Responsibility in the Time of Crisis? Brands’ practices during the Covid-19 Pandemic and Impacts on Factories and Workers in the Garment, Footwear and Electronics Supply Chains in Vietnam Do Quynh Chi Research Centre for Employment Relations(ERC)

Contents Foreword....................................................................................................................................................... I Executive Summary....................................................................................................................................... II Abbreviations................................................................................................................................................ V List of figures................................................................................................................................................. VII List of tables.................................................................................................................................................. VIII Chapter 1: Introduction............................................................................................................................... 1 Chapter 2: Overview of Covid-19 Pandemic Impacts on businesses and workers in Vietnam............. 7 Chapter 3: Impacts on Garment, Footwear and Electronic suppliers....................................................... 10 Overview of the garment, footwear and electronics supply chains in Vietnam........................................... 10 Brands’ practices towards supply chains during the Covid-19 pandemic.................................................... 13 Impacts on the supplying factories in Vietnam.......................................................................................... 15 In-process orders........................................................................................................................... 16 Completed orders, ready for shipping............................................................................................. 17 Payment for cancelled orders......................................................................................................... 18 Orders planned, not yet signed...................................................................................................... 19 Discussions between buyers and suppliers..................................................................................... 20 Buyers’ support of suppliers upon order cancellations and postponements.................................... 21 Impacts on supplying factories....................................................................................................... 21 Adjustment of suppliers’ business strategies post-pandemic...................................................................... 23 Access to government stimulus packages.................................................................................................. 23 Chapter 4: Impacts of cost-cutting measures on workers......................................................................... 25 Impacts on workers’ employment, income and basic expenses.................................................................. 25 Impacts on workers’ psychology and family relationships........................................................................... 27 Sources of support to workers................................................................................................................... 28 Chapter 5: Implications of Covid-19 Pandemic on Global Supply Chains- the‘New Normal’ of sustainability?. 30 Implications of the pandemic on re-structuring GSCs................................................................................ 30 Implications on sustainability.................................................................................................................... 32 Responsiblity in the time of crisis? Foreword- I Foreword The global Covid-19 pandemic has had devastating impacts on societies and economies across the world. In Vietnam, although a health crisis was effectively prevented, the economic damage is enormous with key exporting industries – including footwear, garments, and electronics – among the hardest hit. One of the key reasons for the damage to these industries was the practices of several international brands and retailers that quickly cancelled or postponed orders upon the onset of the crisis – refusing, in many cases, to pay for products already finished. Taking advantage of their dominant power over local suppliers, these international brands shifted losses created by the pandemic to the most vulnerable sections of global supply chains: the assembly suppliers that operate on thin profit margins and their poorly paid workers. This study provides evidence of this trend by drawing from responses to online and phone-based surveys of 179 factories and 166 workers in the garment, footwear and electronics sectors in Vietnam. It not only reveals the impact of order cancellations on factories and workers in producing countries such as Vietnam during the pandemic, but also illustrates serious problems resulting from the existing power imbalances in global supply chains. Direct responsibilities of brands to factories and workers in producing countries are therefore identified as key to the sustainability of global supply chains during and beyond this time of crisis. The study was conducted by Dr. Do Quynh Chi of the Research Centre for Employment Relations, supported by the Friedrich-Ebert-Stiftung Vietnam Office, as part of our continuous efforts over the years to promote responsible business practices in global supply chains in Vietnam. We sincerely thank the author for this significant work. Axel Blaschke Director Friedrich-Ebert-Stiftung Vietnam Office Mai Ha Thu Programme Coordinator Friedrich-Ebert-Stiftung Vietnam Office Hanoi, November 2020  Responsiblity in the time of crisis?

II- Executive summary Executive summary This research titled“Responsibility in the Time of Crisis? – Brands’ practices during the Covid-19 Pandemic and Impacts on Factories and Workers in the Garment, Footwear and Electronics Supply Chains in Vietnam” was funded by the Friedrich Ebert Stiftung(FES) in Vietnam and conducted by the Research Center for Employment Relations(ERC). It examines the practices of international brands in the garment, footwear and electronics sectors towards their supply chains during the Covid-19 pandemic and the impacts on factories and their workers in Vietnam. The research is based on two surveys conducted between June and August 2020: an online survey of 179 factories and a phonebased survey of 166 workers from the three industries. The key findings of the research are: „ „ International brands’ practices towards their supply chains during the pandemic are mixed: on the one hand, some brands have pledged full payment and provided low-cost financing initiatives to support suppliers affected by delayed payments, while other brands have cancelled or delayed payments for in-process or completed orders to protect their liquidity, pushing all the risks to suppliers and their workers. „ „ The online survey revealed that 35.8 per cent of factories suffered from cancellations of in-process orders and 27.4 per cent of companies surveyed had their completed, ready-to-ship orders cancelled. Footwear manufacturers faced a higher level of cancellations of in-process orders, followed by the garment industry. Just over half(52%) of footwear companies experienced order cancellations, in contrast to only 22.9 per cent of electronics firms. „ „ Aside from order cancellations, nearly 60 per cent of factories were requested to delay shipments of completed orders, nearly half of factories were asked to postpone production and almost 30 per cent reported that buyers had asked for price reductions. „ „ Only 8.9 per cent of surveyed factories were paid in full for the materials purchased for cancelled in-process orders and 10.1 per cent received full payment for labour costs to produce the cancelled orders. Around 19 per cent of factories were promised that buyers would pay for some of the materials and labour costs used for the cancelled orders and approximately 9 per cent received no payment at all. Responsiblity in the time of crisis? Executive summary- III „ „ For orders already completed/shipped, more than half of factories still faced delayed payments for part or completed orders. Some factories expected the delay to last until 2021. „ „ Just under half(45.8%) of factories reported that all of their buyers discussed the situation of orders with them in advance, while 15.6 per cent said only a few or no buyers engaged in discussions before deciding on orders. The rate of discussion was highest in electronics and lowest in the garment industry. Some 68 per cent of surveyed factories received no support from buyers when orders were cancelled or postponed. 75 per cent of surveyed workers have cut food expenses and 2.4 per cent suffered from hunger. „ „ A large percentage(83%) of workers experienced constant feelings of anxiety, depression, or insecurity about their futures. The reduction in income and job-loss risks have had negative impacts on the family relationships of 34 per cent of workers. „ „ The biggest source of support for workers is families and friends. According to this study’s interviews with local unionists and media coverage, an increasing number of affected workers have sold their social insurance books to the black market or borrowed from‘black creditors’ with high interest rates. „ „ Workers have been most impacted by order cancellations with heavy income cuts made to reduce costs for factories. This trend is dramatically underlined by the 96 per cent of surveyed workers in the garment and footwear sectors who reported reduced or totally lost income since the emergence of the pandemic. This rate in the electronics sector was 81.4 per cent. In response to reduced income, „ „ The pandemic and the brands’ responses have made 79.8 per cent of suppliers consider adjusting their business strategies by diversifying markets and products as well as being more selective of buyers. Particularly, some suppliers wished to include specific provisions on cost-sharing with buyers during the crisis instead of shouldering all the risks alone. Responsiblity in the time of crisis?

IV- Executive summary „ „ Due to the crisis, 82.7 per cent of factories were in need of financial support. However, by the end of June 2020, only 35.8 per cent had access to at least one type of government stimulus package or support initiative. Three-quarters(76.5%) of companies faced difficulties accessing the support initiatives, mainly due to complicated procedures (25.7%) and the unrealistic eligibility criteria (50.8%). The pandemic also has important implications for sustainability in global supply chains(GSC): First, the responsibility of buyers to communicate regularly and in advance on decisions over orders has important impacts on the suppliers’ ability to sustain their business as well as employment and incomes for their workers. This responsibility for buyers, therefore, should be added to the sustainability requirements for GSC. Second, provisions within purchasing contracts on risk-sharing between buyers and suppliers in times of crisis are necessary. Currently, purchasing contracts between buyers and suppliers have been shaped in a way that shields buyers from any liability in the event they cancel/postpone orders as well as sanctions if they fail to pay suppliers in full and in time. Third, the pandemic has shown the direct linkage between international brands and rank-and-file workers in their supply chains. Therefore, instead of simply demanding that supplying firms comply with corporate social responsibility(CSR) codes of conduct, the brands should also be directly responsible for the protection of worker rights and interests in the producing countries. And during a time of crisis, provision of support to suppliers and workers should be considered a legal responsibility rather than a philanthropic act. Responsiblity in the time of crisis? Abbreviations CGWR CMT CSR EU FDI FES FIE FOB FPTS GBP GDP GSC GSO HCMC IFC ILO ITMF LEFASO MoM MW NGO ODM POE R&D SME Center for Global Workers’ Rights Cut-Make-Trim Corporate Social Responsibility European Union Foreign Direct Investment Friedrich-Ebert-Stiftung Foreign-Invested Enterprise Freight-on-Board FPT Securities Joint Stock Company Pound Sterling Gross Domestic Product Global Supply Chain General Statistics Office of Vietnam Ho Chi Minh City International Finance Corporation International Labour Organisation International Textile Manufacturers Association Vietnam Leather, Footwear and Handbag Association Month-on-Month Minimum Wage Non-Governmental Organisation Original Design Manufacturing Privately-Owned Enterprises Research and Development Small- and Medium-sized Enterprise Abbreviations- V Responsiblity in the time of crisis?

