A rapid assessment on the social impacts of the economic crisis on two craft villages1

Vietnamese craft villages in a crisis ?

Vietnam has 2,790 craft villages with 240 being specialised in traditional crafts, generating 11 million jobs, both regular and casual, including those for the elderly, children and people with disability. According to the statistics from 38 cities and provinces, nine craft villages have become bankrupt, and 124 others are slowing down and struggling to maintain their production. In addition, 2,166 household producers from the craft villages have declared bankrupt and 468 businesses are slowing down their operations. In early 2009, over 50 percent of the workers (less than 30 percent being casual workers and over 20 percent skilled ones) from the craft villages became unemployed, which equals to over five million workers.

The outstanding debts of the craft villages, businesses, cooperatives and household producers in the reported 38 cities and provinces amount to 2,169.064 billion VND with 12.324 billion VND overdue. Many businesses have bad debts. The situation is particularly serious in the craft villages that produce fine-arts articles, iron, steel, and paper.

(A synthesis from media sources published in mid-February 2009)

I. Major findings:

This study has dispelled two major myths generated by the Vietnamese media in recent days. On the occasion of announcing the foregoing statistics, much of the Vietnamese media has concurrently generated a misleading impression that most of the craft villagers have become unemployed and fallen in critical production and living conditions, and it is the on-going global crisis that is totally responsible for difficulties of Vietnamese craft villages. Whilst this impression may be true elsewhere, it is not really the case in the three craft villages that the research team visited in the middle of February 2009.

In fact, from empirical evidence collected at focus group discussions and in-depth interviews with various social and business groups, four major findings have been extrapolated:

1. Bearing the first brunt of the economic slowdown are migratory workers to these craft villages. The reason is clear: as a result of the Asian values that remain respected and practiced strongly in northern rural Vietnam, village producers follow an implicit rule of employment: family members first, followed by relatives, fellow villagers, and the rest. In the ‘downsize’ period, this priority hierarchy becomes a sequence of unemployment, from the rest to the core. In addition, migratory workers usually are less skilful than indigenous ones who should thus be retained in order to avoid de-skilling, or to produce new designs for displays or for exhibition fairs. Therefore, immediate consequences can be recognised most obviously amongst migratory workers.

1 Nguyen Tam Giang (consultant)This component report reflects the findings of an rapid assessment in two well-known craft villages near Hanoi, i.e. Bat Trang ceramics/porcelain (in fact comprising 2 villages of Bat Trang and Giang Cao) and Ha Thai lacquer, in order to provide information on social impacts of the financial/economic crisis in craft sector in Vietnam.

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2. Both craft villages used to experience a multi-year period of robust growth, especially from their export activities. Thanks to the traditional value of thrift that is quite popular amongst northern rural people, many businesses and household producers have accumulated some savings that become useful for them to avoid credit-related problems and survive at least the initial period of the crisis. Therefore, no hypothetical signs of seriously deteriorating living conditions (casual hunger, psychological panic, child drop-outs from schools, or even sales of assets for food) have been recorded.

3. Unlike in Bat Trang and Giang Cao where households mobilise all resources for ceramic and porcelain production and business, many households in Ha Thai maintain their approach of livelihood diversification with a combination of lacquer work, agriculture, paper-gold making and others. Therefore, the impacts of the current economic crisis on households in Ha Thai are less obvious than those in Bat Trang and Giang Cao. Also, there exists a different division of labour in the production chain, resulting in different livelihood impacts, in the three villages. In Bat Trang and Giang Cao, production is more concentrated within a producer, whilst in Ha Thai, the division of labour amongst different steps of the chain is very clear. Therefore, Ha Thai businesses can be more flexible in adjusting their production scales in the difficult time.

4. The on-going global crisis is not the sole cause of the business decline in the three craft villages. Rather, their decline is caused by multiple problems accumulated over the past few years in these villages. The two biggest blows are the ‘price storm’ in early 2008 and the current ‘demand shock’. Therefore, the global crisis may apparently be viewed as the last nail in the coffin of a number of businesses and household producers.

II. Background information on the research sites:

2.1. Bat Trang and Giang Cao villages:2

Bat Trang Commune has two villages, viz Bat Trang and Giang Cao, with 11 residential units. The Commune has 1,721 households with 7,528 people. In the employment structure, 84 percent of the working-age people are directly engaged in fine-arts porcelain and ceramics production; 15 percent in trading and services, including production and supply of clay and enamel; providing services for tourists …), indirectly promoting the craft; and one percent in other services (hair-cut, hair-wash…).

Business situation: The Commune has 60 small-sized businesses (with 50 or less workers), and two army enterprises involved in ceramics and porcelain production. It has one joint-stock company for tourism and trade,3 which does not fare well so currently rents its space for other producers. The Hapro Fair in the middile of Bat Trang village has generated more outlets for its residents. Giang Cao villagers used to have more favourable position as it is located near the main road. Around 80 percent

2 The statistics from this section comes from the Chair of Bat Trang Commune People’s Committee.3 This joint-stock company belongs to the Ministry of Industry and Trade.

