leather industry vietnam global crisis

7/28/2019 Leather Industry Vietnam Global Crisis

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Leather and Footwear Industry in Vietnam:

The Labour Markets and Gender Impacto the Global Economic Slowdown onValue Chains

Economic Development and Employment


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Published by:

Deutsche Gesellschat rechnische Zusammenarbeit (GZ) GmbHEconomic Development and Employment DivisionEmployment-oriented Development Strategies and ProjectsP.O. Box 5180D-65726 Eschborn

elephone: +49 (0)6196 790

Contact:[email protected]

Responsible:Dr. Eva Weidnitzer

Author:Nguyen Dang Hao, College o Economics, Hue University, Vietnam

Design:andreas korn visuelle kommunikation, Bad Homburg

Printed by:

Aksoy Print and Project Management, Eppelheim

Te views and opinions expressed in this publication are theauthors and do not necessarily reect the views o GZ. gtz 2009


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Leather and Footwear Industry in Vietnam:

The Labour Markets and Gender Impacto the Global Economic Slowdown on

Value Chains

Tis study was prepared as a background paper or the conerence onTe Impact o the Global Economic Slowdown on Poverty and SustainableDevelopment in Asia and the Pacic,

which was jointly organized by the State Council Leading Group on PovertyAlleviation and Development o the Peoples Republic o China, the Ministry oAgriculture and Rural Development o the Government o Viet Nam, the AsianDevelopment Bank (ADB), and the ASEAN Secretariat

held in Hanoi, 2830 Sept 2009.1

1 For more inormation, see the conerence website: http://www.adb.org/Documents/Events/2009/Poverty-Social-Development/deault.asp
http://www.adb.org/Documents/Events/2009/Poverty-Social-Development/default.asphttp://www.adb.org/Documents/Events/2009/Poverty-Social-Development/default.asphttp://www.adb.org/Documents/Events/2009/Poverty-Social-Development/default.asphttp://www.adb.org/Documents/Events/2009/Poverty-Social-Development/default.asp


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Executive summary

Leather & Footwear Industry, Vietnam

Te global economic slowdown has posed challenges to many industries in Asia. In preparation or

the conerence Te Impact o the Global Economic Slowdown on Poverty and Sustainable Develop-ment in Asia and the Pacic, held in Hanoi 28-30 September 2009, the German Agency or echnicalCooperation (GZ), the Asian Development Bank (ADB) and the International Labour Organization(ILO) conducted a number o coordinated studies aiming to assess the impact o the slowdown on valuechain labour markets and gender dimensions in Asia.

Te present study ocuses on the leather and ootwear industry in Vietnam. Te industry contributesimportantly to the national economy: in recent years, it regularly produced 8-10% o Vietnams totalexports volume. In addition, it is characterized by a high degree o labour intensity. Between 2000 and2008, the number o workers employed in the sector increased rapidly rom 400,000 to 650,000, or10% o total industrial labour. Te majority o workers are women (80%) and originate rom poorprovinces, where arming usually oers the only means o employment. Finally, the leather and ootwearindustry is highly integrated in global value chains, specically the international sport shoes market,making it an interesting subject or studying the crisis impacts.

At the national level, sector data indicates that the leather and ootwear industry has aced many di-culties due to a sharp reduction in orders rom oreign and domestic partners. Particularly in the rstseven months o 2009, sectoral growth has gradually decreased, leading to a decrease in ootwear exportso USD 275 million (10% drop) compared with 2008. Unless there is any recovery in the export mar-ket, the sector is unlikely to ull its export plan or the year 2009.

Study design: Te present study aims to shed light on the implications o the crisis or the leather andootwear industry in Ho Chi Minh City (HCM City) in the south o Vietnam and their orward andbackward linkages to suppliers in the leather value chain. Based on eld surveys and ocus group discus-sions, the study evaluates the impact on enterprises, workers and households. In order to select the en-terprises or the survey, several meetings were organised with key inormants and local partners such asthe Department o Industry and Commerce (DOIC), the Department o Labour, Invalid and Social A-airs (DOLISA), the Shoes and Leather Association o Ho Chi Minh City (SLA), the Vietnam Leatherand Footwear Association in HCM City (Leaso). In addition, relevant documents and maps relating tothe location o ootwear and leather enterprises in Ho Chi Minh City and neighbouring provinces wereanalysed. In total, 25 enterprises, 194 workers and 73 households participated in the survey.

At the enterprise level, most o enterprises surveyed are acing strong challenges due to the global eco-nomic slowdown. Due to a sharp reduction in orders rom both domestic (30%) and export (41%)markets, 96% o enterprises reported a decline in revenue, by an average o 36%. In terms o the typeo ownership, limited companies and private enterprises were more strongly aected than joint stock ororeign-owned companies. Te average all in revenue or the ormer group was more than 40% whilethe latter group experienced a drop o less than 25%. Tis may be due to the act that limited compa-nies and private enterprises are medium or generally small in size, weak in terms o competitive advan-tage and do not have potential alternative customers.

Additionally, the majority o rms ace increasing difculties in arranging or nance, as Vietnamesebanks tightened credit in the ace o high ination. While the Vietnamese government has provided

nancial assistance or enterprises such as supporting interest rate payments; 62.5% o the surveyed en-terprises proclaimed that the bank procedures or getting loans were too difcult.


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In response to the all in demand and tightened credit, 87% o leather and ootwear enterprises hadto cut back their production. 75% o enterprises reduced non-labour costs and 62% delayed acilityupgrading or sought out new customers. Some companies looked or new international customers inplaces such as Eastern Europe (Russia, Hungary), Japan, and Singapore. 21% o the companies saidthey were paying more attention to the domestic market.

In terms o labour adjustment, 50% o surveyed enterprises said they had halted new recruitment and37% had reduced labour cost. Many managers noted that they tried to avoid layos, as skilled and ex-perienced industry workers are rare. O the enterprises surveyed, 30% reported having laid o workers.In contrast, the majority o enterprises adopted measures such as reducing their employees workingtime (92%), reducing bonuses (67%), and developing alternative work arrangements (58%). 37.5% ocompanies have taken advantage o this low production period to provide training (occupational saety,environmental sanitation, communication skills) or their employees.

Teworker surveyshows that leather and ootwear workers are very vulnerable to the global eco-nomic slowdown. Salaries have considerably declined in the wake o the recession as workers work lessovertime and receive ewer bonuses rom an incentive system. ypically, worker income includes: a

minimum salary, lunch, uel, rent, a productivity bonus and overtime pay. Beore the global economicdownturn, overtime and bonuses accounted or 4050% o their income. With an average number o10.6 working hours per day, the average overtime worked per day is 2.6 hours, generating VND 400500 thousand per month. In response to the global economic downturn, the daily working hours ormost workers returned to the ofcial number o hours in the employment contract . Teir income thusonly consists o a minimum salary and support or housing, about VND 1.61.9 million per month.

Although there were two minimum salary adjustments during 20072008, the average income reduc-tion caused by the global economic downturn is up to 24%.

For workers in small and medium enterprises, working hours were even more drastically reduced to anaverage o 6.2 to 6.6 hours per day, lower than the ofcially contracted hour. Workers with low levels o

skills and education and non-production workers have also been disproportionately aected.

Workers have been orced to reduce a wide range o their expenditures. Survey data shows that 70% orespondents reduced expenditures on ood/nutrition; 68% saved on utilities, transport and communica-tion and 63% on entertainment. Expenditures on remittances to households and on durable goods werereduced by 53% and 47% o respondents respectively. Expenditures on housing, health care and educa-tion were not likely to be reduced. Importantly, the eld research shows that rent or housing increasedduring the survey period because o high ination and adjustments to the minimum wage. High ina-tion has additionally lowered the workers living standards.

Faced with reduced income, 75% o workers surveyed had to ask or assistance rom others. Te main

sources o assistance were riends and neighbours (58%), amily members (32%) and enterprises (23%).Labour unions, government and NGOs provide little assistance to the workers aected: only 5% o

workers surveyed asked or assistance rom them. In addition, most workers aected had to borrowmoney to cope with the reduction in their income. Again, the main source o loans or migrants isriends and neighbours, while that o local resident workers is amily. Tere is a lack o efcient policiesto help the workers aected.