VI- Abbreviations SOE STAR USD US VGCL VITAS VND WRC State-Owned Enterprise Sustainable Textile of the Asian Region United States Dollar United States Vietnam General Confederation of Labour Vietnam Textile and Apparel Association Vietnam Dong Worker Rights Consortium Responsiblity in the time of crisis? List of figures- VII List of figures Figure 1: Overview of firms’ survey Figure 2: Overview of workers’ survey Figure 3: Three economic shocks to the manufacturing sector of Vietnam Figure 4: Government support initiatives Figure 5: Growth in Vietnam’s exports to the EU and US, 2013-2019 Figure 6: Brands’ reactions to orders in-process Figure 7: Factories with in-process orders cancelled Figure 8: Buyers’ reactions to completed orders, ready for shipping Figure 9: Cancellation of completed orders, ready for shipping Figure 10: Payment of labour costs for in-process orders cancelled Figure 11: Payment of purchased materials for in-process orders cancelled Figure 12: Payment for completed/shipped orders Figure 13: Time of payments delayed Figure 14: Cancellation of unsigned planned orders Figure 15: Discussion with suppliers about orders Figure 16: Direct impacts of order cancellations, postponements and delayed payments(%) Figure 17: Are you planning to adjust your business strategy post-pandemic? Figure 18: How suppliers adjust their business strategies Figure 19: Suppliers’ access to stimulus packages and reasons for non-access Figure 20: Impacts on workers’ incomes Figure 21: Impacts on workers’ basic expenses Figure 22: Impacts on workers’ psychology Figure 23: Impacts on family relationships Figure 24: Support from employers Figure 25: Support from sources Figure 26: Suppliers’ requests for buyers Responsiblity in the time of crisis?

VIII- List of tables List of tables Table 1: Percentage of enterprises applying labour-related measures Table 2: Overview of the garment, footwear and electronics industries in Vietnam(2018) Table 3: Exports of key products, April to June 2020(month-on-month) Table 4: Responses of selected brands to Covid-19 and impacts on their suppliers Responsiblity in the time of crisis? Chapter 1: Introduction Introduction- 1 The global Covid-19 pandemic has caused enormous adverse impacts on enterprises and workers in almost all economic sectors. In Vietnam, although the pandemic has been effectively controlled, most of the key economic sectors- especially garment, footwear and electronics- have faced devastating economic impacts. Between January and early March 2020, the supply of materials from China was disrupted due to the spread of Covid-19 in Wuhan city and Chinese provinces. As soon as the supply from China slowly recovered in early March, Vietnam’s two biggest export markets for clothing, footwear and electronics – the European Union and the United States- closed borders and imposed lockdowns. Factories in Vietnam faced with cancellation of buying orders by international brands. As estimated by Vietnam Textile and Apparel Association(VITAS), 70 per cent of garment and footwear factories in Vietnam had cut their labour force by the end of March and 80 per cent of garment workers had been affected with reduced incomes or lost jobs as factories partially or wholly closed down. One of the key reasons for the devastating impacts on these industries was the fact that a number of international brands quickly cancelled or postponed their orders, while refusing to make full payment for purchased materials and the cut-make-trim(CMT) cost of finished products. By resorting to‘force majeure’ clauses in business contracts, the brands have pushed the risks created by the pandemic to the most vulnerable sections of GSCs: the assembly suppliers that operate on thin profit margins and their poorly paid workers. Worker Rights Consortium(WRC) estimated that collectively global fashion brands have potentially cancelled in excess of£20 billion in orders worldwide from major garment-producing countries, such as Vietnam as well as Bangladesh, Cambodia and Sri Lanka. 1 In response to this business practice, the textile industry representatives from six Asian countries, including Vietnam, issued a joint statement on April 9 urging clothing brands to fully compensate suppliers when canceling orders. 2 The WRC and the Center for Global Workers’ Rights(CGWR) at Pennsylvania State University have also tracked down the garment and footwear brands that have and have not committed to paying in full for orders completed and in production. 3 According to the survey by CGWR in Bangladesh, 4 45.8 per cent of garment suppliers have had their orders cancelled, while 72.1 per cent of buyers refused to pay Responsiblity in the time of crisis?

2- Introduction for raw materials(eg: fabric) already purchased by the supplier, and 91.3 per cent of buyers refused to pay for the CMT cost(production cost) of the supplier. As a result of order cancellations and lack of payment, 58 per cent of factories surveyed in Bangladesh reported having to shutdown most or all of their operations. The Covid-19 pandemic has shown the limits and impacts of responsible business policy and practices in the fashion and electronics industry on firms and workers at the bottom of GSCs. It is essential, therefore, to study how the major brands have reacted to their suppliers and workers amid the crisis, while identifying the good practices of brands supporting their suppliers. At the same time, it is necessary to understand the impacts of the brands’ practices during the crisis on suppliers and their workers. The lessons learnt from this study are crucial to improving the responsible business policy and practices in the global garment, footwear and electronics supply chains. Research questions The overall objective of this study is to acquire an in-depth understanding of how different garment, footwear and electronics brands have reacted to the Covid-19 crisis, focusing on their handling of manufacturing suppliers in Vietnam and the impacts of their practices on firms and workers. In particular, the study tries to answer the following research questions: • How have the international garment, footwear and electronics buyers/brands handled their respective supply chains during the Covid-19 pandemic? And how have their responses affected the suppliers in Vietnam? • What are the impacts on the income and employment of workers in the supply chains in Vietnam? • Are there any good practices among brands and suppliers? If so, which factors contribute to the good practices? • What are the implications for GSCs and suggestions to improve responsible business practices? Introduction- 3 Methodology According to Vietnam’s Ministry of Industry and Trade’s Report on Trade and Industrial Development for the first quarter of 2020 5 , the industries most affected by the pandemic included aviation, tourism, hospitality and export-oriented manufacturing sectors, particularly garment, footwear, electronics, wood-processing and agricultural. Upon consideration of the pandemic’s impacts and the importance of the industries in terms of economic value, integration into the global economy, and scale of the labour force, this research focused on three key industries: garment, footwear, and electronics. The three selected industries are the backbones of Vietnam’s export sector, contributing more than 50 per cent of national export value in 2019 6 and employing nearly five million workers. Business survey The survey of firms was conducted with the use of Google forms during the first half of June 2020. The survey was assisted by a network of independent collaborators who are researchers from universities and staff of local NGOs. A list of exporting firms in each locality was developed based on the database of the respective Departments of Planning and Investment. The collaborators contacted the factories in the list to request their participation in the survey. Then, a link to the online questionnaire was shared with the respondent. In a few other cases, the collaborators interviewed factory representatives over the phone and filled in the online questionnaires. The research is primarily based on an online survey of businesses that participate in the GSCs and a phonebased survey of workers. Responsiblity in the time of crisis? Responsiblity in the time of crisis?