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of household producers have shops to sell their own products. The number of household producers was reduced from 1,200 in 2004 to 970 in 2007 and to 800 by the end of 2008. Meanwhile, the total revenues of the Commune were decreased from 226 billion VND in 2007 to 175 billion VND in 2008.4 An annual per-capita income is between 8.5 million VND and 10 million VND.

Most of cultivable land will be acquired for the concentrated site of the craft village. Not every body can afford land in the concentrated industrial site. The remaining 21 ha will be designated for growing sandalwood and mother-of-pearl trees.

Production and input supply: Main inputs for ceramics and porcelain production include clay, fuel, mould, paper packages (or pallets), gas, petroleum. Amongst these, enamel and colouring have to be imported from China and Japan, respectively. Many others, such as clay, fuel, and paper, can be supplied on credit. Workers for a producer include shapers, repairers, enamel makers, painters, kiln loaders, bakers, coal-people, and driers. As many as 70 percent of the kilns are gas-fired. The box kilns require higher labour costs while product quality is not high. Some local households are suppliers of inputs for the village producers.

Export orientation: Around 70-80 percent of businesses’ revenues chiefly come from exports. Most household producers operate as satellites for businesses.5 Products are exported to Japan, Taiwan, South Korea, New Zealand, European Community members, and the USA. Big market shares come from Asian countries due to some cultural similarities.6 As many as 70 percent of the commune households have been using broadband Internet services (ADSL). Producers have launched several hundreds of websites to market their products. All producers have their own email addresses to communicate with their customers from southern provinces and abroad. Customers can order samples or send pictures through e-communication. On-line search for customers accounts for 10-15 percent of the marketing strategy. Recently, some foreign corporate customers, such as those from Taiwan and South Korea, have purchased products at production kilns to reduce intermediary costs. They sell these products to supermarkets or other outlets in their home countries.

Gender dimension: In many cases, male workers are believed to be more skilful so are engaged in sophisticated painting work and earn more money (also due to the harmful nature of their work as a consequence of paint odour). Nevertheless, more women, normally aged 18-40, are usually employed as there exist many simple and light tasks that are more suitable to them. Women aged 40 or more do not qualify as they are seen as being too slow.

2.2. Ha Thai village:7

4 The actual figures may be higher as many craft businesses heavily rely on informal transactions.5 For instance, Minh Hai Co. one of the biggest businesses in Bat Trang Commune, produces 70 percent of their goods and have the rest made by household producers. The Director explained that for certain types of products, his company cannot obtain the quality as high as some household producers can (e.g. enamel), so contract them out.6 Minh Hai Co. exports 70 percent of its products to Japan and 20 percent to Europe.7 The statistics from this section comes from the Chair of Duyen Thai Commune People’s Committee.

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Ha Thai village has around 780 households with 3,300 people. As many as 85-87 percent of the village households are engaged in lacquer production while the rest is involved in rice growing, retailing and other services.

Business situation: Ha Thai has around 20 companies that have a capital of over five billion VND and employ around 30-50 workers. Sales revenues dropped by 35-40 percent in 2008, as compared with those in 2007. Some producers chiefly provide products, of both average- and high-quality, for domestic consumption. A production and business centre is under construction in order to promote the craft.

Boom times: The years of 1995-96 (when lacquer products have been marketed widely) and 2000-2005 were the most successful, when a business might employ up to 50 workers on its shop floor, and an additional 150 to work at their own homes. Home-based employment is rather common as workers can manage their own time better, thus working more effectively, with higher incomes.

Production and input supply: Inputs for lacquer production include paint, wooden, bamboo and rattan frames, paper pulp, paper chips, abrasive paper, composite materials, alluvial soil and some additives. Glossy paint is imported from Taiwan, Japan and China while abrasive paper is imported from Taiwan, Japan and South Korea.

Export orientation: Up to 70 percent of the village lacquer products have been exported. The village’s products have been exported to Japan, South Korea, Taiwan, Western Europe, and the USA, with Japanese customers and then South Korea being the most demanding, who, as some local businesspeople complain, often try to squeeze prices. American customers are seen as the most tolerable ones who have placed many large orders, especially after Vietnam’s WTO entry. The USA is an important market as it has many large distributors that sell the village’s lacquer products not only to retailing supermarkets within the USA, but also to 40 other countries.

Environmental problems: water sources from pond and wells are believed to be polluted by paint- and oil-produced waste. Water from septic tanks and lacquer work are poured into the public pond.

III. Trends in orders and production

3.1. Pre-Tet:

Production termination: Bat Trang and Giang Cao villages used to have a total of 1,000 household producers that have their own shops. However, the figure dropped to more than 600 by last September.8 The rest have shifted to other types of employment. Many people believe that if the crisis lingers on in 2009, more producers will follow suit. Households with stronger financial capacity may shift to gas-fired kilns, possibly using loans from banks or the Environment Fund (if the fund’s requirements become more relaxed). In Ha Thai, around 10 household producers closed down their workshops in the last quarter of 2008.