Inormation rom the household surveyindicates that most workers households/amilies are acingmany difculties during the economic recession. Households o migrant workers are particularly vulner-able because their income depends heavily on salaried employment which is considerably reduced andunsustainable. Remittances rom workers to their amilies are seriously aected due to the difculties

the workers themselves are acing. Many amilies in poor provinces have seen their income cut by hal


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because o heavily reduced remittances. Many parents in the countryside have to borrow to send theirchildren money instead o receiving rom them.

In order to cope with sharp reductions in income, households have cut down on a wide range o ex-penditures. Te survey results show that the biggest reduction is expenditures on ood and nutrition,ollowed by entertainment and remittances. It should be noted that expenditure reduction on ood and

nutrition means lower quality meals because o escalating ination over the past two years. Rising oodprices have orced many amilies to switch to lower quality ood than beore.

Most households sought assistance rom inormal networks such as relatives and neighbours, but onlylimited support rom government sources. 45% approached nancial institutions or loans and cashgrants. Furthermore, 40% o respondents have to take on additional paid work to help supplement theirincome, 19% o them have to resort to selling assets and only a small proportion o them (8.9%) havedecided to take their children out o school. Many married migrant workers have to send their childrento the grandparents in the countryside.

Findings rom this study indicate that the government should continue to improve policies to support

the leather and ootwear enterprises. Tere is much concern about accessibility to, inormation aboutand transparency o the governments stimulus package and support policies. For migrant workers andhouseholds, it is necessary to introduce policies regulating social benets such as housing, child care,schools in the industrial zones, policies or training and retraining, policies or labour market inorma-tion and or credit to create jobs.


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Table o contents

List o tables 6

List o fgures 7

Abbreviations 8

Introduction 9

1 Overview o the Vietnamese leather and ootwear industry 111.1 Sector structure and geographic locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.2 Structure o the leather and ootwear industry by type o enterprise . . . . . . . . . . . . . . . . . . . . . . . . 111.3 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121.4 Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131.5 Footwear exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2 Sector impact o the economic crisis at the national level 162.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162.2 Changes in leather and ootwear exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

2.3 Econometric model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192.3.1 Defnition o model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192.3.2 Data source and methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202.3.3 Projected results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

3 Survey fndings 233.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3.1.1 An overview o locations surveyed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233.1.2 Survey methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.2 Findings rom the enterprise survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253.2.1 Profle o the enterprises surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253.2.2 The impact o the global economic crisis on the leather and ootwear enterprises surveyed . . 25

3.2.3 Difculties in arranging fnancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.2.4. Response mechanisms o leather and ootwear enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . 293.2.5 Global economic crisis and the workorce o ootwear and leather enterprises . . . . . . . . . . . . 313.2.6 Leather and ootwear enterprises with government support . . . . . . . . . . . . . . . . . . . . . . . . . . . 363.2.7 Gender, sanitation, working conditions and environmental aspects o the global economic crisis 37

3.3 Findings rom the worker survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383.3.1 Background profle o the workers surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383.3.2 Impact on workers working hours and income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423.3.3 Impact on worker income and consumption behaviour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463.3.4 Coping mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

3.4 Findings rom the community and household survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3.4.1 Background profle o the households surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513.4.2 Sources o household income, living expenses and assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543.4.3 Impact o the economic crisis on income and expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583.4.4 Coping mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

4 Conclusions and policy implications 644.1 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644.2 Policy implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Reerences 68

Annex: Questionnaires 69Survey o aected enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Survey o aected worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76Survey o aected amily/household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84


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List o tables

Table 1.1: Types o leather and ootwear enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Table 1.2: Workers employed in the ootwear industry over the 2000-2008 . . . . . . . . . . . . . . . . . . . . . . . . 12

Table 1.3: Leather and ootwear production over the 2002-2008 period . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Table 2.1: Monthly exports o ootwear over the 2007-2009 period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Table 2.2: Forecasted and actual ootwear exports and dierence between them . . . . . . . . . . . . . . . . . . . 18

Table 3.1: Basic inormation about the enterprises surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Table 3.2: Drop in revenue and orders o the enterprises surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Table 3.3: Enterprise expectations o demand or their products over the next 6 months . . . . . . . . . . . . . 28

Table 3.4: Number o enterprises who had difculties arranging fnancing . . . . . . . . . . . . . . . . . . . . . . . . 28

Table 3.5: The responses o ootwear and leather enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Table 3.6: Workorce breakdown o the enterprises surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 3.7: Changes in existing workorce as a result o the crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Table 3.8: Eects o the global economic crisis on working time and income o labourers inleather and ootwear enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Table 3.9: Types o support given to workers by enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Table 3.10: Leather and ootwear enterprises with government support . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Table 3.11: Percentage o emale workers aected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Table 3.12: Worker survey summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Table 3.13: Working hours and income beore the global economic downturn . . . . . . . . . . . . . . . . . . . . . . 42

Table 3.14: Measures undertaken by enterprises to cope with the economic slowdown . . . . . . . . . . . . . . . 43

Table 3.15: Impact o the global economic downturn on the working hours and incomeo workers with reduced working hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Table 3.16: Impact o the global economic downturn on the working hours andincome o retrenched workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Table 3.17: Total reduction in worker expenditures by type o expenditure . . . . . . . . . . . . . . . . . . . . . . . . . 47Table 3.18: Reduction in worker expenditures by signifcance level and ranking . . . . . . . . . . . . . . . . . . . . 48

Table 3.19: Coping mechanisms the adverse impacts o the economic crisisby adjusted and retrenched workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Table 3.20: Coping mechanisms the negative eects o the economic crisisby migrant and local resident workers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Table 3.21: Borrowing activities by type o workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Table 3.22: Household classifcation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Table 3.23: Family size o the households surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Table 3.24: Education level o amily members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Table 3.25: Main sources o income o the households surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Table 3.26: Main sources o income or H1, H2 and H3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Table 3.27: Daily living expenses per person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Table 3.28: Housing status and cost o rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Table 3.29: Assets o the households surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Table 3.30: Impact o the economic slowdown on income by type o household. . . . . . . . . . . . . . . . . . . . . 59

Table 3.31: Pattern o remittance reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Table 3.32: Reduction pattern o expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Table 3.33: Coping mechanism seeking support rom others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Table 3.34: Coping mechanism selling assets, quitting school, taking on additional paid work . . . . . . . . 63


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List o fgures

Figure 1.1: Production capacity o the leather and ootwear industry in 2008 by geographic location . . . 11

Figure 1.2: Structure o ootwear production by product type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Figure 1.3: Leather and ootwear exports over the 19952008 period (in USD million) . . . . . . . . . . . . . . . 14

Figure 1.4: Market share or Vietnamese ootwear exports over the 20022008 period . . . . . . . . . . . . . . . 15

Figure 2.1: Monthly ootwear exports over the 20072009 period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Figure 2.2: The orecasted and actual volume o leather and ootwear exports andthe dierence between them, 20062009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Figure 2.3: Simulation model assessing the impact o the global economic recessionon turnover or leather and ootwear enterprises in Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Figure 3.1: Map o Vietnam and Ho Chi Minh City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Figure 3.2: Drops in revenue, domestic orders and export orders in the ootwear enterprisessurveyed since Q2/2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Figure 3.3: Drops in revenue, domestic orders and export orders in the leather enterprisesand input suppliers surveyed since Q2/2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Figure 3.4: Response mechanisms o enterprises that employed each response. . . . . . . . . . . . . . . . . . . . . 30Figure 3.5: Decrease in working time o permanent and temporary employees since Q2/2008 . . . . . . . . . . 35

Figure 3.6: Decrease in income o permanent and temporary employees . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Figure 3.7: Education level o workers surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Figure 3.8: Origin o workers surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Figure 3.9: Workorce adjustments by enterprises to cope with the economic slowdown. . . . . . . . . . . . . . 43

Figure 3.10: Expenditure reduction by type o expenditure and type o worker. . . . . . . . . . . . . . . . . . . . . . 47

Figure 3.11: Second jobs or additional income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Figure 3.12: Household classifcation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Figure 3.13: Family size structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Figure 3.14: Sources o household income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Figure 3.15: Assets owned by the households surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Figure 3.16: Income reduction level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59


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Abbreviations

ADB Asian Development Bank

BA Bilateral rade Agreement

Co Company

DOI Department o Industry and rade

DOLISA Department o Labour, Invalid and Social Aairs

GSO General Statistical Ofce

GSP General System o Preerences

GZ German Agency or echnical Cooperation

EC European Commission

EU European Union

HCM City Ho Chi Minh City

ILO International Labour Organization

Leaso Vietnam Leather and Footwear Association

MOI Ministry o Industry and rade

SLA Leather and Footwear Association o Ho Chi Minh City

VND Vietnamese Dong (currency)

USD US Dollar (USD 1 = VND 17,790)

WB World Bank

WO World rade Organization


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Introduction

Te leather and ootwear industry plays an important role in the Vietnamese economy. It is one o themost important industry in both export earnings and job creation. In recent years, leather and ootwearhave been among the six commodities which have made a signicant contribution to the total exportvalue o the country2. Te volume o leather and ootwear exports has gradually increased rom USD1,468 million in 2000 to USD 4,568 million in 2008, accounting or 8 to 10% o the total exportvalue o the Vietnamese economy.