4- Introduction Figure 1: Overview of firms’ survey(n=179) 7 Overview of the Business Survey Series 1 88 Distributions of firms by modes of supply Total Footwear Garment Electronics 1 No. Of Firms 179 61 70 48 Labour force 188,090 86,967 46,422 54,681 % FDI firms 74.80% 78.60% 58.00% 97.90% Mostly supply to brands Mostly supply via intermediaries Half to brands, half to intermediaries Distributions of firms by markets(%) 0% 20% US EU 40% Asia 60% 80% 100% Domestic Others Overall, the survey covered 179 companies with a total labour force of 188,070 workers. The survey achieved a confidence level of 90 per cent and a 10 per cent margin of error. Upon consideration of the large number of businesses in the three industries, 8 the confidence interval is acceptable for social science surveys(Hair et al. 2009; Hazelrigg 2009). 9 Most surveyed firms are located in the capital Hanoi (88 companies), southern Binh Duong province(58 companies), and Red River Delta’s Nam Dinh province (27 companies), while the remainder were in the southern commercial hub Ho Chi Minh City as well as Ben Tre, Can Tho, Thanh Hoa and Vinh Phuc provinces. As the survey focused on the export sector, FDI firms accounted for the majority of the samples in the three industries, especially in electronics(see Figure 1). In terms of markets, the surveyed businesses mainly export although the domestic market is also important, especially in electronics(consumer electronics products) Responsiblity in the time of crisis? Introduction- 5 and footwear. The EU and US markets are most important for garment firms, while Asian markets are key for electronics companies. Factories either export via intermediaries, sell directly to international brands or a combination of both channels. This means the surveyed firms include direct suppliers(tier-1 suppliers) and sub-contractors. The diversity of suppliers and their markets enabled the research to explore different layers of GSCs. Worker Survey Interviewers identified workers through NGO networks and used snowball techniques to approach more workers. Interviews were conducted in the second half of May and June 2020. Workers were interviewed over the phone, usually after work or during weekends, using a structured questionnaire. However, interviewers had the flexibility to dig deep into aspects that workers were willing to share additional information based on a set of guiding questions. This means that apart from a quantitative survey, the research team also collected qualitative, in-depth information. Overall, the survey reached 166 workers from the three industries(see Figure 2). With a population of 4.5 million workers in the three industries, the survey reached a confidence level of 90 per cent and a 7 per cent margin of error acceptable for social science surveys. The sample resembled the characteristics of the labour force in the three industries: women workers accounted for 79.5 per cent and migrants made up 80.7 per cent of the sample. Most interviewed workers were aged 25-40 years, but there were also young workers(1725 years) and older workers(over 40), which allowed for a comparative analysis. Similar to the business survey, the majority of interviewed workers were from FDI companies, with a small proportion of household businesses. Unfortunately, the researchers were not able to define the informality of workers, if any, in the survey. Many workers, especially those employed by household businesses, were uncertain whether they had employment contracts. Responsiblity in the time of crisis?

2.4 13.3 81.3 3.0 6- Introduction Figure 2: Overview of workers’ survey(n=166) Overview of the Worker Survey No. Of FMI(%) Responses Migrant (%) Total 166 79.5 80.7 Electronics 59 71.2 89.8 Garment 57 89.5 59.6 Footwear 54 77.8 85.2 Workers by age ranges Distributions of workers by enterprise ownership(%) SOE POE FIE Household business Distributions of workers by family structure(%) 12% Average age 32 18% 4% 66% Under 25 25-40 Over 40 Married with children Single parent Married without children Single The research was also informed by in-depth interviews with provincial and industrial zone-level union representatives in Binh Duong, Dong Nai and Haiphong (three), representatives of international brands(three), and labour NGOs(five). Most international brands contacted declined to participate in the research. Therefore, a review of publicly available information on supply chain policies during the Covid-19 pandemic by some key brands sourcing from Vietnam was conducted instead. Responsiblity in the time of crisis? Structure of the report This report consists of five chapters. After Chapter 1 introduces the research rationale and methodology, Chapter 2 reviews the impacts of Covid-19 on businesses and workers in Vietnam in general. Chapter 3 zooms in on the various impacts of practices of brands and buyers during the pandemic on garment, footwear and electronics supply chains. Chapter 4 analyses the impacts of cost-cutting measures by factories on the employment, income, health, and basic expenses of workers and their families. Chapter 5 wraps-up the discussion by focusing on implications of the pandemic for the re-structuring of GSCs as well as the sustainability aspect of supplier-buyer relationships. Overview of COVID-19 pandemic impacts on Businesses and Workers in Vietnam- 7 Chapter 2: Overview of Covid-19 Pandemic Impacts on businesses and workers in Vietnam The Covid-19 pandemic hit Vietnam quite early in January 2020, but was controlled effectively through a rapid government response resulting in more than 1,000 cases and 35 deaths 10 . Yet, the economic shocks stemming from the pandemic have hit the domestic economy and workers hard. The first economic shock came from the closure of the Chinese border on 31 January 2020, which resulted in the disruption of up to 70 per cent of material supply for many industries such as garment, footwear, and electronics. Also, the lockdown in China meant a serious drop in demand for numerous industries, including tourism and hospitality 11 , wood and furniture, and agricultural products. On March 6, Vietnam stepped into the second phase of the pandemic with further restrictions of gatherings, which significantly reduced domestic consumption of non-essential products and services. In the middle of March, the United States and many European countries applied lockdown measures, which led to the third economic shock, particularly to the export sector of Vietnam. At the time of writing, although the lockdown was lifted in Vietnam and several Asian countries, the United States and Europe remain heavily affected by the pandemic. This means the recovery of Vietnam’s export sector may not happen as swiftly as expected. Figure 3: Three economic shocks to the manufacturing sector of Vietnam 25 1. Material supply stock 2. Vn lockdown shock 3. External domand shock 20 15 10 5 0 Mar 6 Mar 25 Apr 13 May 10 May 30 Responsiblity in the time of crisis?

8- Overview of COVID-19 pandemic impacts on Businesses and Workers in Vietnam The impacts on Vietnam’s economy in the first half of 2020 were significant: the year-over-year GDP growth rate in the first six months of 2020 was 1.8 per cent- the lowest in the past decade, while the inflation rate was 4.96 per cent- the highest in the last five years(GSO 2020). By the end of April, more than 41,000 enterprises had temporarily closed down(GSO 2020) and 28.4 per cent of enterprises resorted to lay-offs and 21.3 per cent had furloughed workers(see Table 1). Table 1: Percentage of enterprises applying labour-related measures in response to Covid-19 pandemic Source: GSO Survey of 123,000 enterprises, April 2020 Apply measures related to labour Lay-off Whole country 66.8 28.4 Enterprise by size Micro Enterprises 60.0 24.8 Small Enterprises 75.3 33.3 Medium Enterprises 73.3 32.2 Large Enterprises 70.3 27.5 Reduce paid work hours or work in rotation 39.5 Furlough workers 21.3 Reduce wages 18.9 30.6 19.9 16.8 38.3 23.8 66.8 53.1 20.5 66.8 53.9 19.5 66.8 According to the Department of Employment, Ministry of Labour, Invalids and Social Affairs, in the first six months of 2020, 30.8 million people lost their jobs, were furloughed or had their hours and incomes reduced due to impacts of Covid-19. 12 The number of people in work is at its lowest level for a decade, and the rate of under-employment is at a five-year high. Of the 30.8 million, 57.3 per cent(17.6 million) had incomes reduced and 1.4 million people lost their jobs, including 900,000 who became unemployed as their companies closed or reduced production. Most workers who lost jobs were in the industrial processing, wholesale and retail, transportation and storage, and accommodation and food and beverage sectors. Responsiblity in the time of crisis? Overview of COVID-19 pandemic impacts on Businesses and Workers in Vietnam- 9 Figure 4: Government support initiatives Tax reductioin & exemption Interest-free loans to pay suspension salary Cash transfer for workers on unpaid leave Lower interest rate Delayed payment of debts In response to the economic impacts of the pandemic, the Government of Vietnam has issued a number of policies and stimulus packages to support affected businesses and workers(see Figure 4). The initiatives ranged from tax reductions, concessional loans, delayed payment of business debts and cash transfers to furloughed workers. However, according to some reports, businesses and workers struggled with procedures and eligibility criteria to gain access to such support. This research attempts to explore the obstacles to businesses and workers accessing these support packages. Responsiblity in the time of crisis?

