Only 4 months since COVID-19 outburst, IMF has declared this is the worst economic crisis since the 1930 recession. Coronavirus has put the whole world in a state of paralysis and frozen almost all industries from hospitality to manufacturing, causing supply chain shortages resulting in price gouging and lack of capitals, which forces many enterprises on the brink of bankruptcy. Experts consider emerging markets and developing countries to be the hardest hit. So, what direction should enterprises go for to recover the economy after the pandemic? Two senior executives of NS BlueScope Vietnam: Mr. Vo Minh Nhut – President of NS BlueScope Vietnam and Mr. Nguyen Cao Tri – President of NS BlueScope Lysaght Vietnam had confided and shared their personal perspectives on economic trends and strategies for enterprises post-COVID-19.
Mr. Vo Minh Nhut: After COVID-19, whether the world economy could recover in V-shape (after 6 months) or U-shape (longer, 18 months) or L-shape (36 months) depends on many factors including how long it takes for experts and pharmaceutical companies to create the vaccine for COVID-19. Obviously until now, we are fully aware that the probability of a vaccine to be successfully tested within third quarter is low, so forecasts that economy can quickly recover should be carefully considered.
In addition, the next key thing is how governments, especially developed countries, use the large-scale rescue packages to stimulate consumption demand at no cost of government’s high debt status. In developed countries like the US and Europe’s, more than 60% of GDP comes from local consumption demand. Therefore, in the context of restriction and outbreak, the government’s implementation of preferential tax packages like the US’s Helicopter Money policy to stimulate consumer
demand may also have side effects such as increasing public debt, increasing inflation or even failing to meet the expected consumption because people are still psychologically afraid of unemployment situation and other tax compensation to be paid in the future.
The third important factor is the ability to cooperate and coordinate among countries to resolve the crisis. This needs a very high consensus of the countries, from medical factors such as production cooperation and the free export of medical supplies, transparency of information sharing from the pandemic statistics to political and economic issues to support those countries that are hit hard by COVID-19.
And the last thing is the fiscal policy for enterprises of each country, which focuses on liquidity issues, debt rescheduling for enterprises, loan guarantee regulations for SMEs so that they can have the force to rise back and continue the operation.
Mr. Nguyen Cao Tri: Regarding changes, it is certainly difficult for the world to get back to the way it was until the vaccine is discovered and pandemic is completely contained. The world economy will follow the trend of reducing direct contact even when the pandemic is over. This change will be reflected in following new trends:
Consumption trends
Online shopping and use of low-exposure technology will increase rapidly. We can see clearly that in the US, 25% of people who have never purchased online started doing so for the first time during the COVID-19 pandemic. And in Vietnam, the number of online orders of Bach Hoa Xanh and supermarket chains in Vietnam has doubled during this time.
In addition, companies also promptly launch service packages immediately when COVID-19 breaks out, such as Grab Assistant or Bach Hoa Xanh’s “Shopping for you” service, which allow consumers to stay at home and experience the product selection through online interaction with supplier staffs and then to be home delivered the selected products. Experts also believe that this trend will continue to increase rapidly in the near future even when COVID-19 is over.
In industry
There is a trend of building supply chains to be less dependent on China, especially in some essential industries such as medical supplies. The Nikkei Asian Review recently published that given this trend, two countries with a large number of factories producing in China, Japan and the United States, have certain moves to prepare for being less dependent on China for supply chain. The factor “shift away from China” is not only expressed in the definition of “China plus One” but further with “add a non-china location”.
We have a solid ground to believe that this will be a growing trend as both Japan and the United States’ government are willing to shoulder and pay part of the expenses to companies that relocate their factories from China (Japan had addded US $ 2.2 billion to the budget).
From social perspective
Governments tend to be more proactive in promoting activities against climate change. Consumers are more aware of the impacts of wildlife trade, the destruction of natural resources, industrial wastes which are the causes of the spread of latent viruses in nature to people, from that, there will be more sympathetic views for the brands with environmental responsibility. In addition, the awareness of factors about infection prevention, hygiene and movement restrictions will increase. I find it completely natural, similar to the mechanism of conditioned reflexes of humans. The intense impact of the COVID-19 pandemic has awakened the sense of self-awareness in individuals, and also gradually formed new habits and routines that, I believe, everyone will also maintain them to some extent after the epidemic.
Wearing a face mask and sanitizing hands when going out is a typical example. Therefore, new regulations or social trends on environment and sanitation… will certainly be supported and implemented a lot more easily than before.
Regarding macroeconomics
I think that cash flow and the ability to access capital of enterprises especially SMEs amid the lingering COVID-19 will be a challenge for all economies. In addition, the difficulty of repaying outstanding loans during this time is also a significant burden if the governments do not have timely support policies but focusing only on stimulus in individual consumption and investment.
Supply chain
Supply chain disruption is also a big challenge, especially for markets where supply is highly dependent on China. Take the Korean car industry for example, Hyundai had to close part or all of its seven factories back home due to a shortage of parts sourced from China over the past period, and given that the automobile industry accounts for 20% of GDP, this is such a big pressure on the Korean economy.
In fact, for other countries such as Japan and the US, the proportion of imported components from China in this industry is also very high. Thus, not only in the short term but to change the model or structure of the supply chain that minimizes dependence on China, enterprises will also either incur higher costs or accept get a variety of supply sources. This is a challenge in terms of both time and resources from the businesses.