Furthermore, leather and ootwear is a labour-intensive industry. Te number o workers who work inthe sector has rapidly increased rom 400,000 in 2000 to 650,000 in 20083. o some extent, this indus-try is pro-poor because the majority o its workers are rom poor provinces. In their home regions, theiramilies depend heavily on agriculture or their livelihoods. But arming income is generally low andthere is little alternative employment. Moving to urban areas and seeking jobs in export industries, suchas leather and ootwear, is easible or young people in the poor rural regions because they can expect toearn a higher income that they can use to nance their urban existence and, to some extent, send remit-

tances to support their relatives living at home.However, in recent months, the leather and ootwear industry has aced many challenges due to the seri-ous global economic downturn which is much broader in scale than the Asian nancial crisis o the late1990s4. Te current outlook or the global leather and ootwear market indicates that international oot-

wear markets have weakened. Consequently, the number o orders rom oreign import partners has de-creased. According to the Vietnam Leather and Footwear Association (Leaso), in the rst seven monthso 2009, shoe export value slowed 10% to USD 2.413 billion compared to the same period last year.

At enterprise level, the crisis has aected the majority o leather and ootwear enterprises in Vietnam.Many enterprises said that their outputs decreased due to a sharp decrease in partners orders. According

to Leaso, the most serious situation has been recorded in small-scale enterprises. In these enterprises,the share o workers who have been retrenched is about 25 to 35%. Additionally, decreases in work-ing time have been recorded in the majority o enterprises, especially in the rst and second quarter o2009. Consequently, there is increasing downward pressure on wages. Due to low income, many oot-

wear workers are migrating back to rural areas and shiting to inormal and vulnerable types o employ-ment. Tereore, the impact on the workers and their amilies is widespread.

In view o the potentially severe impact o the crisis, the German echnical Cooperation (GZ), theAsian Development Bank (ADB) and the International Labour Organization (ILO) aim to assess theimpact o the nancial and economic crisis on value chain labour markets and gender dimensions in

Asia. Te study on the leather and ootwear industry in Vietnam is part o an Asia-wide study. More

specically, the study will shed light on the implications o the crisis or value chains in the leather andootwear industry in Ho Chi Minh City (HCM City) in the south o Vietnam and their orward andbackward linkages to suppliers in the leather value chain. It will assess the impact o the crisis on en-terprises and workers, and analyse their coping mechanisms and the services provided by local govern-ments. Te study will urther discuss the impact and coping mechanisms observed at the communityand household levels.

2 Te most important export commodity o Vietnam in 2008 was crude oil (USD 10,356 million), textiles (USD 9,120 million),leather and ootwear (USD 4,758 million), shery products (USD 4,520 million), rice (USD 2,894 million), electronic parts (USD2,638 million), coee (USD 2,111 million) (GSO, 2009).

3 According to Leaso, the leather and ootwear industry had 650,000 workers in 2008, excluding labourers working in small household

leather and ootwear producers.

4 Te Asian nancial crisis occurred in 1997 and its impact was proound. In Southeast Asia, the most aected countries were Tailand,Indonesia, the Philippines.


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Objectives o the study

Analyse trends and developments in the Vietnamese leather and ootwear industry since the year2000 as well as the structure o the industry (e.g. composition o manuacturers and suppliers,employment situation, geographic location).

Analyse the impact o the nancial crisis on the industry at the national level, using appropriateeconometric modelling and statistical techniques.

Analyse the impact o the nancial crisis on workers with reduced hours and retrenched workers inthe leather and ootwear industry, including gender implications and coping mechanisms.

Analyse the impact o the nancial crisis on households with workers in the leather and ootwearindustry whose hours have been reduced or who have been retrenched, including genderimplications and coping mechanisms.

Analyse possible policy implications to mitigate the adverse eects and support ootwear enterprises,workers and households.

Structure o the report

Te report is organised as ollows. Chapter 1 provides an overview o the Vietnamese leather and oot-wear industry. Chapter 2 is mainly devoted to the impact o the nancial crisis on the leather and oot-wear industry at the national level. It describes the analytical ramework and methodology based onboth qualitative and quantitative concepts o assessment. Tis chapter also describes the sources o dataused or this study and the methods employed to analyse the data.

Chapter 3 presents the survey ndings. First, it provides some background on the natural and socio-eco-nomic conditions and some inormation on the leather and ootwear industry in the location reviewed

(Ho Chi Minh City) where surveys were conducted that included enterprises, workers and households.Second, the main ndings rom the leather and ootwear enterprises surveyed and the workers andhouseholds aected are presented. Tird, a summary and analysis o the surveys and specic recom-mendations or gender equality and more inclusive labour markets are provided. Chapter 4 summarisesand discusses the main ndings and derives conclusions and policy implications, including the linkagesbetween the national context and the survey ndings and the policy implications, ocusing on supportor a) enterprises, b) workers and c) households.

Overall research methodology

Te study is based on empirical eld surveys and ocus group discussions. Te eld surveys include

leather and ootwear enterprises, the workers aected and their households/amilies. In addition, dier-ent activities such as ocus groups, open-ended interviews and other participatory activities were carriedout at the dierent levels to collect inormation related to the study.

Apart rom the primary data, the secondary data in this study was collected rom dierent sources suchas yearly statistical books published by the General Statistical Ofce (GSO), Ho Chi Minh City Sta-tistical Ofce (HCM SO), data supplied by authorities at the national, sectoral and local levels. Alsoreerenced were annual reports, master plans rom proessional departments at the national and sectorallevels. Te related research and project reports are also an interesting source o secondary data.


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1 Overview o the Vietnamese leather and ootwear industry

11 Sector structure and geographic locations

Te number o leather and ootwear enterprises has gradually increased since the late 1990s. According

to GSO and Leaso, there were about 89 leather and ootwear enterprises in Vietnam in 1997, but thisgure has increased to about 507 in 20085. Geographically, most o them (385 enterprises or 76%) arelocated in the south, particularly in the southeast region (mainly in Ho Chi Minh City, Binh Duong,Dong Nai Provinces); there are 112 enterprises in the north (mainly located in Hai Phong, Hanoi andother provinces in the North) and 10 enterprises in the central region (Tua Tien Hue, Da Nang,Khanh Hoa). Similarly, most o the production capacity o the leather and ootwear industry is concen-trated in HCM City, Binh Duong and Dong Nai provinces6 (Figure 1.1).

Figure 1.1: Production capacity o the leather and ootwear industry in 2008 by geographiclocation

Source: Leaso

12 Structure o the leather and ootwear industry by type o enterprise

Te leather and ootwear industry is composed o dierent types o enterprises including state-owned,private, limited, oreign-owned and joint venture enterprises. Among domestic enterprises, non-stateowned ones are predominant, but the majority o them are small-scale enterprises that act as subcon-tractors to large oreign companies (70%).

Te number o oreign-owned enterprises has signicantly increased since the late 1990s. In 1997, therewere about 50 oreign-owned enterprises, but in 2008, this gure was about 235. Most oreign-ownedenterprises are rom aiwan and South Korea. Tese enterprises are large-scale businesses with strongnancing. Many oreign-owned enterprises employ thousands o labourers such as Pou Chen, Poyuen(aiwan), Shang Hung Cheng, ea Kuang VN and Hwa Soung (South Korea). Tese enterprises con-tribute about 65 to 70% o the total ootwear exports o Vietnam. Most enterprises are leather and oot-

wear producers (465); very ew o them are supplier enterprises (42).