10- Impacts on Garment, Footwear and Electronics Suppliers Chapter 3: Impacts on Garment, Footwear and Electronic suppliers Overview of the garment, footwear and electronics supply chains in Vietnam The garment, footwear and electronics industries employ more than 4.5 million workers, more than 75 per cent of whom are women. The majority of enterprises in the three industries employ less than 50 workers each(see Table 2). The three industries are highly integrated into GSCs, but mainly at the lowest level of assembling. In the garment sector, for instance, 60 per cent of factories have been producing on CMT contracts, 30 per cent on Freight-on-Board(FOB) and 10 per cent on original design manufacturing(ODM) (FPTS 2017). The three industries are dominated by international lead firms/brands and FDI suppliers. As much as 95 per cent of exports of the three industries go through international buyers/brands and the FDI firms account for 77-95 per cent of export value. Table 2: Overview of the garment, footwear and electronics industries in Vietnam(2018) Source: Vietnam Statistical Book(2018) Industry Garment Footwear Electronics No. of Firms % Firms with under 50 workers Total labour force % women workers Key export markets (2019) 6,961 68.6 2,095 61 1,755 58.2 2,500,000 1,300,00 736,000 78 US: 47% EU: 16% 76 US: 36% EU: 25% 74.5 US: 17.3% 13 EU: 24% No. of FDI firms 1,700 800 700 FDI contribution to export value 76.6% 77% 95% The three industries rely heavily on exports to the European Union and United States. In 2019, these two markets accounted for 60 per cent of garment, footwear and electronics exports. As seen in Figure 5, these two markets have experienced significant growth in market share of exports from Vietnam in the three product groups. Responsiblity in the time of crisis? Impacts on Garment, Footwear and Electronics Suppliers- 11 Figure 5: Growth in Vietnam’s exports(phones, consumer electronics, garment and footwear) to the EU and US, 2013-2019 Source: PWC(2020) Growth in Vietnam’s exports to the EU(phones, consumer electronics and textile/ garments) Growth in Vietnam’s exports to the US(phones, consumer electronics and textile/ garments) European Union 22.8 2.5 15.9 4.3 United States of America 33.7 18.9 13.2 1.6 2013 Growth in EU imports Gain in market share 2019 2013 Growth in US imports Gain in market share 2019 The 2020 first quarter economic performance displayed mixed results. Vietnam appears to have maintained overall export levels to key export destinations. Except for textiles, Vietnam’s exports in fact increased in the first quarter of 2020 compared to the same quarter in 2019. However, the three industries suffered the biggest falls in exports in April 2020 when month-onmonth(MoM) rates were-31 per cent,- 61 per cent and-53 per cent for textiles, handbags and telephones respectively(see Table 3). These drops were mainly attributed to the lockdown measures applied to the United States and European markets since the end of March 2020. The three industries welcomed signals of improvement in exports in May and June, especially for textiles and telephones. The GSO forecasted that textiles and telephones were among the industries that would see strong export recoveries by the end of 2020, while the forecast was less positive for shoes and handbags(GSO 2020). Responsiblity in the time of crisis?

12- Impacts on Garment, Footwear and Electronics Suppliers Table 3: Exports of key products, April to June 2020(month-on-month) Source: Customs Office, Rong Viet Securities 14 Total export Seafood Wood Yarn Textiles Foot-wears Handbags Rattan products Iron and steel Electrical products Telephones Machine Furniture Toys and sports requisites Means of transportation Other products April% mom -27% -2% -29% -39% -31% -14% -61% -30% -30% -18% -53% -16% -22% -17% -38% -11% May% mom June% mom Percentage of total 9% 4% 11% 1% 16% 9% 93% 23% -23% 12% 17% 5% 8% -8% 3% 12% 18% 12% 23% 20% 39% 10% 20% 30% 70% 16% 25% 11% 22% 55% 16% 25% 100% 3% 4% 1% 12% 6% 1% 0% 2% 17% 16% 8% 1% 1% 3% 6% Impacts on Garment, Footwear and Electronics Suppliers- 13 Impacts from the pandemic resulted in 1.2 million workers in garment and footwear industries losing their jobs by the end of June 2020(VITAS and LEFASO 2020). These impacts on factories and workers in Vietnam have been exacerbated by the fact that many international buyers cancelled in-process orders without paying factories for purchased materials and manufacturing costs. In April 2020, VITAS joined five other garment manufacturing countries in Asia within the framework of STAR(Sustainable Textile of the Asian Region) to make a joint statement demanding fashion brands act responsibly towards their supply factories and workers. 15 Brands’ practices towards supply chains during the Covid-19 pandemic Globally, the fashion and electronics brands have faced unprecedented difficulties due to the Covid-19 pandemic. These challenges intensified for brands that rely on Chinese supply chains and retail mainly through shops. A long list of fashion brands have declared bankruptcy, mainly between April and June, such as J.Crew, J.Hilburn, J.C. Penney, Neiman Marcus, NewYork&Co and True Religion, among others. 16 Electronics brands faced fewer bankruptcy threats, but the major brands saw significant drops in revenue in the first quarter of 2020. The revenues of Apple and Samsung, for instance, fell by 13 and 7.6 per cent, respectively in the March quarter. 17 The electronics giants expect deeper drops in revenue and profit in the second quarter, especially for products like TVs and smartphones. 18 A number of brands have been quick to declare their commitment to payment for completed and in-process orders. Fashion brands that source apparel and shoes from Vietnam such as Adidas, H&M, Inditex, Nike, Uniqlo and VF have pledged to pay in full and without delay for all completed and in-process orders. 19 Some other brands have initiated programmes to compensate and support their suppliers as the orders are canceled or delayed. Gap Inc. for instance, has a supplier finance programme which provides low-cost financing to suppliers to address needs that may arise as a result of delayed payments. 20 Levi’s has provided lowcost financing to its suppliers through a programme Responsiblity in the time of crisis? Responsiblity in the time of crisis?

14- Impacts on Garment, Footwear and Electronics Suppliers involving International Finance Corporation(IFC). The programme aims to support the suppliers affected by delayed payments to ensure cash-flows and the ability to pay workers’ wages. Still, a number of other brands have cancelled or delayed payment for in-process or completed orders to protect their liquidity, pushing all the risks to the suppliers and their workers(see examples in Table 4). Table 4: Responses of selected brands to Covid-19 and impacts on their suppliers Source: Worker Right Consortium Tracker 21 Brands/Country/Supply network in Vietnam Kohl’s Department store chain (US) Industry Apparel, shoes and handbags, electronics Covid-19 practices • Cancelled more than USD 1 billion in orders • Notified suppliers in mid-March, via conference call, that it did not intend to pay for these goods • Employs a cancellation clause in all of its purchase orders that gives Kohl’s the contractual right to cancel orders without liability at any time and for any reason. Asda Supermarket chain(UK) Apparel Primark Fashion retailer(UK- 23 suppliers in Vietnam) Apparel and shoes • Asda demanded 40 to 70 per cent price reductions on orders completed, but not yet shipped and on in-process orders • Refused to accept up to 20 per cent of orders that suppliers had already shipped to Asda before the crisis began • Asda remain open throughout the lockdown in the UK.. • Canceled GBP 2 billion in orders • Agreed to pay for about USD 460 million in orders previously canceled • Payment is delayed until Autumn 2020. Responsiblity in the time of crisis? Impacts on Garment, Footwear and Electronics Suppliers- 15 Communication between buyers and suppliers prior to cancellation/postponement of orders is another key problem during Covid-19. A significant number of factories were not informed in advance about the buyers’ decisions, which deprived them of necessary time to prepare for the impacts. According to a survey by ITMF covering 600 CEOs of textile and garment companies globally, across the garment supply chain up to 40 per cent of customers failed to give warnings or advanced discussions with the producers when they cancelled or postponed orders. This situation is most pervasive for North American producers and less in Southeast Asia(ITMF 2020). Impacts on the supplying factories in Vietnam Among the surveyed factories, the EU and US are the biggest markets for garment firms, while Asia and domestic markets are more important for electronics and footwear companies. Also, around half of surveyed firms supply directly to the brands, whereas 33 per cent are indirect suppliers, selling via vendors and intermediaries. Around 20 per cent of factories supply directly and indirectly to brands. The nature of supplier-vendor-lead firm relationship in electronics is different from that in apparel and footwear. In apparel and footwear the supplying firms in Vietnam, upon receiving orders from buyers(either brands or intermediary vendors), start purchasing materials for manufacturing. The assembling firms normally have to pay for the materials within one month upon reception. Once the final products are made, they are shipped to the brands for retailing. Normally after 90 days upon receiving the shipments, the brands pay the suppliers(including the costs of materials if the mode of supplying is FOB and ODM). 22 However, in electronics, the suppliers operate mainly in two ways: 23 i. When the suppliers are located geographically close to the brands’ factories(usually within the same industrial zone) to facilitate‘just-intime’ manufacturing, the components/parts are transferred immediately to the customers for production/assembly. Canon, for instance, has a network of 300 suppliers, most of which are located around the Canon factories in northern Vietnam. This is also the case for other brands such as LG, Panasonic and Samsung, amongst others. In this mode of supplying, the brands and their suppliers need to communicate on daily basis as their production plans depend closely on one another. Responsiblity in the time of crisis?