Relative slow sales and difficult tax collection: Normally, several weeks before Tet are a good time for business. However, many producers share the view that their 8 According to some senior members of the craft guild in Bat Trang.

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recent pre-Tet sales declined remarkably as compared with the same periods of the previous years.9 Anyway, the 20 days before the recent Tet was considered the only chance over 12 months when local producers could sell a relatively large amount of their products. Even so, many producers still have many products in stock as a result of slow sales. Tax collection encounters difficulties given the sales crisis.

In Ha Thai, sales and revenues in late 2008 and early 2009 reportedly declined by 30-40 percent.10 In the previous years, producers had many substantial orders for Christmas presents (usually in November and December) and had to work hard until the (lunar) New Year Eve.11 Despite the general downward trend of orders, there appears to be a sharper decline of orders for exports and lower-quality products for domestic consumption. Several producers of high-quality products for domestic consumption (paintings) say they have not been affected significantly and still anticipate high demands. Furthermore, those who produce paintings for celebrations of long-lived people earned well in 2008.

Rescheduled delivery: Five businesses in Bat Trang Commune have their contracts rescheduled.12 For Minh Hai Co., orders used to be placed 10 days before delivery, they are now placed 15 or more days before delivery as corporate customers need to study their market demands (of supermarkets, retailers…) more carefully. Concerning Ha Thai village, distributors become more uncertain about their demands. Normally, products should be delivered 1.5 or two months after contract signing, but in recent months, delivery can commonly be made three or four months after contract signing.

Partial contract cancellation: In Ha Thai, an estimated 15 percent of the contracts were partially cancelled in the last few months of 2008, with no specific reasons provided,13 although it had never happened before. Consequently, some producers keep a substantial amount of finished products in stock. When orders are cancelled, it is hard to sell products with designs ordered by foreign customers. However, no order cancellation is reported in the case of Bat Trang and Giang Cao despite fewer orders.

3.2. Post-Tet:

No new orders: In Bat Trang and Giang Cao, orders are placed on a monthly basis. Since Tet, many businesses have not received new orders. In Ha Thai, orders have reportedly been reduced from all import countries. Customers ask local producers to ‘wait and see’. Some foreign customers have sent a facsimile, saying that they have sold only 40 percent of their products in stock. Also, domestic demand is reportedly on the decline. Only small customers: In Ha Thai, there remain only a few small buyers (known as ‘backpacker tourists’ who visit the village and come up with the idea to trade some products to earn small profits). They become ‘life-saviours’ for some businesses in the crisis although they buy several millions VND worth of goods in stock.

9 The Director of Minh Hai Co. said that its sales turnover was decreased by around 30 percent.10 According to the group discussion with village officials.11 One of the biggest companies in the village disclosed that it barely received any orders from foreign customers at the end of last year (only a small order worth 40-50 million VND from France).12 Contracts are signed with businesses, not households who work as satellite producers.13 Customers only say that they cannot sell well, without complaining about high prices; some require certain changes of product designs.

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Meanwhile, local officials and residents believe that there are fewer tourists to Bat Trang as compared with the same periods of the previous years, althouth there is no available statistics on this trend.

No contracts from fairs: In Ha Thai, local producers usually pin high hopes on contracts signed after international fairs abroad. However, there were no visitors to their lacquer exhibition in Germany in late February 2009. The nearest hope is another fair in Thailand in early March. If no contracts are signed after this fair, it is quite certain that 2009 would be a gloomy year for Ha Thai’s business.

3.3. Multiple domestic difficulties before the global crisis:

Bat Trang and Giang Cao: Since last April or March, customers have stopped their purchase, and some cancelled their orders. Some take their ordered products but reschedule new orders as a consequence of their slow sales. Some businesses, such as Hop Luc and Song Cuong,14 were dying even before the current global crisis, due to their failure to overcome multiple accumulated challenges listed in the table below. As a result of the pre-crisis at home and the global crisis, Hop Luc’s monthly sales dropped substantially from three or four containers per month (from early 2008 backwards) to only one or even no container. The number of its employees has decreased from the previous 100 to only seven now.

Ha Thai: Since last May, businesses have received increasingly fewer orders, and lost some committed customers as a consequence of slow sales. Major foreign distributors (chiefly based in the USA) have reduced amounts of their orders.

14 ‘Hop Luc’ is the only cooperative that has survived since the central planning economy. In 2008, the cooperative could export only five containers to Taiwan. The last shipment was made in December 2008, and it has not received any further orders ever since. Other cooperatives, such as Song Cuong, have to stop their production as a consequence of no orders.

