Vietnam firms downsize goals as times get tough

Constrexim’s main products are interior furnishings like wardrobes, chairs and tables, but the company no longer finds it worthwhile to make them.

It has shifted to making semi-finished products, mainly wooden planks, that are sold to local companies or exported to Japan.

It is not the only change the company has made recently. It has actively begun seeking new markets, even if they do not offer the same profit margins as the company’s traditional big buyers.

Constrexim is one of many companies that are responding to high interest rates, soaring material prices and reduced purchasing power by cutting costs, diversifying products and scouting for new markets to survive tough times.

Vo Ta Tuan, head of the company’s sales department, said the biggest difficulty facing producers now was the high interest rate. His firm has focused, therefore, on churning out products that have low material costs and allow faster recouping of capital invested in them.

“At current interest rates of 20-22 percent, it is difficult to avoid losses. So we are trying to manage enough capital so that we don’t have to borrow from banks,” he said.

“When we make semi-finished products, some production stages and material costs, for example painting, have been cut,” Tuan explained. “Capital pressures are remarkably reduced.”

The products are also easier to make, so it can help his firm increase productivity.

For a garment producer like Hanosimex Fashion, the biggest challenge now is the fall in demand as local consumers tighten their belts amidst high inflation, according to director Vu Thi Ngoc Lan.

“We are now focusing on making products with prices ranging from VND50,000-300,000 (US$2.4-14.5) per unit. These prices for products like T-shirts, children’s wear and cotton dresses are suitable to most common consumers,” she said.

Many firms are seeking several ways to reduce production costs, for instance, by seeking new material sources at lower prices. Tuan said his firm used to import wood materials from the US, France and Malaysia, but now it is looking to tap domestic sources.

“Domestic wood materials are cheaper than imports. To get the best price, we try to buy directly from suppliers and cut trading via intermediary firms,” he said.

Seeking new markets is also an important measure that firms are taking to tackle current difficulties.

Tuan said his firm was expanding its market to China and some Southeast Asian countries. “Prices in these markets are not high. However, it is an effective measure to sustain production now.”

Earlier, Constrexim shipped products to the EU and Japan that paid higher prices, but were also very strict with quality requirements, he said.

Tran Thi Hong, director of the Phuong Hong Company, which trades in electrical home appliances, said her firm has expanded its business to rural markets.

The tough situation has forced many firms to use materials and energy economically in the production process.

Hong said her firm has asked all employees to avoid waste in using electricity, water, and reduce administrative expenditures.

Tuan said his firm has strengthened monitoring of production in a move to reduce the rate of faulty products. “We have reduced the rate of defective products to 5-7 percent from 10 percent earlier.”

Cao Sy Kiem, chairman of the Vietnam Association of Small- and Medium-Sized Enterprises (SMEs), said the government should offer more support to firms, especially small ones in accessing bank loans.

“The government should help firms access bank loans more quickly,” he said. At least 60 percent of SMEs have to use bank loans for production and trade, and only 20 percent are able to access low-interest loans, he added.

Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry, said there were other ways for firms to mobilize capital including purchasing goods on credit, enter into joint ventures, or financial renting – a contract of renting with purchase option.

“The measures have not yet been utilized well, although they are very important, especially for SMEs,” he said. – Thanhnien

Tags: Vietnam business