Other factors
Another factor, in my opinion, is the challenge coming from the formation of local protection policies and trends due to escalating tensions after COVID-19. This will keep enterprises from expanding to new markets, and even affects existing markets if technical barriers or highly protective tariffs are set (domestic anti-dumping duty or protection tax). Typically for the steel industry, in the recent years, we have also witnessed many difficulties for steel enterprises when the key export markets have fluctuations. The trend of protectionism will be a big obstacle to the globalization process that nations have been trying to pursue for decades.
Mr. Nguyen Cao Tri: I think our biggest challenge is the high dependence on China for supply chain, especially textile, leather, electronics sectors… Take textile enterprises for example, in the past, it was affected by the lack of raw materials, and then when the supply recovered, it is now affected by low demand from customers. I think that it requires effort from both the government and the enterprise itself to be able to become a potential market to attract new investors::
For enterprises
It is necessary to proactively diversify the supply chain from different sources, and there will always be at lleast 2 sources at each time from two different markets.
Moreover, businesses can also actively seek cooperation development opportunities to invest and expand upstream value chains, including raw material production to be able to take the initiative in supply. In addition, in terms of markets, enterprises also need to actively expand to new markets in addition to the current US and European. As such, they need to improve their capabilities to better meet the requirements of different markets.
For government
It is necessary to have more appropriate and preferential policies to welcome new FDI sources which the surplus value is located throughout the supply chain, not only in the finished product but also in the production chain, from upstream of raw materials to downstream as finished products. In September 2019, Thailand introduced a policy to attract foreign investment, specifically targeting enterprises re-allocating factories from China with tax support up to 50%, building an information portal for foreign businesses and adjusting policies for workers who are highly skilled foreign experts… which has had positive results.
I think that the Government of Vietnam also needs to have clear goals and policies in the near future, for different types of enterprises to attract investment, especially stimulating R&D investment in Vietnam.
In addition, the ability of to access capital for enterprises and low consumption demand due to unemployment situation for individuals will also be major challenges for the economy in general. In this regard, I think the regulatory role of the government plays an integral part to help businesses overcome:
The Government should have mechanisms to regulate capital policies for industries appropriately, especially those that can recover and develop rapidly with great potentials such as agriculture and livestock production. Besides, it is necessary to have a mechanism to guarantee loan risks to help businesses have more opportunities to access capital in the upcoming difficult period.
Recently, we also heard from government and local authority encouraging investment in key public projects to stimulate social capital (1 dong public capital will be able to get 4 – 5 dong social capital) and create jobs for workers. I totally agree with this which will not only help mobilize social capital, create more jobs for workers but also help improve infrastructure to help Vietnam become more competitive in attracting foreign investors.
Mr. Vo Minh Nhut: One of the highlights that I have been really happy is the awakening of the moral values, patriotism and nationalism of all Vietnamese people, together with our consensus and determination to prevent and fight against the pandemic. I think this is tremendous values that we have “awakened”. So, what should all Vietnamese entrepreneurs do to keep promoting this patriotism and ethical values to the world through future enterprise activities? We need to create core values from within our businesses, including the way we treat
the environment, the way we care about the health & safety of workers and customers, the way we determinedly discourage corruption that covers for the weakness of our enterprises, our social responsibilities and sharing difficulties in society. We also need our government to have significant impacts on creating a better political institutions where Government, enterprises and every individual have singleness of mind, devotion and are determined to build a new image about Vietnam and for the sake of our nation.
Obviously, this can only be done when the Government sees the whole society in a transparent manner, putting the benefits of the people first, in the same way that the Government takes measures and communication in the fight against the COVID-19 pandemic. In addition, the Government also needs a clear roadmap and strategy to promote Vietnam’s competitive advantages with made-in-Vietnam key products to export markets. These key products need to be appropriately invested in order to compete and become the “Ambassador of Vietnam” to these export market.
We all agree that Vietnam is one of the countries that have been doing very well in pandemic prevention, which is an opportunity for us to promote that Vietnam is a safe and sustainable country, the ideal destination for tourists as well as enterprises thanks to the consensus of the whole nation and the determination of the Government. I think that this is really meaningful to change the negative prejudices about the image of Vietnam, not only domestically but also abroad.
Finally, I think that with the escalated tensions from the group of G7 countries towards China, Vietnam is enjoying a great opportunity to expand markets and attract high-tech FDI. As I said above, it is important for us to have appropriate policies to turn those opportunities into economic results in the coming years.
Mr. Vo Minh Nhut: Firstly, I think enterprises need a clear picture of the COVID-19 impact analysis to their industry which comes from Board of Innovation, one of the leading international consulting companies. In particular, enterprises will rely on the economic situations (V, U or L-shaped) and their business lines, from which form the basis for business contingency planning clearly for each situation. These plans include all financial indicators, supply chains and personnel…
In addition, they also need to actively change their operating model and put preference on resource investment to better keep up with the new post-COVID-19 trend. For example, at NS BlueScope Vietnam, we have transformed investment structure in marketing, from spending more than 80% of resources in traditional channels, we have switched to digital channels, with clear goals and suitable targeting of customers.
Secondly, enterprises also need to invest in product development which is really an investment for the future in developing new products and services. This requires active invest in R&D to switch from passive competition to actively seeking new solutions. During 2000-2003, while all corporates focused on cost savings, Sanofi invested 1.3 billion Euro per year in R&D, and achieved tremendous business success shortly thereafter, including the acquisition of Aventis, a very large company in the same industry.
Last but not least, it is the core value and advantage of each enterprise, especially when expanding business. If the enterprise has sufficient internal resources, core values and competitive advantages, I believe that it can sustainably develop, and will be less affected even in times of crisis and have the ability to quickly recover.
Thank you!
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