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Pre-crisis difficulties in the craft villages

Difficulties Bat Trang & Giang Cao Ha Thai

Sharply increased input prices (as a result of inflation)

Gas prices15 increased four times within last April and May, from 13,000 to 13,500 to 17,000 to 19,000 VND.16 While the price of oil in the world market declined from 148 USD to less than 50 USD per barrel, the prices of gas decreased from 20,500 VND to 10,800 VND, and then raised to 15,500 VND without any further reduction;The price of petroleum went up sharply in mid-2008 while the VND appreciated against the USD, which meant lower profits for producers;17

The prices of coal, wood and clay sky-rocketed (the prices of wood nearly tripled from 450,000 VND to 800,000 VND to 1.2 million VND; prices of clay also doubled);Labour prices increased: The media alluded to the estimated increase of worker wages, so many workers demanded for increased wages even before the National Assembly met up to discuss this issue;The prices of paper packages increased remarkably, by 250 percent, from 2,800 VND to 9,000 VND per meter. Some producers shift to pallet packaging, which reduce costs but result in more break-ups and thus deduction in payment. Some unsympathetic customers request for considerable compensations.

Prices of oil and petroleum soared up in mid-2008. The prices of paint went up from 270,000-280,000 VND per can (27 litres) to 700,000 VND per can when the prices of oil and petroleum reached its peak last year (from May to July 2008). When the petroleum prices dropped drastically to 11,000 VND per litre, the prices of paint went down to 600,000 VND per can only (whilst many producers believe it should be down to 300,000 VND per can);

Labour wages have increased;

Many producers express deep concerns over expected increases of electricity prices and basic salaries in the coming months of 2009.

15 Fuel accounts for 25-40 percent of the costs of pottery production, according to local producers.16 Producers may loss two or three million VND for each small batch. Despite the soaring prices of inputs, producers had to buy some when they were in the middle of a batch.17 The prices of petroleum accounted for 40 percent of input costs as producers consume it for kiln burning and goods transporting.

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Unchanged output prices18

+ reduced profits

Prices of products cannot be raised as it may lead to loss of committed customers, which result in substantially reduced profits;

Some customers placed new orders but at terribly squeezed prices, which leave no margin profits for producers given soaring input prices.

At customers’ requests, selling prices of lacquer products cannot be raised;

Therefore, many producers earn some money from their own labour only, without earning good business profits as they did a couple of years ago, to maintain their production and avoid worker de-skilling to wait for growth recovery. Otherwise, it may not be easy to find skilled workers immediately.

Limited business capacity

Local producers struggle on their own in production and business to accommodate themselves to the market, without formal assistance for orientation or strategies;

Some households cannot do their business well due to limited capacity.

Businesses and household producers struggle on their own, and only bigger businesses afford international fairs, which cannot produce substantial impacts on the village’s production;

Most businesses and producers cannot approach foreign customers19 as: They operate on a small-scale basis, lack physical

facilities and business worthiness; Many producers do not have sufficient financial capacity

(around 500-1,000 million VND is required); Lack of knowledge of trade and the outside world; Lack of skills of foreign languages, communication and

negotiation; Limited understanding of transactions procedures; Lack of on-line marketing campaigns; Lack of organisational capacity.

18 In Bat Trang commune, some household producers say that they have slightly raised their selling prices for some products, by around five percent, which still fail to catch up with the prevailing input price hikes. 19 In Ha Thai, only a couple of companies, viz Thanh Ninh and Thanh Son, can conduct direct transactions with foreign customers. Some foreign customers visit the village and like some products but then involve a professional trading company in Hanoi as an intermediary. Many local producers believe that direct transactions would have earned more contracts for them.

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Except for businesses, most local producers do not have clear investment and business plans for their production. Only businesses have some separate amounts of working capital; The village’s reputation and trademarks remain little known.

Saturated demand

Ceramics and porcelain demand becomes saturated since 2004 as producers fail to offer new and special designs.

This is the third sales and revenue crisis since 1986: The first was in the late 1980s and early 1990s when traditional customers from the USSR and Poland stopped buying; the second was in 2002 when tourism declined as a result of the SAS epidemics breakout.

Increasingly fiercer competition

(resulting in lower output prices and producers’ profits)

Internal: Some businesspeople may offer customers of neighbouring shops some concessions, such as on-credit purchase or reduction of a few cents per certain product; Some producers copy designs of others and reduce production costs; Legal loopholes in intellectual property rights may lead to some disadvantages for some designers. Some households that can produce special enamel strictly protect their formula as it is impossible to make a suit against rather common infringements of intellectual property rights.20 External: Traditional producers compete, chiefly in designs and enamel colour, with new rivals from neighbouring communes within the District, such as Kim Lan, Đa Tốn, and Đông Dư, and even from the neighbouring District of Châu Quỳ.

Intra-craft: There are more producers while the demand cannot catch up this pace; 95 percent of the households are engaged in lacquer production. Ha Thai also has to compete with newly-emerging lacquer craft villages, such as Duyen Truong and Phuc An villages (in the same Commune) and another village in the neighbouring District of Phu Xuyen.21

From outside craft: Competition comes from villages in the production chain for certain products. For instance, producers from Bat Trang try to attract workers from Ha Thai, thus enabling themselves to produce lacquer-covered porcelain and ceramics products to compete with producers from Ha Thai.

20 Therefore, good businesses, such as Minh Hai, have to rely on their prestige and long-term relationships to keep their customers against such violations from rivals. 21 These villages have produced lacquer products for two or three years.