16- Impacts on Garment, Footwear and Electronics Suppliers ii. When the supplying firm in Vietnam is the subsidiary of a mother company that produces parts and components, the Vietnam factory needs to export its finished products back to headquarters or the distribution centre of the mother company before they are transported to customers. This is the case for electronics corporations that produce parts and components. For instance, Hoya manufactures glass disks(for hard drives) in its factory in Vietnam, then exports back to Japan or to its distribution centres around the world before transferring them to the electronics brands for production of the final products. In this case, it is the headquarters instead of the supplying factories in Vietnam that communicates directly with the brands/customers. The supplying factories in Vietnam do not have to shoulder the financial burden for materials nor the budget for labour costs as their financial resources are managed by the mother companies. These differences in the supplier-brand relationship also means that garment and footwear suppliers are exposed to much higher(financial) risks, than electronics factories, as the industries hit by the Covid-19 crisis and retailing brands’ cancellation or postponement of orders. These differences are clearly reflected in the supplier survey. In-process orders In-process orders are those that have been signed, the suppliers have purchased materials and started production. This means that the suppliers have already paid for the materials and factory costs for production. As seen in Figure 7, footwear manufacturers faced a much more extensive level of cancellations of in-process orders, followed by the garment industry. As much as 52 per cent of footwear companies experienced order cancellations and nearly 13 per cent had more than 50 per cent of in-process orders cancelled. In comparison, only 22.9 per cent of electronics firms experienced order cancellations and their extent affected less than 25 per cent of overall orders. Responsiblity in the time of crisis? Impacts on Garment, Footwear and Electronics Suppliers- 17 It should be noted that apart from cancelling orders, the buyers have other responses to in-process orders. As shown in Figure 6, nearly 60 per cent of factories were asked to delay shipments of completed orders, Figure 6: Brands’ reactions to orders in-process nearly 50 per cent of factories were requested to postpone production and almost 30 per cent reported that the buyers asked for price reductions. Figure 7: Factories with in-process orders cancelled(%) <25% 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Postponed 25-50%>50% 100% Delayed shipping Price Reduction Cancellation <25% 25-50%>50% 100% 37.7 24.6 5.0 4.5 1.7 Total 15.9 1.6 9.8 3.3 Footwear 11.6 1.4 1.4 Garment 20.8 2.1 Electronics Completed orders, ready for shipping The situation was similar for the orders completed and ready for shipping. As much as 67.6 per cent of factories had to postpone shipments, keeping the products in storage(Figure 8). In an interview with the manager of a Taiwanese footwear factory, he expressed his concern: Nearly 30 per cent of factories experienced cancellation of completed orders. This rate is highest among the footwear industry and lowest in electronics(Figure 9). In most cases, the cancellation happened with less than 25 per cent of the factories’ completed orders. ‘Our storage is up to limit now. We don’t know where else to store products. And in this heat, after 2-3 months, the products will be totally damaged’. Responsiblity in the time of crisis?

18- Impacts on Garment, Footwear and Electronics Suppliers Figure 8: Buyers’ reactions to completed orders, ready for shipping Cancelled Shipment postponed Figure 9: Cancellation of completed orders, ready for shipping <25% 25-50%>50% 100% 19.6 3.4 2.2 2.2 20.1 14.0 16.8 16.8 100%>50% 25-50%<25% 31.1 19.6 11.6 16.7 1.6 4.5 2.2 4.9 3.4 2.9 2.2 3.3 2.9 2.1 Total Footwear Garment Electronics Payment for cancelled orders Only 8.9 per cent of surveyed factories were paid in full for materials purchased for cancelled in-process orders and 10.1 per cent of factories received full payment for labour costs for producing cancelled orders. Around 19 per cent of factories were promised that buyers would pay portions of materials and labour costs used for cancelled orders and approximately 9 per cent received no payment(Figures 10& 11). Again, the footwear industry was hit much harder than garment and electronics as the proportion of footwear factories receiving partial or no payment was significantly higher than in other industries. Figure 10: Payment of labour costs for in-process orders cancelled(%) Figure 11: Payment of purchased materials for inprocess orders cancelled(%) Pay in full Pay partially No payment Electronics 10.4 4.2 12.5 Garment 7.2 21.7 5.8 Footwear 13.1 27.9 9.8 Total 10.1 19.0 8.9 Pay in full Pay partially No payment Electronics 8.3 8.3 12.5 Garment 8.7 23.2 Footwear 9.8 21.3 Total 8.9 18.4 4.3 13.1 9.5 Responsiblity in the time of crisis? Impacts on Garment, Footwear and Electronics Suppliers- 19 Figure 12: Payment for completed/ shipped orders Figure 13: Time of payment delayed <25% 25-50%>50% 100% Delayed payment of a part of order 14.5 10.6 5.0 Delayed payment for the whole order 11.7 7.3 10.1 20.1 22.3 11.2 Over 30 days 5.0 25.7 17.9 10.1 10-30 days 7.3 15.1 4.5 12.3 Under 10 days 0.6 3.4 2.2 0.0 5.0 10.0 15.0 20.0 25.0 0.0 10.0 20.0 30.0 For orders already completed and in many cases when buyers have agreed with suppliers to ship products, more than half of factories still faced delayed payments for a portion or the whole order. A third of suppliers reported delayed payment for more than half or all orders(Figure 12). Some 43.6 per cent of factories claimed payment for more than half of their orders would be delayed by 30 days or more. Some factory managers, during interviews in June 2020, expected delays to last until 2021. Orders planned, not yet signed Prior to the Covid-19 crisis, suppliers engaged in discussions with buyers about planned, yet unsigned orders. As a result of the pandemic, 61 per cent of surveyed factories reported postponements of signing new orders and 38.5 per cent cancellations of signing planned orders. The cancellation rate of planned orders is highest in footwear, followed by garments and electronics (Figure 14). According to VITAS, all of its member factories were operating at 30-70 per cent capacity. VITAS and LEFASO reported most of their members have not signed new orders after August 2020. Figure 14: Cancellation of unsigned planned orders <25% 25-50% Electronics 2.1 8.3 4.2 >50% 22.9 100% Garment 5.8 5.8 7.2 14.5 Footwear 9.8 4.9 6.6 24.6 Total 6.1 6.1 6.1 20.1 Responsiblity in the time of crisis?

20- Impacts on Garment, Footwear and Electronics Suppliers Discussions between buyers and suppliers Suppliers were asked whether buyers had discussed decisions about orders, either postponements or cancellations, in advance as well as the possible impacts on factories. Some 45.8 per cent of factories reported that buyers engaged them in advance, while 15.6 per cent said only a few or no buyers did. The rate of discussion is highest in electronics and lowest in the garment industry(Figure 15). However, the proportion of suppliers rarely entering into advanced discussions with buyers is highest in the footwear industry(24.6%). Figure 15: Discussions with suppliers about orders Electronics Garment Footwear Total 0% All 50.0 40.6 49.2 45.8 20% Most buyers 27.1 10.4 10.4 39.1 15.9 11.6 13.1 8.2 18.0 6.6 40% 24.0 11.7 60% 13.4 2.2 80% 100% Many buyers A few buyers None Regular and advanced discussions on orders, especially during a time of crisis, plays a crucial role in suppliers finding alternative solutions to minimise negative impacts on their business and workers. A footwear supplier based in southern Binh Duong province said: As much as 69 per cent of suppliers requested buyers discuss orders in advance with them. ‘The buyer did not inform us in advance about the possibility of cancelling the order. Until the order was completed and we informed the buyer that we were ready to ship, they told us that the order is canceled. It was a big order and our company had to pay workers, bank loans and materials. It was too late for us to change the products to sell to other buyers’. Responsiblity in the time of crisis? Impacts on Garment, Footwear and Electronics Suppliers- 21 Buyers’ support of suppliers upon order cancellations and postponements As much as 68 per cent of surveyed factories received no support from buyers when orders were cancelled or postponed, while 28.5 per cent got some form of support. Among the latter, 39.2 per cent received financial support to pay wages, 29 per cent accepted support to pay job-loss allowances and 13.7 per cent enjoyed concessional loans. Impacts on supplying factories Figure 16: Direct impacts of order cancellations, postponements and delayed payments(%) Footwear Garment 71.0 Electronics 63.9 62.5 12.5 4.9 4.3 No impact 18.8 11.5 4.2 Finding alternative orders 37.7 29.5 25.0 Cutting labour costs Partial suspension of business 4.9 2.9 2.1 Total suspension of business Suppliers were asked about the direct impacts of order cancellations/postponements and delayed payments by buyers on their business. As seen in Figure 16, the biggest impact was on workers with cut or reduced income and employment to reduce costs of factories. The garment industry resorted to this measure more than the other two industries. The second biggest impact was partial suspension of business, meaning the supplier closed part of the factory to save costs. Partial suspension also means a company reduced its labour force. Finding alternative orders was also an option for 18.8 per cent of garment suppliers and 11.5 Responsiblity in the time of crisis?