5 Tese gures exclude the small household ootwear producers; in 1997 there were about 4,160 ootwear, leather and tanningestablishments.

6 In 2008, total production capacity o the leather and ootwear enterprises was estimated at about 737 million pairs (Leaso).


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able 1.1: ypes o leather and ootwear enterprises

Footwear, hand-bag enterprises

anneries otal

State-owned enterprises 6 6

Non-state owned enterprises 224 32 256

Joint venture enterprises 17 17

Foreign-owned enterprises 218 10 228

otal 465 42 507

Source: Leaso

13 Employment

As a labour-intensive industry, the number o workers employed in ootwear and leather enterprises hasincreased considerably over the last ew years. In 2008, there were about 650,000 employees7 workingin leather and ootwear enterprises, accounting or about 10% o total labour in industrial sectors.

Generally, the majority o workers are women, accounting or about 80% o the total workorce o theleather and ootwear industry. Te majority o workers who work in leather and ootwear enterpriseslocated in HCM City, Binh Duong, Dong Nai are rom other provinces, particularly the poor provincesin the north central, eastern south and western south regions where arming is the most common ormo employment due to a lack o alternatives.

able 1.2: Workers employed in the ootwear industry over the 20002008 period

2000 2002 2003 2004 2005 2006 2007 2008

Footwear workers (thousand) 400 470 480 510 540 570 610 650

% o industrial workorce 11.4 11.1 10.3 9.9 9.6 9.7 11.2 10.6

Source: Leaso

Literacy among leather and ootwear workers is low, most o them have a lower secondary level educa-tion, and some only completed primary school, making it difcult to read and write. Coming romrural areas, the majority o workers do not have any proessional skills or knowledge o leather andootwear production8. In order to start jobs at enterprises in the leather and ootwear industry, theynormally have to attend two-week long basic training. According to Leaso, the enterprises do not paymuch attention to training and education. Generally, new employees are given very short theoreticaltraining. Tey then start to work in production. On-the-job training (in-house training) is the mostcommon orm o training. Here, the skilled workers train and help newcomers. Sometimes enterprisesinvite trainers rom vocational schools to train their workers. Te new workers could learn theory atvocational schools and then get practical experience at enterprises. In some cases, the vocational schoolsintroduce their graduates to the enterprises. Due to the low level o proessional skills and knowledge,labour productivity in the leather and ootwear industry in Vietnam is relatively low compared to othercountries in the region.

7 Tis gure excludes the labourers working in small household ootwear producers and small-scale input suppliers.

8 According to Leaso, between 80 and 90% o new workers in the leather and ootwear industry do not have any training inproessional skills and knowledge when they start working in leather and ootwear enterprises.


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According to Leaso, income in the leather and ootwear industry is relatively low compared to otherindustrial sectors. Income varies considerably between the dierent regions. In the north, monthly aver-age income ranges rom VND 1,100,000 to 1,400000 (rom USD 60 to 78). In the south, this gureranges rom VND 1,700,000 to 2,000,000 (rom USD 94 to 110). Generally, during high inationaryperiods, income is inadequate to cover living expenses. In recent months, workers have aced more di-culties due to a drastic increase in the prices o commodities and living services such as housing, child

care, electricity, water and transport.

14 Production

able 1.3 shows that output o the ootwear and leather industry has gradually increased over the20022008 period. Footwear production, or example, almost doubled rom 333 million pairs to about620 million pairs. Sport shoes are the main products, accounting or about 60% o total output. Ladiesshoes also increased rapidly rom 66 million pairs in 2002 to 121 million pairs in 2008.

In comparison with other countries, related and supplier industries or leather and ootwear in Vietnam

are underdeveloped. According to Leaso, domestic supplier industries have only been able to provide40% o total inputs or leather and ootwear enterprises in Vietnam until now. In 2008, tannery enter-prises produced only 130 million square eet o processed leather, meeting a small part o demand romproduction enterprises. Moreover, other inputs such as machines, parts and chemicals, are importedrom other countries such as South Korea, aiwan and China.

able 1.3: Leather and ootwear production over the 20022008 period

Unit 2002 2003 2004 2005 2006 2007 2008

Footwear million pairs 333.2 393.0 420.2 472.7 579.3 614.7 620.7

Sport shoes million pairs 180.0 220.3 243.9 272.9 381.6 391.6 377.0Canvas shoes million pairs 28.0 25.8 20.9 42.0 35.5 38.3 49.7

Ladies shoes million pairs 66.7 78.7 89.0 90.0 87.1 110.5 121.6

Other million pairs 58.5 68.2 66.5 68.3 75.1 74.2 72.2

Handbags million products 33.7 35.0 41.0 51.7 70.0 80.0 88.0

Finished leather million sq eet 25.0 32.0 39.0 47.0 80.0 120.0 130.0

Source: Leaso


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Figure 1.2: Structure o ootwear production by product type (in %)

15 Footwear exports

Footwear exports have gradually increased since 2000, especially in recent years as Vietnam has becomemore integrated with the global market9. In the last ew years, annual growth in ootwear exports hasbeen high (Figure 1.3). But it is unlikely to retain this level due to a sharp drop in import orders romthe main partners ollowing the economic recession in 2008.

Figure 1.3: Leather and ootwear exports over the 19952008 period (in USD million)

Source: Leaso

9 BA between Vietnam and the USA went into orce in December 2001; Vietnam became an ofcial member o WO in January2007.

0

5

10

15

20

25

2000' 2001 2002' 2003' 2004' 2005' 2006' 2007' 2008'

%

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

MillionUSD

Annual growth rate (%) Share in total export (%) Footwear export


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Te main export markets or Vietnamese ootwear are the EU, the USA and several other countries. Temain importers in the EU are England, Germany, the Netherlands, Belgium, France and Italy. Althoughootwear exports have increased every year since 2002, there has been a considerable change in the ex-port market. Te EU market share has gradually decreased rom around 73% in 2002 to about 52%in 2008. Specically, the market share decreased rom 17% to 11% in England, rom 13.5% to 7.6%in Germany and rom 10% to 7.5% in the Netherlands. Tese markets have shrunk considerably since

2005 when the EC investigated and imposed an anti-dumping tax on upper leather shoes importedrom Vietnamese ootwear enterprises10. In contrast, US market share has increased signicantly romaround 11% in 2002 to about 23% in 2008. During the same period, the percentage o Vietnameseootwear exported to other countries increased rom 13.6% to 22.2% (Figure 1.4).

Figure 1.4: Market share or Vietnamese ootwear exports over the 20022008 period (in %)

10 On 7 July 2005, the EC ofcially decided to investigate the dumping o leather uppers ootwear imported rom Vietnam and China.

Ater one year o investigation, the EC concluded in November 2006 that the Vietnamese enterprises surveyed did not meet thecriteria or a market economy in accordance with EC law. Consequently, the EC imposed an extra import tax on upper leather shoesimported rom Vietnam, a rate o tax that gradually increased rom 4.2% in April, to 8.4% on June 2, 2006; to 12.6% on July 17,2006 and to 16.8% in September, 2006 (Leaso).


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2 Sector impact o the economic crisis at the national level

21 Introduction

In line with the above analysis, the integration o Vietnam into regional and global markets, particularly

its accession to the WO in 2007, has created many opportunities or the Vietnamese ootwear andleather industry by expanding the export market. Over the last ew years, ootwear exports have gradu-ally increased every year. However, the industry has aced many challenges since 2005 when the EClaunched an anti-dumping investigation and imposed an extra import tax on upper leather shoes romVietnam. Te situation has become even more serious in recent months due to both the global nancialand economic crisis and the EU removal o Vietnam rom a list o countries that have been granted theGeneral System o Preerences (GSP).

According to group discussions with Leaso and MOI specialists, it is difcult to separate the specicimpact o the events above (anti-dumping11, nancial crisis12 and ending the GSP13) or the Vietnameseleather and ootwear industry. However, the relevant stakeholders stated that the global nancial andeconomic crisis has seriously aected the leather and ootwear industry o Vietnam. Tey estimated thatthe number o orders rom the main import partners has allen considerably since the global nancialcrisis started. Te situation was the most serious at the end o 2008 and during the rst two quarters o2009. In order to assess the impact o the economic crisis on the leather and ootwear industry at thenational level, we used the exponential smoothing technique and the econometric model in this study.