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MechanisationRecent technological improvements have lead to mass production, which causes oversupply.

Lacquer products have been modernised to reduce production costs (for instance, using ready-made paint and reducing sophisticated manual work of fine-arts articles) so it is easier to be imitated and replicated.22

Foreign exchange

The USD appreciated against the VND, which resulted in more expensive imported inputs;

InfrastructureLack of good tourist infrastructure. The tourist infrastructure is poor, even without signposts to

access the village; Goods-transport infrastructure is poor: 29-seat automobiles cannot enter the village, and trucks are uploaded onto trucks on the side of the highway;23 No exhibition centres in the village.24

22 Approximately one percent of the households remain loyal to the traditional manual arts work.23 The District’s People’s Committee has recently upgraded the entry road. Tradesmen could have doubled or tripled their selling prices for tourists as compared with those applicable to Hanoi’s intermediaries.24 A big exhibition centre is under construction in the village.

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3.4. Added difficulties in the global crisis: Businesses and household producers that have survived the domestic crisis of inflation are encountering the following difficulties in the global crisis:

Amounts of many orders depend on the number of tourists, especially foreign ones. Since late 2008, Minh Hai Company has seen its number of visitors shrunk by 20 percent and its sales turnover by 30-40 percent;25

Many domestic customers have tightened their belts to prepare for possible bumpy rides ahead;

Customers become more demanding (in terms of designs, quality and prices) as compared with three or four years ago;

Different types of products may result in different types of demand shock. For instance, many ceramic and porcelain products of Bat Trang can be used for both decorative display and more practical purpose whilst lacquer products of Ha Thai can be used for decorative display only. Therefore, decorative-only products will be cut off first of all in the austerity list, whilst some Bat Trang products may still be sold for domestic consumption. Even so, ceramics and porcelain products are not essential commodities in daily consumption (like food or clothes).

3.5. Credit-related issues:

Traditional practices save villagers from vulnerabilities in production and businessMany Bat Trang producers have been operating for dozens of years so have accumulated some savings. Many of them have run their production on their own equity. Especially, for a long time producers can buy most of their inputs on credit from suppliers thanks to mutual trust. Therefore, very few have problems with banks as a consequence of last year’s soaring interest rates and later credit crunch. Similarly, in Ha Thai, many producers try to operate within their own equity.

However, some local suppliers in Bat Trang complain about their substantial losses as a result of producers’ bad debts, some of which may last for seven or eight years, with no interests. Suppliers have suffered more losses after the soaring inflation in 2008. Some producers also sell their products to foreign customers on credit. A business even became bankrupt after being cheated by a South Korean importer.

Few producers have debt-related problemsFew producers who attempted to upgrade their production facilities have borrowed from banks. For instance, in late 2007, one of the apparently most pioneering producers in the Commune borrowed over one billion VND from a commercial bank to transform their gas-fired kiln into coal-fired one, following a Chinese model, to reduce costs. However, the prices of exclusive coal for this kiln soared up according to the world market levels after Vietnam’s WTO entry, from 800,000 VND per tonne in mid-2007 to 1.5-2 million VND per tonne in late 2007, to 4.5 million VND per tonne in early 2008. The producer had to buy this coal from the sole distributor in Quang Ninh. Consequently, it cost nine million VND per coal-fired batch, whilst it cost only seven million VND per gas-fired batch. This producer, therefore, had to destroy his newly-built kiln, selling its iron scraps

25 According to the Director of Minh Hai, 80 percent of its orders come from tourists, 10 percent from on-line marketing, and 10 percent from domestic

sales.

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for only 50 million VND and bearing an outstanding debt of 1.5 billion VND from the bank.

Recently, only two or three household producers have become bankrupt and have to rely on their social network (kin, relatives and close friends). In Bat Trang Commune, local people can access some credit sources, viz the Social Policy Bank, and trust-based funds of the Women’s Union, the Youth’s Union and the Veterans’ Union from which they can receive soft loans without collateral. In Duyen Thai Commune, some credit sources include those from the Fund for Poor Households, the Fund for Students, the Social Policy Bank, and the Agricultural and Rural Development Bank (AgriBank).

In Ha Thai, some producers26 have borrowed cash from banks to invest in production floor and facilities in the village’s production and exhibition centre and now fail to pay debts as a result of prolonged losses. Sacombank has recently frozen their debts totalling four billion VND. However, no producers have been subject to the Guild’s penalty of craft suspension. Few have sold their land whilst others have borrowed from their social network to pay amortisation debts. Many producers (an estimated 80 percent of the households) that have borrowed cash to invest in their shop floors in the village’s production and exhibition centre are deeply concerned about what to do when fewer or no orders are obtained.27

Barriers in credit access Local officials and producers have heard about the subsidised credit scheme in the

Government’s stimulus package through the media, but official information has not reached the commune level;

Household producers are aware that such assistance is designated for businesses, not yet household producers;

Businesses are concerned that loans may not help much when they do not have orders or outlets. If having orders, producers do not mind borrowing without subsidised interest rates;

Businesses cannot demonstrate their financial capacity, as they do not have invoice or receipts of transactions, so do not meet requirements of the stimulus plan;

Through the craft guilds, commercial banks can provide loans (without preferential treatment to non-poor household producers) but loan eligibility conditions are normally hard for local producers and businesses to satisfy (for instance, requirements of good production and business plans, … );

Some producers in Ha Thai turn to loan sharks28 for quick cash to pay suppliers (from Hanoi and other localities) which, unlike local suppliers in Bat Trang, refuse to sell on credit, especially when prices have changed considerably over the past few years;

Poor households dared not apply for loans as they do not know how to invest this money effectively.