22- Impacts on Garment, Footwear and Electronics Suppliers per cent of footwear producers, but only 4.2 per cent of electronics companies. The production of garments and, to some extent, footwear is more flexible than electronics. Many garment firms, for instance, adjusted cancelled products and sold at discount prices or switched to producing facial masks and personal protective equipment. In in-depth interviews, suppliers pointed to a number of initiatives to deal with shrinking demand and cancellation of orders from export markets(see Box 1). Box 1: Immediate responses of suppliers to mitigate the impacts of order cancellations/ postponements 9 9 Searching for new orders from regions less affected by the pandemic 9 9 Accelerating automation 9 9 Searching for orders from domestic markets 9 9 Diversifying markets, buyers and products 9 9 Utilising the remaining materials to produce low-priced products 9 9 Connecting with other firms to share orders 9 9 Selling cancelled products at discount prices to reduce inventory 9 9 Investing into developing new products 9 9 Including a provision on sharing costs during times of crisis in contracts with buyers Adjustment of suppliers’ business strategies post-pandemic Figure 17: Are you planning to adjust your business strategy post-pandemic(%)?(n=179) Figure 18: How suppliers adjust their business strategies?(n=143) 5% 23% 26% 11.7 41.3 38.5 8.4 Will adjust, but unclear now Already have plans for adjustment No plan yet Will not adjust Responsiblity in the time of crisis? 17% Product diversification More selective of buyers Others 29% Market diversification Developing domestic markets Impacts on Garment, Footwear and Electronics Suppliers- 23 The pandemic and brands’ subsequent reactions made 79.8 per cent of suppliers consider adjusting their business strategies with 41.3 per cent already with specific post-pandemic plans and 38.5 per cent working on strategies. Only 8.4 per cent claimed they would not adjust their business approach at all (Figure 17). Among the 143 companies to change their business strategies, 29 per cent would diversify export markets. The pandemic shows that over-dependence on a small number of markets can jeopardise a whole business. As seen in Figure 18, product diversification is planned by 26 per cent of surveyed firms. A few companies would invest more in R&D to develop new, higher-quality products. The domestic market appears more attractive for surveyed factories post-pandemic as 23 per cent planned to focus more on selling at home. It is interesting to note that 17 per cent of factories would be more selective of the buyers they work with in light of buyers’ practices during the pandemic negatively impacting their businesses. Particularly, one firm suggested it would include specific cost-sharing provisions with buyers during times of crisis instead of shouldering all the risks alone. Access to government stimulus packages Since April 2020, the government has worked out a number of stimulus packages and support initiatives for businesses and workers affected by the pandemic. Among the surveyed companies, 82.7 per cent were in need of support. Yet, by the end of June 2020, only 35.8 per cent had accessed at least one type of stimulus package/support initiative from the government. As shown in Figure 19, 15.1 per cent suspended union tax contributions(2% of wage bills) and to pension and survivor allowances, 10.1 per cent enjoyed delayed payment of debts and 3.9 per cent had tax reductions. However, 76.5 per cent of companies struggled to access support initiatives, mainly due to complicated procedures(25.7%) and an inability to meet eligibility criteria(50.8%). For instance, to borrow from the Social Policy Bank(without interest) to pay furloughed workers, a company must not currently have any income. In fact, many enterprises faced serious drops in turnover and real difficulties in paying their workers, but did not mean they had no income at all. 24 Responsiblity in the time of crisis?

24- Impacts on Garment, Footwear and Electronics Suppliers Figure 19: Suppliers’ access to stimulus packages and reasons for non-access(%) Complicated procedures Lack of eligibility criteria No need for support Concessional loans Suspension of SI and union tax Debt postpone ment Tax reduction 0% 17.3 6.7 15.1 10.1 3.9 10% 20% 25.7 30% 40% 50.8 50% 60% Responsiblity in the time of crisis? Impacts of Cost-cutting measures on workers- 25 Chapter 4: Impacts of cost-cutting measures on workers The worker survey covered 166 workers from 11 provinces(Binh Duong, Dong Nai, HCMC, Soc Trang, Tien Giang and Tay Ninh in the south, Nghe An in the centre and Bac Giang, Bac Ninh, Ha Nam and Hai Duong in the north). As this survey focuses on GSCs, 97 per cent of workers are from export companies and only 3 per cent from household businesses which, as claimed by workers, sub-contract to export firms. Impacts on workers’ employment, income and basic expenses In this worker survey, 10.2 per cent of respondents in the three industries had lost their jobs by the time of interview. These workers encompassed those new and with up to 15 years’ experience with companies. The respondents worked for a range of companies: from household to bigger ones(employing more than 500 workers) as well as domestic and FDI firms. This means pandemic impacts have not only hit smaller businesses, but also bigger ones in the industries. Figure 20: Impacts on workers’ incomes(June 2020) 100% 50% 0% No income Reduced to below MW level Reduced to MW level Reduced by over 50% Reduced by 20-50% Reduced by less than 20% Unchanged Garment 5.7 1.9 0.0 20.8 49.1 19.8 3.8 Footwear 5.6 0.0 13.0 1.9 48.1 27.8 3.7 Electronics 13.6 3.4 0.0 10.2 42.4 11.9 18.6 Responsiblity in the time of crisis?

26- Impacts of Cost-cutting measures on workers By the time of the survey in June 2020, the income of nearly all(96 per cent) surveyed workers in garment and footwear firms had been reduced or totally lost. This rate in electronics was 81.4 per cent. Nearly half of workers in the three industries had lost between 2050 per cent of their income. It should be noted that the proportion of workers who lost all of their income was much higher in electronics, than in garment and footwear. This reflects the divergence within the electronics industry with producers of phones and computers performing much better during the crisis than manufacturers of other consumer electronics products(cameras, printers). Among workers to have suffered from income reductions or job losses, 66.2 per cent reported that cancellations/postponements of orders by buyers was one of the most severe impacts of the pandemic on companies. In other words, the loss of employment and income for 66.2 per cent of surveyed workers was a direct impact of brands/buyers’ practices towards their supply chains during the pandemic. To understand the impacts of the pandemic on the spending of workers and their families, these costs were placed into the three categories of food, housing and other basic expenses(such as clothing, transportation, education) using three benchmarks of‘basic’, ‘minimum’, and‘below minimum’. 25 In particular, when spending are‘cut to basic level’, the nutrition, housing and other living standards are maintained at a minimum acceptable level. When spending are‘cut to minimum level’ these standards are only enough to sustain life and below which, the life and safety of workers can be threatened. When spending is‘cut to below minimum level’, these living standards are so low that workers and their families suffer from hunger, homelessness or acute shortages of other basic necessities. As shown in Figure 21, other spending(non-food, non-housing spending) suffered from the biggest reductions as reported by 80 per cent of workers(highest among footwear workers at more than 90 per cent). This means that spending on transportation, socialising, education(for children) and healthcare reduced, mostly to the basic level. Housing was the least affected as local workers commonly own their houses, aside from migrants who face greater accommodation constraints. Instead, workers tended to reduce food costs, with 75 per cent cutting such spending to basic level. But there was also a small percentage(2.4 per cent) who reduced food expenditure to below minimum level, meaning they suffered from hunger. Responsiblity in the time of crisis? Impacts of Cost-cutting measures on workers- 27 Figure 21: Impacts on workers’ basic spending No impact Cut to basic level Cut to min. level Cut to below min. level Food Housing Others Impacts on workers’ psychology and family relationships The pandemic and cost-cutting measures by enterprises had extensive negative impacts on workers’ psychology. On average, 83 per cent of workers experienced constant feelings of anxiety, depression or insecurity about their futures. However, it is interesting to note that the impacts on footwear workers were slightly less severe than on electronics workers, despite the former industry suffering heavier impacts from order cancellations and postponements. According to footwear workers, they were often consulted well in advance before decisions on their wages and employment were made. On the other hand, the practice of labour-management dialogue was not common among electronics factories. An electronics worker said: ‘I may go to work tomorrow and may be laid-off at the end of the day. This is really a time of uncertainty’ 26 Responsiblity in the time of crisis?

