Labor Market Staggers Under Mass Layoffs

A prolonged drop in new orders has made it hard for many enterprises to maintain normal operations, forcing them to continue reducing work hours or fire employees

According to statistics of the Vietnam General Confederation of Labor, until the end of January, around 1,300 enterprises in 50 provinces and cities saw drops in new orders, which forced them to cut the working hours of over 546,800 employees. A majority of the affected employees were found in foreign-direct investment enterprises, accounting for 75%.

New orders continue dropping

Speaking at the HCMC Export Furniture Fair 2023, Do Thi Kim Loan, general director of Sao Nam Trading and Manufacturing Co., Ltd., said that the U.S. was her company’s major export market, making up 90%. However, the first two months of this year witnessed a sharp drop in market demand, resulting in the order volume only achieving 60-65% over the previous year.

Meanwhile, Bao Hung Co., Ltd., which still maintained its order volume in the final months of 2022, could not retain its workforce and employees’ working and overtime working hours because of falling orders from the U.S. market.

“Just two or three weeks after the Lunar New Year (Tet) holiday, our partners showed signs of canceling or delaying their purchase orders. There was a reduction of 20-25% in orders over the same period of last year, mainly from the U.S. market that generated around 50% of the order volume of the company,” said Phung Quoc Cuong, a marketing manager of Bao Hung Co., Ltd., adding that the company was forced to cut the working hours of its employees.

According to Cuong, before the Tet holidays, his company had applied a discount policy to retain clients. However, due to the high inventory levels of products, the company's partners could not place new orders. Our products were mainly exported to the U.S. market, General Director of Minh Phat 2 Co., Ltd. (Mifaco) Dien Quang Hiep said, adding that the company had to reduce employees' working hours and cut laborers because 40% of orders had declined in the year till now.

Data of the General Department of Customs and the Agency of Foreign Trade under the Ministry of Industry and Trade showed that export revenue from wood and wood products in January totaled US$806 million, falling nearly 49% year-on-year. Of this, the wood product export value was a mere US$492 million, a 58% drop compared to January of last year.

The U.S. is the major buyer of Vietnamese wood and wood products, accounting for 60% of the country’s total wood export value but the wood and wood products exported to this market earned Vietnam modest revenue of US$367.3 million in January, declining over 60% year-on-year.

Besides, other sectors such as textiles and garments, shoes and footwear, and electronics are also remarkably affected by the high inflation and economic certainties of their major export markets.

Taking the shoes and leather industry for example, PouYuen Vietnam in HCMC recently announced that the company would not renew the labor contracts of thousands of employees whose contract term ranges from one to three years. Earlier, in late November 2022, the Taiwan-invested footwear material manufacturer announced cutting the working hours of over 20,000 employees by letting them take turns working at a factory in Binh Tan District.

Maintaining production

Despite the declining demand from major export markets, such as the U.S. and EU, due to inflation, economic slowdown or low consumer trust, enterprises have only downsized or cut work hours as the last resort.

In addition to a sharp drop in new orders, a representative of PouYuen Vietnam said it would be difficult to forecast the business situation in the future.

Nguyen Ngoc Hoa, chairman of the HCMC Union of Business Associations, said the business operation of manufacturing enterprises was rather sluggish, indicating that 10% of enterprises in the wood processing industry had 50% of orders, others had only had 30-40%, and the rest had no new orders.

For textiles and garments, due to high inflation in the major export markets such as the U.S. and EU, the consumer demand dropped by 60%, resulting in a rise in inventory which accounted for 20-25%. Thus, customers limited their orders or did not place new orders in the last quarter of 2022 and the first quarter of this year.

Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association – VITAS, said that given the pressure of deflation, inflation and weakening currencies of many countries, textile and garment enterprises have diversified their export markets.

Other concerns of laborers

According to statistics of the Vietnam General Confederation of Labor, from September 2022 to January 2023, around 1,300 enterprises downsized and cut the working hours of 547,000 employees because of falling orders. Among the affected employees, 491,000 were still entitled to salary payments; 7,000 employees had their labor contracts suspended and over 48,600 lost their jobs.

Notably, 75% of the affected employees were from FDI enterprises, especially in the sectors of textile and garment, shoes and leather and wood processing in the southern provinces, HCMC, Long An, Tay Ninh, Dong Nai, Binh Duong and An Giang, accounting for 70% of the total affected labor nationwide.