IV. Strategies to adjust production and consumption patterns in response to demand shocks

4.1. Household producers with the greatest difficulties:26 Some believe that the rate is around 30 percent of the household producers.27 For instance, Phuc Cuong Co. invested 1.3 billion VND in its workshop in 2008 and now lacks working capital while receiving no export orders. 28 Interest rates levied by loan sharks may amount to 30 percent per month.

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Bat Trang & Giang Cao Ha Thai

Outdated production (use of box kilns);Limited designs and samples;Poor technical skills;29 No reputation for product quality.

Newly-established;Limited capital (which results in difficulty to survive losses, especially when bank lending interest rates rocket);Export-oriented businesses.

4.2. Household producers with the least difficulties:

Bat Trang & Giang Cao Ha Thai

Bigger business with large amounts of capital;Good reputation for high-quality products;Having designed or produced special and unique products;30 Good production techniques;Good management;Better marketing strategy (improved trademarks, extended connections and use of IT);Stable outlets (committed customers, stable prices); Long-term customers may introduce more customers;Affording to market products abroad.31

Good reputation;Long-term committed customers;Nationwide distribution networks;Diversification of livelihoods;Having members who pursue higher education.

4.3. Businesses and household producers’ coping strategies in production and consumption:

The major approach to survive the crisis in both villages is to receive revenues from their own labour only, no longer from business profits. There are no unpaid apprentices in both villages. Apprentices can receive at least 25,000 VND per day (Bat Trang and Giang Cao) and 10,000 VND per day (Ha Thai).

Strategies Bat Trang & Giang Cao Ha Thai

Reduce numbers of employees;32

Some retain few skilled workers to avoid deskilling.33

Some send children to vocational courses, or to work overseas; Some shift to other types of employment (retailing, paper trading

29 For instance, whilst good workers can produce 10 quality products per batch, poor-skilled workers can make only six.30 For instance, some producers have created a special type of enamel and kept it as a family secret.31 For instance, Quang Mex and Minh Hai Companies. Minh Hai representatives attended some exhibition fairs in Japan, Hong Kong, France, and Germany to introduce some special products, such as fake antiquities and light holders. However, as it is very costly to attend international fairs, although many contracts may be obtained hereby, few businesses can afford. 32 In its peak time (early 2008), Minh Hai Co. employed 200 workers but now has 70 employees. The company also plans to reduce the number of shop-keepers if the numbers of tourists continue to be on the decline. Its shop-keepers are local village girls who have been taught some English and Japanese and some marketing skills, as locals are believed to be able to introduce the production process better than non-locals.

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Labour restructure

and other services); Some producers are engaged in production steps which they contracted out in the period of good growth.

Livelihood shift

Many producers have closed workshops or put them for rent.

Production restructure

Cancelling plans to expand shop floors and invest in equipment;Stopping seeking new partners to expand production;Shrinking production scales;Reducing production capacity;Not changing employment structure but workshop conditions to reduce the numbers of batches.34

Slowing down and downsizing production to wait for the return of the growth;

One big producer considers the crisis a good timing to invest in facilities/ workshops while production is halted.

Change of production techniques

Using machines to raise productivity;Changing new production techniques (for instance, the use of mass-printing technologies in lieu of conventional manual work);Some attempt to skip production steps, lowering product quality and undermining the village’s reputation.

New marketing

New products and new customers. Marketing more new samples abroad;Turning to other parts of the domestic market: delivering products directly to souvenir shops in Hanoi, in which they were not keenly interested during the period of good growth;35 or production of worship articles.

Unclear orientation

Suffering from revenue losses to retain customers and production;Some wait for 2009’s first quarter to be over and see what to do next.

Continued efforts to sustain oneself as long as possible;Some producers will think about coping strategies only when lacquer work dies out completely.

4.4. Alternative livelihoods:33 Although there is nothing much to produce, many businesses and household producers have to retain skilled employees to avoid de-skilling in a hope that the latter may be used when orders return. At its peak time, Hop Luc Cooperative employed 100 workers with 75 being women. It now retains only seven workers but has nothing for them to do.34 For instance, it is reduced from 20 batches to five or six per month.35 Many businesses only delivered goods directly to souvenir shops in Hanoi after their loss of USSR and Polish customers in the early 1990s. During the period of good growth, people from souvenir shops had to come to village businesses and producers to collect goods.