28- Impacts of Cost-cutting measures on workers Figure 22: Impacts on workers’ psychology(%) Normal Anxious, depressed, insecure Figure 23: Impacts on family relationships(%) Worse Better No impact 84.9 91.5 74.1 15.1 Garment 8.5 Electronics 25.9 Footwear 55% 34% 11% Cost-cutting measures due to the pandemic had mixed impacts on workers’ family relationships: more than half of workers reported no impacts and 11 per cent claimed their family relationships improved as they were able to spend more time with their families. However, income reductions and job-loss risks had negative impacts on the family relationships of 34 per cent of workers. Sources of support to workers Sources of support to affected workers were limited. Among impacted workers in the three industries, 83 per cent received no support at all from employers (Figure 24). The remainder received certain cash-based and in-kind support from factories, such as one month’s salary, rice and cooking oil. Among the 49 workers who benefitted from other sources of support, 26 per cent received cash transfers from the government support package(a VND 62 trillion package). The biggest source of support was from families and friends. According to interviews with local unionists and media coverage, an increasing number of affected workers sold their social insurance books to the black market or borrowed from ‘black creditors’ with high interest rates. 27 To support workers in need of low-interest loans, the Social Policy Bank has tried to persuade companies to allow the bank to use workers’ monthly wages to cover loans. However, so far, this attempt was not successful with export-oriented firms saying this practice may conflict with sustainability codes of conduct that international buyers require them to comply with. Responsiblity in the time of crisis? Impacts of Cost-cutting measures on workers- 29 Figure 24: Support from employers(n=151) Figure 25: Support from other sources(n=49) No support Financial support In-kind support Both cash and in-kind 1% 2% 7% Other support 7% Family and friends Government packages Union/ social organisations 26% 44% 83% 30% Responsiblity in the time of crisis?

30- Implications of COVID-19 Pandemic on Global Supply Chain- The‘New Normal’ of sustainability? Chapter 5: Implications of Covid-19 Pandemic on Global Supply Chain- The‘New Normal’ of sustainability? The term‘new-normal’ has been widely used to refer to a new context after the Covid-19 pandemic, in which people and businesses will need to adjust their behaviour and working arrangements. At the same time, GSCs all over the world – especially garment, footwear, and electronics industries heavily affected by the pandemic – will need to adjust to this‘new normal’ in the post-pandemic era. It remains unclear how this ‘new-normal’ in GSCs will eventually turn out. But this study, combined with other research so far, points to some emerging trends in GSC re-structuring which may shed light on understanding possible changes from the perspective of sustainability. Implications of the pandemic on restructuring GSCs A review of recent studies on the implications of the pandemic on GSCs reveals the following emerging trends: The risk of over-relying on China for the supply of intermediate goods has resulted in disruptions to whole supply chains. A preliminary analysis by the United Nations Conference on Trade and Development (UNCTAD) showed that even a relatively small decline in trade in intermediate goods could have strong repercussions. For example, it is estimated that a 2 per cent reduction in exports of intermediate inputs from China to automotive manufacturers in the European Union, Japan, North America, the Republic of Korea and other major automotive-producing economies could lead to a US$7 billion reduction in automotive exports from these economies to the rest of the world. 28 This means that international brands will further push for diversification of their supply chains, away from China. Japan and United States are providing financial support to their companies to shift away from China. Recently, 15 out of 30 Japanese companies receiving support from the Japanese Government decided to move their production from China to Vietnam. Implications of COVID-19 Pandemic on Global Supply Chain- The‘New Normal’ of sustainability?- 31 GSC shocks suggest that one consequence of this pandemic could be an acceleration in reshoring or nearshoring in the future in some industries, particularly those where supply chains have been highly disrupted and where export controls have been imposed by governments. A reaction to this might be a shift towards parts of the GSC that are closer to the end user, with particular emphasis on regional supply chains. 29 The pandemic might also lead to structural changes in supply chains to increase supplier diversity. 30 The supplying factories themselves, will also attempt to diversify their client portfolio, maintaining a fair share among bigger and smaller buyers. 31 This pandemic was preceded by, and is occurring concurrently to, a trade war that has raised tariffs for key products between a number of countries over the past two years and was already creating incentives to reconfigure supply chains towards countries with lower tariffs. Consequently, there is a widespread debate about whether there is a need to rethink GSC strategies to increase their resilience and reduce their exposure to disruptions and shocks, and to improve their sustainability. 32 The current pandemic and recessionary environment may also accelerate technological change through artificial intelligence and automation. Research shows that, during recessions, automation occurs at a faster pace than during“normal” times, enabling enterprises to restructure and possibly leading to significant job losses. For example, in the United States, 88 per cent of job losses in routine occupations since the mid-1980s occurred within 12 months of a recession, and these jobs did not rebound once the recovery began. 33 Thus, labour-displacing technological changes that are implemented during the current downturn may limit job growth in certain occupations once the recovery begins. Responsiblity in the time of crisis? Responsiblity in the time of crisis?

32- Implications of COVID-19 Pandemic on Global Supply Chain- The‘New Normal’ of sustainability? Implications on sustainability This study has revealed a number of weak points in supplier-buyer relationships in the three industries: First, communication between buyers and their suppliers during this time of crisis has not been as effective as needed. More than half of surveyed suppliers complained that some or all of their buyers failed to discuss in advance the possibility of order cancellations/postponements. Better communication within the supply chain was also the most common request by surveyed firms to their buyers(Figure 26). The responsibility of buyers to communicate regularly and in-advance on decisions about orders has important impacts on the suppliers’ ability to sustain their business as well as employment and income for workers. This responsibility of buyers, therefore, should be added to the sustainability requirements for GSCs. Second, the fact that buyers refused to pay in full and in time for the in-process and completed orders resulted in the most detrimental shock to suppliers, especially SMEs, as they lost their cash-flow and ability to pay their workers. The purchasing contracts between buyers and suppliers have been shaped in a way that shields the buyers from any liability in case they have to cancel/postpone orders nor sanctions if they fail to pay the suppliers in full and in time. In other words, if a crisis occurs, it is the suppliers that will have to take all the financial risks. Although these practices tend to happen during a time of crisis only, the buyers’ reactions have been the direct cause for business closures and losses of jobs and income for millions of workers. In our survey, 51.4 per cent of suppliers demanded full payment for in-process and completed orders. Responsiblity in the time of crisis? Implications of COVID-19 Pandemic on Global Supply Chain- The‘New Normal’ of sustainability?- 33 Figure 26: Suppliers’ requests for buyers(%) Support to suppliers 47.5 and workers Discussion with suppliers 59.2 in advance Full payment for in-process and completed orders 0.0 51.4 10.0 20.0 30.0 40.0 50.0 60.0 Third, more than any other time, the pandemic has shown the direct linkage between international brands that may not own factories or employ workers in the developing countries and working conditions for rankand-file workers in their supply chains. Therefore, instead of simply demanding supplying firms comply with CSR codes of conduct, the brands should also be directly responsible for the protection of worker rights and interests in the producing countries. And during a time of crisis, provision of support to suppliers and workers should be considered a responsibility rather than a philanthropic act. Since the pandemic began, there have been regional and international campaigns calling for the brands and buyers’ responsibility for their suppliers and workers. For instance, the ILO, International Trade Union Confederation, IndustriALL Global Union, and International Organisation of Employers jointly issued the call for action‘COVID-19: Action in the Global Garment Industry’, which has been endorsed by more than 100 brands, retailers and NGOs. This call for action has asked the endorsing brands and retailers to: a. Paying manufacturers for finished goods and goods in production. b. Maintaining quick and effective open lines of communication with supply chain partners about the status of business operations and future planning. c. Should financial circumstances permit, direct support to factories can also be considered.’ 34 Responsiblity in the time of crisis?