22 Changes in leather and ootwear exports

Monthly statistical data o ootwear exports indicate that ootwear exports during the rst seven montho 2009 decreased signicantly compared with 2007 and 2008 (able 2.1.). Te trend in monthlygrowth o ootwear exports suddenly changed in January o 2009 (Figure 2.1.). Compared to 2007 and2008, ootwear exports decreased by about USD 275 million in the rst seven months o 2009. It willprobably be difcult or the Vietnamese leather and ootwear industry to meet its ootwear export planin 2009 o about USD 5.1 billion14.

11 As previous ootnote.

12 Te global nancial crisis originated in late 2007 in the USA and spread rapidly around the whole world. Te most serious periodrecorded began in the 3Q 2008 in the world as well as in Vietnam.

13 Te EC took the decision to remove Vietnam rom the countries granted GSP in January 2009.

14 Estimates or 2009 indicate that ootwear and leather exports will be about USD4.59 billion, ullling about 90% the industry exportplan (Leaso).


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able 2.1: Monthly exports o ootwear over the 20072009 period (in USD million)

Months 2007 2008 2009 Dierence (+/)

2008/07 2009/08

Jan 379.5 468.9 357.5 89.4 111.4

Feb 232.5 232.4 294.1 0.81 61.7

March 278.3 312.8 278.6 34.5 34.2

April 285.5 341.2 352.6 55.7 11.4

May 371.5 432.0 374.5 60.5 57.5

June 408.1 442.2 394.7 34.1 47.5

July 384.4 460.7 361.6 76.3 99.1

Aug 336.8 392.0 n/a 55.6 n/a

Sept 245.0 310.6 n/a 65.6 n/a

Oct 301.2 395.6 n/a 94.4 n/a

Nov 361.8 418.3 n/a 56.4 n/a

Dec 420.6 518.8 n/a 98.2 n/a

Source: MOI

Figure 2.1: Monthly ootwear exports over the 20072009 period

Source: MOI

o ully evaluate the impact o the global economic downturn on export volume, we employ the expo-nential smoothing technique to create a orecast or the period starting in Q3 o 2008 based on histori-cal data. We then measure the dierence between the actual and orecasted data.

Te Holt-Winters multiplicative method was used to build the orecast series. Tis method is appropri-

ate or series with a linear trend and multiplicative seasonal variation. Te smoothed series is given by:


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Ext+k

=(a+b.k)ct+ k

where:a is permanent component (intercept)b is a trend

c is a multiplicative seasonal actort is a yeark is a month

Te biggest limitation o the analysis is the unavailability o a long series o export volume data. Hence,we could not calculate the seasonal adjustment coefcients to remove it rom the data. Tereore, theexponential smoothing technique was applied.

Te exponential smoothing technique is an adaptive orecast technique. Te orecasts are thus createdbased on the latest estimated seasonal coefcient. Tereore, it does not ully reect the real seasonaluctuation.

able 2.2 shows the orecasted and actual data and the dierence between the orecasted and actual ex-port volume or the leather and ootwear industry. Te data shows that, since the rst seven months o2009, the observed export volume has always been lower than the orecasted one. It is possible that thisis a result o the impact o global economic downturn on the leather and ootwear industry.

able 2.2: Forecasted and actual ootwear exports and dierence between them

Month/year Forecasted EX(USD)

Observed EX(USD)

Gap (ForecastedEX Observed EX)

% Gap/Observed

July 2008 412681670.9 460681468 47999797.06 10.4193

August 2008 380743743.7 392443838 11700094.28 2.981342

Sept 2008 198998937.2 310557445 111558507.8 35.92202

Oct 2008 334027498.4 395634862 61607363.62 15.57177

Nov 2008 382571889.5 418258099 35686209.49 8.532102

Dec 2008 443768263.4 518790893 75022629.64 14.46105

Jan 2009 562604081.6 357516292 205087789.6 57.3646

Feb 2009 286190742.3 294129663 7938920.733 2.699123

Mar 2009 352600958.5 278563725 74037233.54 26.5782

Apr 2009 356396842.5 352643162 3753680.477 1.06444

May 2009 430423624.5 374472280 55951344.54 14.9414

June 2009 490384056.7 394663320 95720736.74 24.2538

July 2009 451167922.1 361613392 89554530.05 24.7653

Figure 2.2 illustrates the series o actual and orecasted export volumes and the dierences betweenthem. Prior to June 2008, the orecasted and actual gures are closely correlated. Ater 6/2008, however,they vary considerably.


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Figure 2.2: Te orecasted and actual volume o leather and ootwear exports and the dierencebetween them, 20062009

EXSM: Te orecasted leather and ootwear export volume using the exponential smoothing method

23 Econometric model

231 Defnition o model

In an attempt to quantiy the impact o the global downturn on the leather and ootwear industry, aneconometric model analysing enterprises total return in the researched period is built. In the model,total turnover is introduced as an explained variable; total asset value, ater-tax prot and the numbero workers at the end o the previous year are explanatory variables. Te argument or this model is thatassets rom the previous year are used in production in the subsequent year while a proportion o protin the previous year becomes an investment in production or the subsequent year.

Even though the global nancial crisis started in December 2007 in the USA, it did not aect the Viet-namese economy until 2008. It is possible that the eects will not end in 2008 but will last several moreyears. Hence, panel data or several years beore and several years ater 2007 will be ideal or the impactanalysis. Unortunately, the 2009 nancial year has not ended so it is impossible to collect actual dataor 2009 and thus use it in the econometric model. A xed eects model is then applied to the paneldata or 2008 and the years prior with the expectation that, while controlling or asset value, ater-taxprot and labour, an enterprises turnover will be higher in the subsequent year than in the previous yeardue to the growth in the rms production and business, but turnover will all in 2008 as a result o theglobal economic slowdown.


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Te population regression unction is:

urnoverit= a

1+ a

2Asset

it1+ a

3Prot

it1+ a

4Labour

i+ a

5Y08

i+ a

6Y07

i+ a

7Y06

i+

i

where: t= 2008, 2007, 2006, .

urnoverit

is the turnover o the enterprises surveyed in the year t (in VND billion)

Assetit1

is the asset value o the enterprise in the year t1 (in VND billion)

Protit1

is the prot value o the enterprise in the year t1 (in VND billion)

Labourit

is the number o people working in the enterprise in the year t (in person)

Y08, Y07, Y06 are dummy variables or the years 2008, 2007, 2006

uiis an error term

232 Data source and methodology

Te data used in the econometric model stems rom the leather and ootwear enterprise survey whichwas conducted by MOI in March 2009. Te central tool used in the survey is two questionnaires.One questionnaire investigates production capacity and the other aims to collect data pertaining to planimplementation in the leather and ootwear industry in Vietnam up through 2010. More than one hun-dred enterprises in the sector were invited to participate in the survey but only 66 o them responded asthe survey was not mandatory. Enterprises were asked or inormation about the current status o tech-nology, waste processing, product quality and they were asked about output, investment, production,business, workorce and income in the period 20052008 and projected gures in 2009.

Although panel data is available or the period 20052009, only three-wave panel data o 2006, 2007and 2008 is used in the econometric model. Regression or the year 2005 cannot be made because theregression unction above contains lag variables (t-1) as explanatory variables. And, projections or 2009might be incorrect because the data projections were made very early in the 1st quarter o the year atthe time the survey was conducted. Moreover, it should be noted that 20062008 is a good period orassessing the net impact o the global economic downturn on Vietnams leather and ootwear industry.Tis period does not include the years 2005 and 2009 when other important issues certainly shockedthe industry. In 2005, the European Commission (EC) initiated an anti-dumping lawsuit against Viet-nam and, in April 2006, a temporary anti-dumping tax o 16.8% was imposed on Vietnams leather andootwear products. Ater that, the tax was reduced to 10% and remained eective until October 2008.

Hence, the anti-dumping tax aected Vietnams leather and ootwear industry in 2006, 2007 and 2008.And i the eect was the same all three years (as same tari rate), it can be argued that the drop in theindustrys production between 2007 and 2008 was caused by the global economic downturn. In January2009, Vietnam was ofcially removed rom the GSP which is also an obstacle or Vietnams leather andootwear industry. However, the eect o this issue cannot overlap with that o the global economic cri-sis since 2009 data is not included in the research period o the econometric model.

