Sourcing During Covid Pandemic: Challenges and Solutions

Currently, the largest challenges for such companies are the dramatic increase in the freight shipping prices between Vietnam and Europe, as well as the difficulties caused by the inability to travel, effectively disabling the companies’ representatives from building good, direct relations with their Southeast Asian partners.

Just a glance at the two-year freight shipping price history shows how quickly the costs increased from a long-term average of around $1000 per container, to over $10 000 in August 2021.

This dynamic increase in price, combined with delays in container availability and transportation, causes a wide array of difficulties for CEE businesses. To compensate, they have to either reduce their margins or greatly increase the prices of their products, negatively impacting their businesses. The business owners hence either resign from importing the products from Vietnam or move their production directly to Europe or other less-distant regions.

A similar trend, however, can also be noticed among the businesses previously importing products from continental China. Numerous companies, affected by the high cost of transportation, as well its low availability, start to look for alternative locations for their operations, such as Vietnam and other ASEAN countries. Owing to the highly anticipated free trade agreement between the EU and Vietnam (EVFTA), the concept of moving the production here is quite attractive and – above all – viable. Concurrently, new shipping ways are being designed and tested, such as a railway transport route between Vietnam and Europe via China. Unfortunately, as of now, its capacity is much too low to become a feasible alternative to maritime shipping. Due to these facts, the availability of even the most basic Vietnamese export items on European markets will decrease, causing their prices to keep rising.

One of the most important values in Southeast Asian business culture is trust and mutual respect between business partners. It is expressed in the form of regular meetings, both formal ones – in conference rooms of individual companies, as well as informal ones, during business lunches and dinners. During such meetings people avoid talking about work, instead, they tell stories from their family life, share travel experiences, and discuss entertainment – what sport is good to engage in, what brand of golf clubs to buy, or who supports which football club. Trust in business contacts, their durability, and resistance to critical situations is built in Southeast Asia in this way. However, this needs to be based on knowing the people behind the business; not only on knowing facts about their company but also – or even, above all – on our personal relations with them.

This necessity is very difficult to achieve at a time when online conferences are the only possible way of meeting face to face. Online appointments do not create the opportunity for direct contact with another person, getting to know them, and “sensing” their character, style of work, and intentions – another vital element of Southeast Asian business culture.

As a result, producers, traders, and sourcing agents are beginning to overcome these limitations by finding local partners or cooperating with Chambers of Commerce, government organizations, as well as local companies, who can support them by representing their interests on-site – in each of Southeast Asia’s countries. Such local partners can build a positive image of a company during the abovementioned formal and informal meetings and negotiations, at the same time supervising their production, sourcing activities, as well as taking care of the relevant formalities.

The second tendency we will most probably observe in the coming time will be the transformation of the classical modus operandi of the companies actively interested in Southeast Asia-related sourcing and production activities. Many of them will begin hiring local businesses to act as their representatives in the region. Considering the fact, that the freedom to travel around each of ASEAN’s countries, and even between them, will most likely first be returned to the people already present in the region, working through local agents is bound to become quite an attractive way of doing business all around Southeast Asia. The businesses will reduce their reaction times, as well as operating costs otherwise consumed by costly international flights, the requirement to undergo quarantine at a hotel, and even the risk that representatives of many companies had to face during the last year – being stuck in a country, which suddenly started to implement a national lockdown policy to protect its citizens.

Numerous Western companies have already started to choose and plan each and every step, related to their business activity in Southeast Asia very carefully. Therefore, in order to increase the attractiveness of business opportunities in the region, a mixture of both abovementioned solutions may be necessary. The reduction, or even removal of the quarantine measures will encourage the potential investors and traders to start visiting Vietnam and other countries of the region, searching for ready products, semi-finished goods, and raw materials. Once again, they will at least be able to appear in person during the preliminary talks, allowing their local partners to know them better, before handing the projects over to the local agents representing their interests in the region. This way, both the investors and traders will acquire the necessary sense of security of their endeavors, at the same time reducing their costs and risks.