By Desmond Chua, Head of Region, APAC, Datasite

After months of harsh lockdowns in response to a devastating surge in COVID-19 cases, Vietnam’s government began to ease restrictions in October, putting an end to one of the strictest shutdowns in the world. At the height of the wave of infections, caused by the Delta variant, businesses were forced to operate at significantly reduced capacities. Factories housed and fed employees on premise. As a major manufacturing hub for the world, this had significant knock-on effects globally.

In late September, for example, Nike cut its sales outlook for the year due to supply chain issues, despite strong consumer demand. Although the company did not specifically mention Vietnam, over half of Nike’s shoes are manufactured in the country.

Vietnam has become an increasingly important trade partner for the US, especially as businesses sought to diversify from an overreliance on Chinese manufacturing in the face of growing trade tensions between the two global superpowers in the last five years. The total value of goods imports from Vietnam to the US came to US$79.6bn in 2020, a 436% increase on 2010, according to the Office of the US Trade Representative.

Shutdowns affect supply chains for global manufacturers

The drop in manufacturing outputs and exports affected more than the apparel industry. Shutdowns in the country are contributing to delays and cuts to global car production: Toyota announced in August that it would cut its annual output due to its inability to source parts made in Malaysia and Vietnam amidst the Delta surge in Southeast Asia.

Already, some businesses have responded to recent challenges by nearshoring their production. Spanish fashion brand Mango, for example, has shifted production away from China and Vietnam to Turkey, Morocco, and Portugal.

These challenges have slowed down Vietnam’s economic recovery from the COVID-19 pandemic. While the IMF initially forecast annual GDP growth of 6.5% for 2020 for the country in March, this was revised down to 3.8% in its latest update in October. Nonetheless, this is still higher than the 2.6% growth rate forecast for Southeast Asia as a whole.

Despite ongoing COVID concerns, dealmaking is on the rise in SE Asia

As much of Southeast Asia continue to struggle with the pandemic this disappointing backdrop does not appear to have dented enthusiasm for M&A in Southeast Asia, as significant levels of activity take place throughout the year. Deal values over the first three quarters of 2021 totaled US$149.3bn, nearly three times the total activity seen during the whole of 2020.

Get the full picture on dealmaking across APAC in our  Deal Drivers: APAC Q3 2021 report and learn about the emerging trends in mergers and acquisitions for the last quarter this year and beyond.