Vietnamese Riots Unlikely to Delay Fall Retail Deliveries, But Surface Emerging Risks

The violence erupted after the Vietnamese government encouraged citizens to protest against Chinese oil drilling in a part of the South China Sea claimed by both countries. Crowds that gathered for the rallies, however, dissolved into mobs that that vandalized hundreds of foreign owned businesses in industrial parks in and around Ho Chi Ming City, which has become a major production hub for apparel, footwear, backpacks, bags and other athletic and outdoor gear.

 

“One of our suppliers was looted, and there was some fire damage,” said Josh Fairchild, an executive with Bozeman, MT-based Oboz Footwear who has been in Ho Chi Ming City all week. “At this point, I do not know the extent of the damage, nor the extent to which is might delay deliveries.  Many Chinese and Taiwanese have evacuated the country out of fear for their personal safety. Without them here, I suspect many brands will be seeing some challenging months ahead.”

 

A sourcing manager with a US retail chain said mobs knocked down a gate and broke the windows at a Korean run factory in an industrial park north of the city that is home to many foreign owned factories used by outdoor brands. Mobs also ransacked the offices of, and stole computers from, a Taiwanese owned factory that makes outdoor apparel. 

 

The source, who requested anonymity, said Thursday that the rioters did not damage any inventory and that most factories in the area expected to be back online by Friday, May 16. He said his company’s back-to-school merchandize was already on the water and that he does not anticipate any significant delays in deliveries of Fall product unless violence flares up over the weekend.

 

 

“At max, we will lose a week on sampling in development time and week in production,” he said.  “That area has very strict rules on overtime and so do we, so we won't be able to make up the time.”

 

 

Yue Yuen Industrial Holdings Ltd., which is one of the top, if not the top, manufacturers of athletic and outdoor shoes for western brands, suspended all its production in Vietnam Wednesday after a mob set fire to some factories. Nike issued a statement supporting the decision, according to a report by Reuters. Far Eastern New Century Corp., a Taiwanese company that makes apparel for major athletic apparel brands like Nike, recalled most of its managers from Vietnam, according to a report in The Wall Street Journal. Astro Engineering Co. Ltd told customers it had evacuated its Taiwanese managers from its bike frame factory near Ho Chi Ming City after rioters damaged production equipment and ransacked its warehouse and offices, according to a report by Bike Europe.

 

In Cortez, CO, Osprey Packs, CEO Tom Barney said Thursday morning that all 35 members of its team in Vietnam were safe and accounted for and that the factory it manages was up and running. 

 

“Two or four factories were use there were subject of protests and two sustained some damage,” said Barney. “One of those will reopen next Monday. We had QA teams in two factories and they were hustled up to the top floors and everyone is fine and safe.”

 

 

Barney said Osprey’s last shipments of Spring product are on the water and that its factories were working on its major fall line, which is scheduled to be delivered to retailers in August. “At this point it likely won’t impact retail deliveries,” he said. “It’s only May.”

 

 

In a statement issued Thursday, Puma said it was monitoring the situation “hour by hour. Currently, it is too early for PUMA to assess or foresee whether the incidents will lead to shortfalls in deliveries of products.”

 

While industry sources on the ground and news wires reported the violence subsided by Thursday, the riots cal into question assumptions underlying the industry’s sourcing strategy. Athletic and outdoor brands rely heavily on Taiwanese and Korean companies to manufacture technical garments, packs, luggage, bags, tents and other items that require precise sewing and special fabrication. Many of those companies have been ramping up their investments in Vietnam ahead of the Trans Pacific Partnership (TPP). The trade pact, which excludes China, South Korea and Taiwan, aims to stimulate trade among 12 Pacific nations, including Australia, Canada, Japan, Malaysia, Mexico, Singapore and the United States. In what some viewed as a bad omen for the pact, negotiators from all 12 countries convened in Ho Chi Ming City Monday for four days of meetings.

 

TPP is core platform for the Obama Administration’s so-called strategic pivot to Asia, which is geared in part toward countering China’s growing influence in the region. China has responded by dramatically increasing its investment in Vietnam. In 2013, China’s direct foreign investment in the country soared more than seven fold to $2.3 billion, according to Xinhua News Agency, the official news agency of China’s central government. In an interview it published in January, Xinhua interviewed a Vietnamese scholar about his rosy outlook for the two countries’ partnership, noting that Vietnam needed Chinese capital and managers to develop the power plants, factories and other infrastructure it needs to take advantage of the TPP.

 

After this week’s violence, however, some question whether Chinese employees will be as willing to work in Vietnam and whether the Vietnamese government will be as willing to approve investment deals. Combined with growing U.S. sanctions against Russia, which has emerged as a significant growth market for many specialty and luxury brands, the situation has injected new geopolitical concerns into the global sourcing equation.

 

“The industry needs to pay close attention to this for its own health and for geopolitical reasons,” said Osprey Pack’s CEO Barney. “We should watch is closely.”