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Bat Trang and Giang Cao:After closing down their production, many failed households have shifted to the following types of employment:

Becoming employed for other producers (painting, turning, transporting products by bicycles…);

Providing tourist fun services (shaping, painting, breaking pottery products to relieve stress…);

Retailing services (confectionary, food, fruit, clothes …); Cooking and selling local specialities; Agricultural activities (renting land for growing green vegetables and

environment-friendly trees); Repairing bicycles; Housemaid; child-minding.

According to some permanent members of the Bat Trang Guild Management Board, if the crisis lingers on, many more producers will definitely have to terminate their production. Some stronger producers may shift from box kilns to gas-fired ones if they can access funds from either bank loans or the Environment Fund jointly set up by the Ministry of Science and Technology and a UN agency. However, to be eligible for an amortisation loan from the Environment Fund, household producers must strictly follow its guidelines which may not be always suitable to household conditions.

Ha Thai:Most officials and people believe that when lacquer production slows down, only part of their livelihood and incomes has been affected, and therefore no households have fallen into poverty instantly, as there exist other employment opportunities. For instance, the Commune has run a number of industrial extension courses, not only for lacquer work, but also for industrial sewing and other handicrafts.

Some villagers have shifted to rice cultivation and services. In Ha Thai, every household is allocated some field land although areas may vary depending upon household member characteristics. In the period of good growth of lacquer work, producers rent or give their field land to poorer farmers,36 many of whom hail from Thanh Hoa Province,37 for cultivation, which requires hardwork but provides low incomes. Often, only old people work on the field. However, most of the field land may be acquired for the construction of the Bac Thuong Tin industrial zone in late 2009. Local officials and people are deeply concerned about the loss of field land which may at least ensure their food security 38

when other types of livelihood fail. Some suggest that the remaining cultivable land (around 30-40 percent of the Commune’s total arable land) should be shifted to growing safe vegetables for quick rotation of harvests (three to four crops per year). In addition, some villagers have shifted to trading ‘paper-gold’ to Hanoi’s wholesalers which export it to Taiwan and Macao as these countries have the same practice of burning

36 Some households employ farmers from Thanh Hoa to work on their rice fields.37 According to the Head of the Ha Thai Lacquerwork Craft Guild, more than 100 migrants from Thanh Hoa worked in the village fields during seasonal periods. Now most of this farm-work is taken up by local villagers from Ha Thai.38 Each household spends only two months on its rice field every year.

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paper commodities to the dead. But very makers of ‘paper-gold’, who are often old people or children, do not earn much but wholesalers can earn considerably, especially over the past two years, which is partly attributed to large export volumes.

Many youths do not want to continue traditional lacquer work which, they believe, brings low returns and high risks for human health and the environment. Only those youths who are unable to enter universities or colleges have to continue this type of employment, which is still better than rice cultivation or work in factories.

4.5. The commune’s craft guilds:

The positive role of the commune’s craft guilds: Serving as a useful forum for members to exchange experience in production; Providing guarantee for members to receive loans, for instance, from the

Environment Fund to develop gas-fired kilns; Producing counterarguments to policies relating to the crafts; Protecting members’ interests; Settling (reconciling) disputes about product designs and labour (unfair treatment

of workers; attraction of each other’s good workers …).

Nevertheless, some members are not convinced of the role of the guilds, listing some of their failures as follows:

Failure to unite all producers and suppliers for a common voice; Failure to develop good guidelines; Failure to produce good impacts on members’ production and business; Lack of legitimate authority (therefore, its functions over conflict settlement are

confined to reconciliation. Unsuccessful cases are forwarded to administrative courts for further settlement).

4.6. Plans for new investments:

Bat Trang and Giang Cao: The concentrated 18-ha craft site is under construction, a quarter which is designated for workshop floors. The whole area has been rented. However, the Commune has not had any specific development plans to facilitate the production and business of the craft villages.

Many businesses and household producers remain unsure of what to do in the coming time, if the crisis still lingers. Some think about shifting to tourism but Bat Trang has not had a favourable infrastructure for tourism, except for the central porcelain market. Meanwhile, it may take five years to invest in a good infrastructure for tourism. A 15-billion-VND tourist harbour is under construction and expected to be completed by late 2009. Once completed, it is expected to generate only 20 service jobs, but receive more tourists. At present, the Commune welcomes 20,000 tourists annually.

V. Impacts on household welfare

5.1. Migratory workers bear the brunt

As producers downsize themselves, migratory workers become the first redundancies. No businesses or producers in Bat Trang, Giang Cao and Ha Thai pay any types of insurance, redundancy or unemployment benefits for their workers. Contracts are informally and

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signed on an annual basis, and salaries are paid either on a pay-as-you-work daily rate basis, or on a piece-meal basis. Most migratory workers still maintain their agricultural work at home so only take up craft jobs during their off-farm seasons. Some of their household members remain on the farm. Producers say that it is very hard to find workers during farm seasons, despite higher pays. Craft work provides additional incomes rather than being the main livelihood of migratory workers. It is believed that redundant migratory workers will rely on the field, start up retailing services, and take up construction work or some sidelines in their home villages.

