SAMANTHA GERBASI WRITES — When choosing production locations, American companies typically consider profitability, labor availability, and taxes. But now, there is a new factor at play: Public health.
Consider the case of Vietnam. After a prolonged lockdown due to a surge in coronavirus cases, the country is finally beginning to loosen restrictions. As of October 5th, Vietnam has reported 813,961 COVID-19 cases and 19,845 fatalities due to COVID-19, marking a decrease in cases. But it does not appear that this is the primary motivation for termination of the “zero-COVID-19 strategy.”
The restrictions began loosening in September, but Prime Minister Pham Chinh’s decision was the result of economic distress, not public health. Foreign investors and companies located in Vietnam conveyed the financial trauma that the lockdown had caused as well as their motivation to move production elsewhere if the COVID-19 restrictions were to continue.
The government of Vietnam fears that the financial hit to its economy may be permanent. Some companies situated in Vietnam have already made the decision to shift production elsewhere due to factory shutdowns, including Nike and Lululemon Athletica Inc.
Nike has taken a significant hit due to the factory closures in Vietnam. Currently, half of the company’s clothing factories are shutdown. According to a U.S. brokerage, BTIG LLC, Nike has forfeited 10 weeks of production, which equates to about 100 million pairs of Nike shoes that were expected to be made during that time.
Naturally, then, American companies are questioning their future return. Matthew Friend, Nike’s chief financial officer, stated, “Even when factories start to reopen, which the company expects to happen in phases beginning in October, ramping up to full production could take several months.”
It’s a good thing that case numbers are lower and restrictions are loosening. But who knows whether the damage to US-Vietnam business ties can be undone?