Pay cuts, layoffs continue as businesses wait on economic recovery

Phan Hong Phuc decided last year to open his own company after working for several years as a technical manager at a major construction company.

But his company has been facing difficulties since the property market has slumped.

"I am getting fewer and fewer contracts while ongoing projects are delayed because of lack of funds," the director of Phan Le AP Construction Company based in Ho Chi Minh City says.

Revenues so far this year are more than 50% down from a year earlier. Phuc has not laid off any employee but cut their incomes.

"The coming time will be even more difficult," he says.

Another HCMC company, audio visual equipment supplier Phuc Thanh, reported a 40% drop in revenues in the fourth quarter of 2022 and a 50% drop in the first two months of this year.

It blames it on a decline in demand, which has halted large projects, since people's incomes have shrunk.

"We have our technical staff doing marketing and customer service," it says.

It has sacked its delivery staff and depends on delivery companies now, and cut its marketing budget, deputy director Pham Van Nguyen said.

According to the General Statistics Office (GSO), the average incomes of workers in construction, real estate and production and distribution of electricity and gas decreased in the first quarter.

Besides cutting salaries, some companies have also come up with other ways to cope with their difficulties.

Dang Hoang Minh, CEO of Cooky, a startup in the processed and packaged food industry, says he is trying to "cut losses as much as possible."

The company has been paying its employees a part of their salaries in cash and the rest in the form of foodstuffs it makes.

He has moved the production chain from HCMC to neighboring Dong Nai Province to be closer to the source of raw materials, thus reducing logistics and labor costs.

"We have also switched to technology for labor-intensive activities."

Some companies have even scaled down their office space to save on rent.

British real estate consultancy Knight Frank says the vacancy rate in office buildings in the mid-priced segment in HCMC was 12.3% in the first quarter, 4.4 percentage points up from the previous quarter.

This is the result of tenants, mainly Vietnamese businesses in finance, real estate, commerce, and technology reducing their office size, it says.

Businesses are making limited new investments.

The GSO says the registered capital brought in by new businesses in the first quarter was the lowest since 2019, the year before Covid broke out, at VND756.7 trillion, down nearly 36% compared to 2019.

"Many managements have had to rewrite their business strategy, switching from 'offensive' to 'defensive' mode," an executive at online payment platform Payoo says.

Payoo has tie-ups with 40 banks and e-wallets and more than 25,000 stores across the country accept payment through the platform.

The executive says the measures, including lay-offs, cutting costs on resource-intensive activities (such as research and development) and postponing expansion, taken by many companies have been "drastic."

Vu Ngoc Tu, CEO of Sakuko, a supermarket chain that sells Japanese products, says she is looking for quality products at good prices to sell during this tough period.

Uuviet Solutions, which distributes imported high-class bathroom equipment, says with the slowdown in large projects, it has switched to selling ancillary products, which means products that are acquired as a bonus or add-on purchase when buying the main product.

Dao Ngoc Thanh Uyen, its general director, says this means lower revenues but allows the company to keep going.

The Business Climate Index report for Q1 by the European Chamber of Commerce in Vietnam (EuroCham) and market research firm Decision Lab do not expect investment or hiring to increase in the second quarter even when businesses’ revenues recover.

The BCI, which quantifies the business sentiment of the European business and investment community in Vietnam, was at 48.0 in the first quarter, the same as in the previous one.

A score under 50 (out of 100) reflects a negative economic outlook.

Commenting on the BCI, EuroCham chairman Gabor Fluit says: "While a score of 48 might not appear impressive, it is encouraging that the situation is not deteriorating further.

"As we have all seen in the past the Vietnamese government takes swift and decisive action during times of crisis. Therefore, we expect more productive measures in the second half of the year.

"Upcoming reforms to work permit and travel visa procedures will likely have a direct impact on growth. We eagerly await further information on these proposed changes."