Another note is that all value provided by respondents is nominal. Since the nominal value containsination actor, the real value, especially, the real growth o the enterprises cannot be observed directly.Tereore, to eliminate the impact o ination, variables related to value in the data are adjusted bythe Consumer Price Index (CPI)15. In addition to the difculty o dealing with nominal data, another

15 See Statistical Book 2008 by GSO, able 105.


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problem arises because a lot o data is inadequate. O the 66 questionnaires that were lled out, only 31which have all inormation o return, asset, prot and labour in the phase 20052008 are valid or theeconometric model.

With the panel data o 31 cross-sectional units and 3 time series, the xed eects model is a plausiblyappropriate one or the empirical analysis. Method o Pooled Least Square is applied in the model re-

gressing enterprises turnover on lagged asset, prot and labour.In the denition o the econometric model, labour in the current year is introduced as an explanatoryvariable. However, in the nal model, the labour in the previous year rather than current labour is usedto explain the variation o enterprises turnover. Te reason is the insignicance o number o presentlabour versus high signicance o labour in the past in the estimated result. Te dependence o currentturnover on the number o workers in the preceding year can be explained by the act that, in many cas-es, orders and production, in which labour is consumed, take place in this year but the payment, whichgenerates enterprises turnover, is implemented in the year ater.

233 Projected results

Te estimated regression model obtained rom Eview is as ollows:

Dependent Variable: URNOVER

Method: Pooled Least Squares

Included observations: 31 ater adjusting endpoints

Number o cross-sections used: 3

otal panel (balanced) observations: 93

Variable Coefcient Std. Error t-Statistic Prob.

ASSE _1? 0.964289 0.104757 9.204966 0.0000

PROFI_1? 3.492570 1.486376 2.349722 0.0211

LABOUR_1? 0.035915 0.007324 4.903692 0.0000

Fixed Eects

_06C 93.38690

_07C 69.37403

_08C 88.06800

Rsquared 0.967391 Mean dependent var 368.9913

Adjusted Rsquared 0.965517 S.D. dependent var 1100.184

S.E. o regression 204.3004 Sum squared resid 3631264.

Log likelihood 623.5822 Fstatistic 1290.483

DurbinWatson stat 1.733231 Prob(Fstatistic) 0.000000


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Te sample regression unctions (SRF) are illustrated in Figure 2.3

Figure 2.3: Simulation model assessing the impact o the global economic recession on turnoveror leather and ootwear enterprises in Vietnam

All coefcients and statistics are statistically signicant at the ve percent level (Prob < 0.05). Te rawR_square as well as the adjusted R_square (R_square in the model containing a common intercept)is about 0.96, which shows that the variation o enterprises return is mostly explained by independ-ent variables in the model. Tat an increase in either asset value or prot or labour in the year beore

leads to a rise in enterprises return in the current year conrms that the estimated result is accurate ineconomic terms. Intercepts obtained rom the xed eects method are the main ocus o the model

which helps to explain the slowdown o leather and ootwear enterprises in 2008, the year o the globaleconomic downturn. On average, the returns o enterprises in 2007 were VND 24 billion higher thanin 2006, all other things being equal. Te growth in returns between years makes sense and can be con-vincingly explained by the growth in production and business o the leather and ootwear enterprises.However, such growth is not observed in 2008, which is represented by a lower intercept in 2008s sam-ple regression unction compared to the intercept in 2007. Controlling asset, prot and labour, returnso enterprises in 2008 is an average o VND 19 billion lower than in 2007. A reasonable explanationor this is the impact o global economic downturn in 2008 which has created many challenges or the

leather and ootwear enterprises in Vietnam because o a rapid drop in orders rom the main importpartners. At the same time, purchasing power in the domestic market has also weakened due to highination and a decrease in consumer earnings.

69.3

-88.0

-93.3

Turnover

Asset, Profit, Labor

Asset , Labor

SRF_2008

SRF_2006

SRF_2007


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3 Survey fndings

31 Introduction

In order to capture the impact o the economic recession on the leather and ootwear industry in this

study, several surveys were carried out or enterprises, the workers aected and their households/ami-lies. Tis section describes the survey methodology and provides some inormation about the socio-economic conditions o the locations surveyed.

311 An overview o locations surveyed

Located in the south o Vietnam, Ho Chi Minh City (HCM) is the biggest and most crowded16 city.Tanks to avourable conditions on transportation networks, HCM City is the most important gatewayto the southeast and the Mekong Delta region. For a long time, it has been well-known as the most dy-namic city or economic activities and a leading engine or growth in the south.

Administratively, HCM City is divided into 24 districts: 14 are urban districts and 5 are rural districts.In 2008, the population o HCM City was about 6.8 million; about 85% o the population lives inurban areas. Its GDP was about VND 290,390 billion in 2008, with a respective share o industry atabout 46%, service at 52.7% and agriculture at 1.3%. About 53% o GDP is contributed by the non-state-owned economic sector, 26% by oreign investment and 21% by the state-owned economic sector.Over the 20002008 period, the annual growth o GDP was relatively high17.

Figure 3.1: Map o Vietnam and Ho Chi Minh City

16 Area o HCM City is about 2,095 km2 and its population density is 3,251 people per km2.

17 Annual growth in GDP was 9.0% in 2000; 9.5% in 2001; 10.2% in 2002; 11.4% in 2003; 11.7% in 2004; 12.2% in 2005; 12.2% in2006; 12.6% in 2007 and 10.7% in 2008 (HCM City Statistical Ofce).

Locations surveyed


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HCM City is well-known as a centre o industry, trade and service in Vietnam. Tere are many Viet-namese leather and ootwear enterprises located in HCM City. According to the Department o LabourInvalid and Social Aair (DOLISA) and the HCM City Statistical Ofce, there are about 1,682 leatherand ootwear establishments18 and the number o workers employed in the sector is about 232,139.

312 Survey methodology

Under the agreement between GZ and Hue University College o Economics (HCE), the surveys wereconducted in Ho Chi Minh City. Tis section describes the processes used to select enterprises, workersand households or the surveys.

Selection o the enterprises surveyed

Based on the objectives o the study, the main survey activities ocused on the ootwear and leather en-terprises located in Ho Chi Minh City. In order to select the enterprises or the survey, several meetings

were organised with key inormants and local partners such as the Department o Industry and Com-merce (DOIC), the Department o Labour, Invalid and Social Aairs (DOLISA), the Shoes and Leather

Association o Ho Chi Minh City (SLA), the Vietnam Leather and Footwear Association in HCM City(Leaso). In addition, relevant documents and maps relating to the location o ootwear and leather en-terprises in Ho Chi Minh City and neighbouring provinces were analysed. Based on the research objec-tives, many related issues were careully considered.

Te criteria related to the selection o the enterprises surveyed were the ollowing:

Te sample o survey enterprises should be representative o the leather and ootwear sector.

Te survey enterprises should capture the various upstream and downstream levels o the leather andootwear sector (e.g. production and supply enterprises).

Te selection o the enterprises should consider the variations in the dierent business size.

Te selected locations should represent the various types o leather and ootwear enterprises (e.g.state-owned, private, joint venture and oreign-owned enterprises.

Selection o workers and households or the survey

A certain number o workers was randomly selected rom a list rom the enterprises surveyed . Selectiono workers was also made according to dierent criteria such as sex, age, education, skill level, positionand type o contract (temporary and permanent contract).

In this study the workers surveyed were generally divided into two groups, namely those who have beenaected and those who have not. Te workers aected were urther subdivided into those who have ex-perienced work adjustments and those who have been laid o . Attempts were made to place phone callsto workers who had been retrenched based on a list. Unortunately, this was not possible in all cases be-cause many workers who had been retrenched had changed their place o work and their mobile phonenumbers. Tereore, the new interviewees are introduced by the retrenched workers who interviewerssuccessully contacted.

Ater the surveys were carried out with the workers, their households/amilies were contacted, some othem were interviewed ace-to-ace while others were interviewed by phone.