34- Implications of COVID-19 Pandemic on Global Supply Chain- The‘New Normal’ of sustainability? As the practices of brands and buyers affected suppliers in supply chains across the world, it has generated a sense of solidarity among producing countries that have been competing with one another. In April 2020, with similar requests to the brands and retailers, VITAS joined 60 business associations in the fashion industry in Asia, Europe, Africa, and Americas to issue a joint statement about supporting factories and protecting workers during the Covid-19 pandemic. 35 The Covid-19 pandemic has unveiled the darker side of global supply chains where the asymmetrical relationships between the powerful brands and suppliers in developing countries, such as Vietnam, have resulted in the unfair share of risks when crises occur. In the end, as illustrated by this study, it is the rank-and-file workers in supplying factories that must shoulder the ultimate impacts of this crisis and further ones in the future unless action is taken. Sustainability in supply chains, therefore, should not only be the responsibility of suppliers for their own workers, international brands first and foremost must protect and uphold the rights of the workers making their products, no matter where they are. Responsiblity in the time of crisis? Endnotes 1 https://www.theguardian.com/global-development/2020/apr/15/arcadia-group-cancels-over-100m-of-orders-as-garment-industry-faces-ruin 2 https://vietnaminsider.vn/vietnams-textile-sector-is-reeling-from-a-sudden-loss-of-orders/ 3 https://www.workersrights.org/issues/covid-19/tracker/ 4 Anner, M.(2020). Abandoned? The Impact of Covid-19 on Workers and Businesses at the Bottom of Global Garment Supply Chains. CGWR Research Report(March 27, 2020) 5 Link to the report: https://moit.gov.vn/web/guest/bao-cao-tong-hop1 6 Vietnam Customs Office. 2020. The situation of exports and imports in 2019: https://www.customs.gov.vn/Lists/ThongKeHaiQuan/ ViewDetails.aspx?ID=1734&Category=Ph%C3%A2n&Group= 7 The figures and tables were created by the author 8 There are approximately 3,800 exporting firms in the three industries in Vietnam(GSO 2017) 9  Jr. , J.F., Black, W.C., Babin, B.J. and Anderson, R.E.(2009). Multivariate Data Analysis. 7th Edition, Prentice Hall, Upper Saddle River, NJ.Hazelrigg, L.(2009). Inference. In: M. Hardy and A. Bryman(eds.). The Handbook of Data Analysis. Sage, London, UK. 10 At the time this report was written 11 Chinese tourists accounted for more than 30 per cent of in-bound guests for Vietnam’s tourism industry(GSO 2017) 12 13 These figures are for the‘phone and components’ category only. 14 http://hanoitimes.vn/vietnam-trade-surplus-on-track-to-beat-2019s-all-time-high-313233.html 15 Link to STAR joint statement: http://www.asiatex.org/ennewss/393.html 16 List of fashion brands bankrupt because of Covid-19: https://fashionista.com/2020/05/fashion-beauty-brands-shut-down-bankrupt-coronavirus 17 https://news.samsung.com/global/samsung-electronics-announces-first-quarter-2020-results 18 https://www.theverge.com/2020/4/29/21240925/samsung-lg-earnings-q2-2020-coronavirus-earnings-down-tv-smartphones-memory-chips 19 https://www.workersrights.org/issues/covid-19/tracker/ 20 https://sourcingjournal.com/denim/denim-brands/gap-compensate-garment-suppliers-canceled-orders-worker-rightsconsortium-220673/ 21  update in November 2020: https://www.workersrights.org/issues/covid-19/tracker/ 22 Interviews with managers of garment and footwear factories, June 2020 23 Interviews with representatives of electronics companies, June 2020 24  July 2020, the Prime Minister decided to remove this criterion, facilitating business’ access to this special loan (https://nhandan.com.vn/tin-tuc-xa-hoi/doanh-nghiep-can-go-kho-voi-goi-ho-tro-62-nghin-ty-dong--581574/) 25  R. and Anker, M. 2015. Manual for estimating a living wage. ISEAL Alliance. 26 Interview on 15 June 2020. 27 http://congan.com.vn/doi-song/ro-tinh-trang-mua-ban-so-bao-hiem-xa-hoi-de-truc-loi_91191.html http://tapchitaichinh.vn/ngan-hang/ngan-tin-dung-den-sau-mua-dich-322067.html 28 UNCTAD, Trade and Development Report Update: Global Trade Impact of the Coronavirus(COVID 19) Epidemic, 4 March 2020. 29  See: European Council, Roadmap to Recovery: Towards a More Resilient, Sustainable and Fair Europe, 2020. A specific example of a case where COVID 19 is prompting the rethinking of supply chains and reshoring is medical and pharmaceutical manufacturing industries in Australia. 30  PWC,“COVID 19 CFO Pulse Survey US/Mexico findings”, 30 March 2020 31  Q. Chi. 2020. Quick Impact Assessment of Covid-19 on key economic sectors: Responses, Adjustment and Resilience. ILO Vietnam Working Paper(upcoming) 32 See, for example: Willy Shih, Is It Time to Rethink Globalized Supply Chains?(MIT Sloan, 2020), and Meredith Watkins and Gianluca Corinaldesi, COVID 19 and Global Supply Chains: Disruptions and Restructuring(Duke University, 2020). 33  Brad J. Hershbein and Lisa B. Kahn,“Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings”, Upjohn Institute Working Paper No. 16-254, and Nir Jaimovich and Henry E. Siu,“Job Polarization and Jobless Recoveries” National Bureau of Economic Research Working Paper No. 18334 34 Responsiblity in the time of crisis?

References Anker, R. and Anker, M. 2015. Manual for estimating a living wage. ISEAL Alliance. Anner, M.(2020). Abandoned? The Impact of Covid-19 on Workers and Businesses at the Bottom of Global Garment Supply Chains. CGWR Research Report(March 27, 2020) Brad J. Hershbein and Lisa B. Kahn.(2016). Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings. American Economic Review 108(7): 1737-72 Do, Q. Chi. 2020. Quick Impact Assessment of Covid-19 on key economic sectors: Responses, Adjustment and Resilience. ILO Vietnam Working Paper. Link: https://www.ilo.org/hanoi/Whatwedo/Publications/WCMS_757929/ lang--en/index.htm European Council.(2020). Roadmap to Recovery: Towards a More Resilient, Sustainable and Fair Europe. General Statistics Office.(2018). Vietnam Statistical Book For 2018. Online version Hair Jr., J.F., Black, W.C., Babin, B.J. and Anderson, R.E.(2009). Multivariate Data Analysis. 7th Edition, Prentice Hall, Upper Saddle River, NJ.Hazelrigg, L.(2009). Inference. In: M. Hardy and A. Bryman(eds.). The Handbook of Data Analysis. Sage, London, UK. ITMF.(2020). Newsletter for Quarter 2. Link: https://www.itmf.org/events/29-publications/newsletter Meredith Watkins and Gianluca Corinaldesi.(2020). COVID 19 and Global Supply Chains: Disruptions and Restructuring. Link: https://today.duke.edu/2020/04/covid-19-and-global-supply-chains-disruptions-andrestructuring Nir Jaimovich and Henry E. Siu.(2012). Job Polarization and Jobless Recoveries. National Bureau of Economic Research Working Paper No. 18334 PWC.(2020). COVID 19 CFO Pulse Survey US/Mexico findings. Published on 30 March 2020 PWC.(2020). Impacts of Covid-19 on the Fashion Industry. Online version Responsiblity in the time of crisis? UNCTAD.(2020). Trade and Development Report Update: Global Trade Impact of the Coronavirus(COVID 19) Epidemic. Published on 4 March 2020. Vietnam Customs Office. 2020. The situation of exports and imports in 2019. Link: https://www.customs.gov.vn/ Lists/ThongKeHaiQuan/ViewDetails.aspx?ID=1734&Category=Ph%C3%A2n&Group= VITAS and LEFASO.(2020). Joint statement on the initiatives to overcome the impacts of Covid-19 on the textile, apparel and footwear industry. Link: http://www.vietnamtextile.org.vn/tuyen-bo-chung-ve-sang-kien-hop-tac-khacphuc-hau-qua-cua-dai-dich-cov_p1_1-1_2-1_3-742_4-4491.html Willy Shih.(2020). Is It Time to Rethink Globalized Supply Chains? MIT Sloan Summer 2020. Link: https://sloanreview. mit.edu/article/is-it-time-to-rethink-globalized-supply-chains/ Responsiblity in the time of crisis?

About the author: Do Quynh Chi is co-founder and director of the “Research Centre for Employment Relations(ERC), a Vietnamese social enterprise conducting research on labour issues. She has a doctorate degree in industrial relations from the University of Sydney and her current research is focused on labour relations in manufacturing industries, rural migration, labour law and global supply chains. The views expressed in this publication are not necessarily those of Friedrich-Ebert-Stiftung. Imprint © 2020 Friedrich-Ebert-Stiftung Vietnam Office 7 Ba Huyen Thanh Quan, Ba Dinh Hanoi, Vietnam IPO Box 44 Responsible: Axel Blaschke| Resident Representative T:+84 24 3845 5108 www.fes-vietnam.org Friedrich-Ebert-Stiftung Vietnam To order publication: mail@fes-vietnam.org Commercial use of all media published by FriedrichEbert-Stiftung(FES) is not permitted without the written consent of the FES. Friedrich-Ebert-Stiftung(FES) is the oldest political foundation in Germany. Founded in 1925, FES is named after Friedrich Ebert, the first democratically elected president of Germany. FES opened its Vietnam Office in Hanoi in 1990. It was one of the first international non-profit organisations to work in Vietnam. As a political foundation, it works on the principles of promoting social justice and political participation. The Vietnamese partner organisations of FES are central actors in the fields of politics, economic development, climate change, energy, and environmental policies. This publication is part of a series under Core Labour Standards Plus(CLS+), a regional project coordinated by the FES Office for Regional Cooperation in Asia. www.fes-asia.org Responsiblity in the time of crisis?