Firms forced to cut costs, shed staff
As the price of raw materials soars, enterprises are being forced to raise prices and lay off staff to avoid bankruptcy.
Materials costs have on average gone up by 15 per cent since the beginning of the year – by as much as 100 per cent in some industries. To offset costs firms have been forced to raise prices. But to remain competitive, most companies have only increased prices by 5-10 per cent.
Making matters worse, bank lending rates have skyrocket by 19-21 per cent per this year.
Hoang Trong Hieu,managing director of An Lac Co Ltd, said his firm was looking to shed 30 per cent of its workforce. He said the remaining workers would be given pay rises of 20 per cent to meet the rising living costs.
"As a result of rampant prices hikes, we must focus on survival. The salary increases are considered necessary to keep skilled staff," said Hieu. Meanwhile, Bien Hoa Confectionary Joint Stock Co (Bibica) is looking to cut costs by restructuring the business, rationalising its product range and shopping around for cheaper suppliers.
"The company will save about VND10 billion (US$600,000), equivalent to 5-10 per cent of its production investment capital, this year if the company implements these three solutions," said Truong Phu Chien, Bibica’s general director.
Retail outlets and food stores are also feeling the pinch.
Regina Coffee shop chose to raise its prices by 30 per cent to offset rising costs.
"With the service sector, if the product’s quality decreases so do sales, so we decided to increase product prices," said Regina’s Nguyen Lam.
Meanwhile, export-import enterprises are finding that exports have increased as they have grown cheaper.
Binh Thanh Import-Export Production and Trade Joint Stock Co (Gilimex) said it has drastically cut imports in favour of domestic suppliers, which have grown more competitive. Le Dang Doanh, former director of the Central Institute for Economic Management (CIEM) said: "Many enterprises will fall into bankruptcy in the coming time. However, this will weed out the weak from the strong."
Those sectors that rely heavily on imports will be hit the hardest as world prices rise and the dong depreciates. To survive, enterprises will have to restructure to cut costs, says Doanh.
Banks are not immune from world price hikes, said Tran Phuong Binh, general director of Dong A Bank.
He said lender will find it necessary to concentrate their spending on export companies, such as fertiliser and food producers. On the other hand, he said they will be forced to restrict investment in real estate, securities and consumption, he said.
VNS
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