18 Including the small-scale leather and ootwear producers and small-scale input suppliers.


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32 Findings rom the enterprise survey

321 Profle o the enterprises surveyed

Te table below provides basic inormation about the enterprises surveyed in the leather and ootwearindustry.

able 3.1: Basic inormation about the enterprises surveyed

otalenterprises

Footwearenterprises

Leather andinput suppliers

otal 25 16 9

Ownership Foreign-owned companies 2 2

Joint stock companies 4 4

Co. Ltd. * 14 6 8

Private enterprises ** 5 4 1

Years o operation < 10 years 6 1 5

1020 years 16 14 2

20 years or more 3 2 1

Market Domestic only 7 3 4

Export only 7 7

Domestic and export 11 6 5

No. o enterprisesaected in terms o

Product 23 14 9

Workorce 24 15 9

Source: Field work in 2009* Company limited is an enterprise in which members are responsible or all liabilities and other property obligations therein

limited by the capital which such members commit to contribute to the enterprise (According to Vietnamese Law on enter-prises)

**Private enterprise is an enterprise owned by an individual. Its owner is responsible or all o the enterprises activities by his/her properties (According to Vietnamese Law on enterprises)

25 enterprises were involved in the survey, o which 16 were ootwear enterprises and 9 were leather andinput suppliers. All o the leather and input suppliers are in the 1st tier as they directly supply ootwearenterprises without any intermediaries. Te chosen number o limited companies was highest this kindo enterprise accounts or the highest proportion o total leather and ootwear enterprises in reality.

322 The impact o the global economic crisis on the leather and ootwear enterprisessurveyed

Tere are a number o ways in which the global economic crisis has spread to Vietnams leather andootwear enterprises. Data analysis o the enterprises surveyed shows that the impact o the global eco-nomic crisis on leather and ootwear enterprises can be considered signicant.


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Drop in revenue and orders

As consumers rom both the domestic market and overseas, especially rom developed countries,abruptly cut back on spending in 2008 and the beginning o 2009, demand or leather and ootwear/in-put supplies has allen sharply. Revenues rom the enterprises surveyed declined by an average o 36% at95.8% o enterprises. Domestic and export orders also dropped by 30.3% and 41.3% respectively. Te

rms most aected have been those processing or subcontracting or oreign partners such as aiwan,Korea and the EU as these rms are passive in seeking out customers/markets or dependent on their or-eign partners. When the crisis occurred, many o oreign partners shited their contracts/orders to othercountries like Cambodia, Myanmar and Indonesia which have lower production costs. Te situationis similar or small and medium enterprises that are technologically backward and have a narrow rangeo customers. In contrast, some large companies which are actively seeking out new customers and usemodern technology have been less aected by the crisis. Te same holds true or some micro and smallenterprises that are active in product design. O the enterprises surveyed, there was only one companythat experienced an increase o about 25 percent in both revenue and orders during the crisis. Eventhough demand rom existing customers ell during the crisis, the company sought out new customersand was able to increase its revenues as a result.

able 3.2: Drop in revenue and orders o the enterprises surveyed

Mini-mum

Maxi-mum

Average

otal Foot-wear

Leatherand in-puts

Jointstock

Co.Ltd.

Private Foreign-owned

Percentage o decreasein revenue

7.5 80.0 36.2 28.9 48.3 20.6 41.2 40.0 25.0

Average percentage odecrease in domesticorders

5.0 60.0 30.3 36.3 24.4 30.0 25.0 40.0

Average percentageo decrease in exportorders

10.0 100.0 41.3 31.9 58.0 45.0 42.5 30.0

Source: Field work in 2009


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Figure 3.2: Drops in revenue, domestic orders and export orders in the ootwear enterprisessurveyed since Q2/2008 (in %)


Figure 3.3: Drops in revenue, domestic orders and export orders in the leather enterprises andinput suppliers surveyed since Q2/2008


able 3.2 shows that the revenues and export orders in leather and input supply enterprises declinedmore than in ootwear enterprises. For example, one leather companys exports to China ell by 100%because the companys main oreign partners closed at the time o the global crisis. In addition, someleather companies produce luxury materials/products (i.e. crocodile leather products) which are highlyelastic to consumer income. As a result, demand or these products declined signicantly.

Comparing the eects on companies depending on the type o ownership, limited companies and pri-vate enterprises were likely to be aected more than joint stock or oreign-owned companies. Te aver-age all in revenue or the ormer group was more than 40% while the latter group experienced a dropo less than 25%. Generally, the majority o limited companies and private enterprises are medium or

0 10

25.0

20.6

26.2

42.5

.28 9

30.0

30.0

42.5

36.3

30.0

45.0

23.1

31.9

20 30 40 50

foreign-owned

company

joint-stock

company

Co. ltd.

private

enterprise

Total footwear

enterprises

Downturn in export order (%)

Downturn in domestic order (%)

Downturn in revenue (%)

e

50.6

30.0

48.3

23.6

30.0

24.4

58.0

58.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

Co. ltd.

private

enterpris

Total leather

& input

suppliers Downturn in export order(%)

Downturn in domestic order(%)

Downturn in revenue (%)


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small in size, weak in terms o competitive advantage and do not have potential customers. Tereore,this group is likely to experience a steeper all in revenue than the other group.

able 3.3: Enterprise expectations o demand or their products over the next 6 months

% o respondents Average expected demand

otal Footwear Leatherand

inputs

otal Footwear Leatherand

inputs

Increase 66.7 60.0 77.8

+13.9% +9.8% +20.5%Decrease 12.5 20.0

No change 20.8 20.0 22.2


In general, leather and ootwear enterprises have a positive outlook about demand or their main prod-

uct over the next six months with average expected growth o 13.9% compared to the current period.wo-thirds o the companies surveyed expect that demand or their main product will recover over thenext six months. Many o them have new orders/contracts although they are still smaller in size and

with shorter lead times. During the crisis, the act that some companies closed will be an advantage orthe remaining companies as the companies that closed will sell their machines and equipment at cheap-er prices and their customers may shit to the remaining companies. In addition, many companies hopethat the EC will abolish the anti-dumping tax or Vietnamese shoes sometime soon. Tis will make iteasier or Vietnamese ootwear companies to export to the EU. In the domestic market, the peak de-mand period is normally rom OctoberMarch. Tis would also bolster sales o ootwear at the end othis year.

20.8% o the companies said that they have not seen any sign o recovery as they have not received anynew orders or customers. Tey might have new orders but at lower prices, meaning that their produc-tion would not be able to compensate or the higher price o inputs (wages, electricity and water, ad-ministrative costs). 12.5% o companies responded that demand or their main product is likely to con-tinue alling. As these companies are all subcontractors or big ootwear companies, they ear that theircontracts may be cancelled any time this year.

323 Difculties in arranging fnancing

able 3.4: Number o enterprises who had diculties arranging nancing

No. o enterprises % o enterprises

Operating/working capital requirements 15 62.5

rade nancing 9 47.4

Other business loans 13 54.2


In addition to the global economic crisis, high ination in 2008 orced Vietnamese banks to restrictloans. Except or leather and ootwear enterprises that had strong nancial resources (like oreign-

owned companies) or had very good relationships with their partner banks or needed only small loans,the remaining enterprises all had more difculty arranging nancing than beore. In act, as or many


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surveyed enterprises, Vietnamese government provided nancial assistance or enterprises such as sup-porting interest rate payments (4%); 62.5% o the those enterprises interviewed complained that thebank procedures or getting loans were too difcult. Although realising the nancial support rom gov-ernment, most o the enterprises did not have enough pledges or their loans. Moreover, the enterprisesalso elt that the supporting interest within 8 months is too short to stimulate enterprises in the leatherand ootwear industry.

324 Response mechanisms o leather and ootwear enterprises

Te table below shows the measures the enterprises surveyed undertook to cope with the impact o theglobal crisis.

able 3.5: Te responses o ootwear and leather enterprises

% o enterprises that employed this responseAverage importance *

otal Footwear Leather and Inputs

Cancel/delay upgrade toexisting acilities

62.5 62.5 55.6 3.83

Cut back in production 87.5 75.0 100.0 2.67

Reduce non-labour costs 75.0 68.8 77.8 3.08

Seek out new customers/markets

62.5 50.0 77.8 3.92

Halt new recruitment 50 62.5 22.2 4.7

Reduce labour costs 37.5 31.3 44.4 5.04

Seek other sources o

nancing

12.5 6.25 22.2 6.29

Subcontract some processesto other companies

16.7 18.8 11.1 6.17

Automate some o theprocesses

8.3 12.5 6.54

Increase production quotaso workers who have beenretained

8.3 12.5 6.63

Increase number o hoursworked by workers whohave been retained

8.3 12.5 6.63

Delay payment o salaries 12.5 12.5 11.1 6.54

Delay payment o suppliers 33.3 37.5 22.2 5.25

* 1 = most important, 7 = least important



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Figure 3.4: Response mechanisms o enterprises (%) that employed each response


Due to drastic reductions in revenue and orders, ootwear and leather enterprises have had to pursuemany options to cope with the crisis. Figure 3.4 shows that the most important response mechanismsare to cut back production, reduce non-labour costs, seek out new customers/markets and cancel/delay upgrades to existing acilities. 87.5% o the enterprises were orced to cut back on their produc-tion. Tis appears to be the most common solution with an average mark o 2.67. Some companies aremuch lower level or subcontracting or other local companies to create more work or their employees(16.7%). However, this is just temporary or a short-term solution. Some o the processes that they cansubcontract include sewing leather uppers, labelling, and packaging.

