 27.77%, a decline by 30-50%; and 20.44%, a revenue drop by 20-30%. This reality is serious for all business sectors including SOEs, private enterprises and FDI enterprises, with the worst seen from the private sector (30.38% anticipated a revenue decrease by 30-50% and over 22% forecast a drop by over 50%).

According to the report, given the current complicated evolution of the pandemic, with heavy dependence on foreign input and output markets and shrinking domestic demand, keeping production is very difficult for enterprises. Up to 29.81% of businesses can only survive 1-3 months; 29.47% can operate 3-6 months; 20.78% can maintain operations for 6-12 month; and only nearly 20% can exist more than one year. Business difficulty will certainly affect employment, income and livelihoods of workers in addition to numerous economic consequences. The hardest difficulty falls on private enterprises and FDI enterprises as 33.33% and 30.38% of enterprises can maintain operations for only 1-3 months, respectively.

By industry, manufacturing and processing, wholesaling and retailing, and accommodation and catering service companies suffered from the hardest blows. About 63% of manufacturing and processing enterprises can maintain operations 1-6 months. The respective rates of wholesale and retail companies and accommodation and catering service companies are 60% and 75%.

Labor fluctuations

Given current business hardships, it is easy to anticipate corporate employment. More than 75% of enterprises announced downsizing plans. They typically reduced their workforce by 10-50%. Nearly 10% cut staff by over 50%. The highest rate of layoffs was seen from the private sector. 23.50% did not plan to increase the labor force while only 0.51% planned to recruit more workers.

Staff cuts were most serious in education and expertise companies (83%), accommodation and catering service firms (81%), and processing companies (78%). However, with tens of millions of people working in manufacturing and processing industries, especially in garment-textile, footwear, electronics, food processing, and wood processing, jobless people may soar to millions in the near future.

56.22% of companies said that the labor cost per worker in 2020 would be higher than in 2019 and this will be a tougher difficulty for them. 26.75% said the cost per employee would rise by 10%; 18.91% by 10-20% and nearly 11% by over 20%. The reality is not much different among types of enterprises (SOEs, private enterprises and FDI enterprises). About 26.41% said this cost would not change and 17.38% said that it would be less than in 2019.

The highest rate of companies reporting the increase in average cost per employee belongs to professional and scientific firms, including education and training (nearly 68%); manufacturing and processing industry (nearly 60%); and agriculture, forestry and fishery (55.3%).

Recommendations by businesses

Facing this reality, enterprises have been very active and creative to introduce appropriate and timely solutions on reasonable employment: nearly 62% have applied flexible working methods; 47% do not cut the staff but reduce working hours; 41.23% allow work from home; and nearly 41% use this low time to train their staff. Only 19.42% fired their employees and 19.93% had to cut salaries rather than sack their employees.

With the current epidemic fallout, businesses are confronting numerous difficulties in maintaining their operations and workers are exposed to more risks. In this context, businesses have asked authorities to help them to get through this hard time and overcome the crisis. Specifically, up to 69.85% of businesses proposed the government deliver financial/credit/debt freezing/debt rescheduling support; 83.82% asked for tax support (tax reduction and deferred payment); 58.77% proposed the State to have worker protection programs; and 38.67% asked the government to support epidemic prevention for employees.

In addition, 72.57% asked for a halt in social insurance payment from March to the end of December 2020; 55.71% proposed a halt in unemployment insurance payment from March to the end of December 2020; 21.29% asked the government for support in worker training; 13.97% asked the government for salary support for employees.

Notably, 76.49% proposed a postponement of union dues payment until the end of December 2020 and reduction of union fee rates to 1% from March to the end of December 2020 and about 82% of respondents recommended not to increase the minimum wage by 2021.

By Anh Mai and Lien Bui, Vietnam Business Forum