It is interesting that the ootwear and leather companies did not ocus on reducing labour costs in thecontext o the crisis (only 37.5% o the companies used this solution; leather and input suppliers pur-sued this solution more oten than ootwear enterprises). In an attempt to avoid job losses, ootwear andleather companies have sought alternatives. Many managers noted that skilled and experienced workersin the ootwear and leather industry are very rare. I workers are laid o, it is difcult to nd workersagain once their business has recovered ater the crisis. Most companies have thus tried not to lay o

workers and have retained employees by reducing working time. For example, they have reduced thenumber o working days per week and the number o working hours per day and created alternative

work arrangements. Workers were thereore only oered regular hours and shits with no overtime. In-stead o reducing their workorces, three-ourths o the companies looked or ways to reduce non-labourcosts. Tey tried to save on costs in the production process such as those or electricity, water, materials,chemicals, ofce paper and implemented a 5S program (a quality improvement program rom Japan toimprove working environment and productivity, short or seiri, seiton, seiso, seiketsu, shitsuke).

Another way enterprises responded to the crisis was to explore other potential markets (62.5% o theenterprises surveyed). Some companies looked or new international customers in places such as EasternEurope (Russia, Hungary), Japan, and Singapore. 20.83% o the companies are also paying more at-tention to the domestic market. However, they have to do market research, design products and set updistribution channels. Tis would be a great challenge or these enterprises.

Due to difculties during the crisis, 62.5% o enterprises cancelled/delayed upgrades to their existingacilities, 50% o them have stopped hiring and 12.5% have to nd other sources o nancing. De-lays in salary payments do not appear common as only 12.5% o enterprises employed this response.

%

0 10 20 30 40 50 60 70 80 90 100

Cancel/delay upgrading of existing facilities

Cut back production

Reduce non-labour cost

Sought new customers/markets

Halt new recruitment

Reduce labour costs

Seek other sources of financing

Subcontract some of the processes to other companies

Automate some of the process es

Increase product ion quotas of workers who have been retained

Increase number of hours worked by workers who have been retained

Delay payment of salaries

Delay payment of suppliers


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I enterprises delay payment o workers salaries, the lives o workers will be directly aected and theycould leave their companies. 33.3% o the companies delayed payment or suppliers due to difcultiesarising rom the global crisis as they had good relationships with their suppliers and they wanted theirsuppliers to share the hardship with them.

325 Global economic crisis and the workorce o ootwear and leather enterprises

Because the global economic crisis has negatively aected leather and ootwear enterprises, employeesrom these enterprises will denitely be aected by this slowdown.

Workers in the leather and ootwear enterprises during the slowdown

Te table below shows the workorce breakdown o the enterprises surveyed at the end o Q2 2008 andQ2 2009.

able 3.6: Workorce breakdown o the enterprises surveyed

End o Q2/2008 End o Q2/2009 2009/2008

No. % No. % +/ %

otal workorce 94568 100 89795 100 4773 5.05

Ownership

Foreignowned 78000 82.48 74300 82.74 3700 4.74

Joint stock 6609 6.99 7152 7.96 543 8.2

Co. Ltd. 7760 8.21 6412 7.14 1348 17.4

Private 2199 2.33 1931 2.15 268 8.17

Sector

Footwear 92563 97.88 88073 98.08 4490 4.87

Leather and inputs 2005 2.12 1722 1.92 283 14.11

Gender

Male 17863 18.89 16908 18.83 955 5.35

Female 76705 81.11 72887 81.17 3818 4.98

Duration

Permanent employees 92522 97.83 87813 97.79 4708 5.09

emporary employees 2046 2.16 1982 2.21 64 3.13

Breakdown

Management and proessionals 6340 6.7 6292 7.01 48 0.76

Production employees 82767 87.52 78154 87.04 4613 5.57

Skilled workers 39615 47.86 37309 47.74 2306 5.82

Unskilled workers 43152 52.14 40845 52.26 2307 5.35

Nonproduction employees 5461 5.77 5349 5.96 112 2.05



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Foreign-owned companies are usually big companies. Tey tend to have more employees than otherkinds o companies. Tere are only two oreign-owned companies in this study but the number o theiremployees account or 82% o the total. All o the oreign-owned companies are in the ootwear sector.

Te leather and ootwear industry attracts many labourers, especially women, who come rom disad-vantaged areas such as the countryside. Women labourers made up more than 81% o the workers at

the end o Q2/2008 and Q2/2009. Most workers sign long-term contracts (more than 1 year and nor-mally or 3 years); the short-term/temporary workers are usually apprentices. Ater the apprenticeship(around 13 months), they sign a long-term contract with their employers. Te majority o labourersare involved directly in production (87%). Management, proessionals and indirect sta only accountor 13%.

Te number o employees at the companies surveyed at the end o Q2/2009 declined by 5.05% com-pared to the end o Q2/2008, with the largest drop experienced by small and medium limited compa-nies (17.4%). In act, these companies rarely lay o their workers. However, due to the all in orders,

workers were orced to reduce their working hours/shits and sometimes they were orced to stay homereceiving 70% o their base salary. Tis led to a reduction in their income. In addition, the high ina-

tion in 2008 made their actual income worth less, thus making lie harder. As a result, many workerswillingly let their jobs. Te Co.4 in particular had a dierent response. Although the global economiccrisis led to a all in demand among existing customers, the company had a good marketing strategy and

was able to increase the number o orders. With a long-term strategy, this company increased its work-orce.

Changes in existing workorce o the enterprises surveyed as a result o the crisis

able 3.7: Changes in existing workorce as a result o the crisis

% o companies

Developed alternative work arrangements 58.33

Provided training to workers during periods o low production 37.50

Reduced working time 91.67

Reduced wages 37.50

Reduced bonuses 66.67

Reduced benets 20.83

Oered unpaid leave 12.50

Laid o workers 29.17

Subcontracted some processes or others 16.67

Automated some processes 4.17

Delayed payment o salaries 12.5


Te above table shows that reducing working time appeared to be the rst response to the crisis by oot-wear and leather enterprises with 92%. As the analysis in the previous section concluded (section 3.2.4),many enterprises have difculty nding skilled workers in the ootwear and leather industry. Tereore,only 7 enterprises, or 29% o the enterprises surveyed, laid o workers even though they were heavily

aected by the global crisis. Te remaining companies tried to nd other solutions such as reducing


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working time (e.g. not working on Saturday and Sunday, no overtime), letting workers take turns stay-ing home and receiving 70% o the base salary. Te reason or hoarding labour is that companiescompare the costs they save by keeping workers compared to the costs associated with retrenching work-ers (including compensation costs and recruitment costs in the uture once their business has recovered).

58.33% o the enterprises developed alternative work arrangements such as job sharing. One company

(Co.2) moved most o its ootwear workers to a textile actory at the same company due to a decline inootwear orders. 37.5% o companies have taken advantage o this low production period to providetraining (occupational saety, environmental sanitation, communication skills) or their employees.Some companies, such as Co.7 and Co. 25, also provided cultural activities and physical exercise.

Due to regulation by the Vietnamese government or increasing base salary, only 37.5% o the enter-prises reduced wages. However, as a result o lower productivity and ewer shits, workers received ewerbonuses at 67% o the enterprises.

In general, most o the enterprises responded to the global economic slowdown by adjusting their work-orces by developing alternatives to stabilise employees psychology, saving unnecessary costs.


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Global economic crisis and its Eects on working time and income o labourers in leatherand ootwear enterprises

able 3.8: Eects o the global economic crisis on working time and income o labourers in leatherand ootwear enterprises

Impact on average working time and income o permanent and temporary employees

Impact on average working time Permanent employees emporary employees

No change 16.7% 16.7%

Increase 0% 0%

Decrease