Meanwhile, local villagers still maintain their employment either for their own households or for households of their relatives. Generally, living conditions of most local people remain stable as they have savings from the long period of good growth.

Bat Trang and Giang Cao: Producers employ a considerable numbers of migratory workers, chiefly from the neighbouring province of Hung Yen, followed by Ha Tay, Hai Duong, Ha Bac and Bac Ninh,. Workers from Hung Yen do not stay overnight, while those from other provinces do. More than 500 migratory workers rent their accommodation in the commune. There exist some small ‘human markets’ within the Commune, where employers can pick up their casual employees. Before 2008, local household producers employed around 10,000 migratory workers, with no clear gender imbalance, and this figure was reduced by 60 percent after Tet.39

Ha Thai: Usually, household producers employ around 400 migratory workers, from Phu Tho (chiefly), Hoa Binh, Ha Nam, Nam Dinh, Thai Binh and Thanh Hoa. Some local villagers complain about problems caused by migratory workers, such as social insecurity (thefts) and other social evils.

Some producers find it more costly to employ migratory workers. Each migratory worker earns around one million VND, without having to pay board and lodging as they stay with their employers. Meanwhile, local workers also earn around one million VND or slightly more. Most migratory workers have not returned since Tet as producers have not received any new orders.

5.2. Formal and informal assistance

Formal assistance for businesses and producers: The energy-saving project from the Vietnam Environment Fund40 requires some

conditions unsuitable to local households in Bat Trang Commune. Some households have limited space which can fit the proposed model;

Many businesses enjoy income tax reduction worth three to four million VND at their final accounting;

The commune administration cannot provide any significant assistance, except facilitating paperwork for loans.

Mutual support:Generally, competing producers do not help each other but try to keep production techniques and business information as much as possible. Confidentiality in terms of production and

39 According to some senior members of the craft guild. 40 This scheme, jointly run by the Ministry of Science and Technology and an UN Agency, offers an annual lending interest rate of 0.6 percent. It is reported to have disbursed 19 billion VND in Bat Trang Commune by the moment of the assessment.

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business is particularly important given a lack of an enforced intellectual property protection system. Producers do not register their designs due to the following reasons:

- Lack of proper awareness and knowledge of intellectual property rights (as a result of poor general education level);

- Costly and lengthy process of registration.

However, there is some limited support amongst household producers related by blood. They may share some designs and techniques. Also, Bat Trang has a study encouragement fund worth 16 million VND for young students, with contributions from local businesses and households.

5.3. Changing total consumption and consumption patterns within the households:

Some early signs of austerity have been recorded in both villages, although in different ways. However, the crisis’s impacts on household welfare in the three villages have not been so serious to the extent of bankruptcy, children’s school drop-out or sales of land or assets. Few villagers have to rely on some loans from other fellow villagers. In Bat Trang, which had enjoyed more robust growth before the crisis, producers have accumulated some considerable savings by local standards. Nevertheless, they restructure their consumption patterns by cutting expenditures on some expensive items, rather than using their savings for working capital (around 300-400 million VND). In particular:

Less spending on upgrading or new construction of houses (it usually happens at the year-end);

Less spending on fashionable durables (motorbikes, automobiles, machines, flat-screen TVs and other electronic facilities …);

Less spending on tourism: usually, at the beginning of the previous years, many households bought tours, foreign and domestic alike. But the numbers of such tours have been reduced visibly this year;

Considerably lower pre-Tet sales of decorative items (such as expensive cherry blossom flowers, Kumquat trees, …);

Less spending on meat consumption (the sales of pork, beef and chickens have been reportedly lowered in recent months).

Meanwhile, in Ha Thai, which enjoyed more modest growth (than Bat Trang) during its hey day, some local people have to trim down their expenditures on daily-use essential items, such as food and clothes, and do not buy unnecessary goods.

5.4. Assistance for poor and near-poor households:

In the research sites, poor households are those that suffer from chronic poverty, with permanently old, sick, disabled and lonely members.

Bat Trang: The Commune has 13 poor households according to the old poverty lines. Both the District and the Commune have the Funds for the Poor.

Duyen Thai: The Commune has 49 poor households with more than 400 people (according to the old poverty lines) or more than 80 poor households (according to the new poverty lines). Ha Thai Village alone has 30 poor households (according to the old poverty lines) or around 40 poor households (according to the new poverty lines). Apart from entitlements for poor households, they may receive some occasional assistance, viz

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Tet gifts and some production inputs (fertiliser in 2007). However, near-poor households have not received any assistance.

Only poor households have considerably reduced the nutrition quality of their meals as a consequence of slowed-down production. Mr. and Ms. N. V. T.41 earned more than one million VND per month from lacquer work in 2007 but have seen their montly incomes decreased by 25 percent since November 2008. Their household produces lacquer worship articles, whose pre-Tet production and sales slowed down as compared with the same periods of the previous years.

5.5. Rescue measures

Some rescue measures recommended by local producers:

Bat Trang & Giang Cao Ha Thai

The Commune’s authority has requested for more cash allocations for the Funds of the Women’s Union, the Youth’s Union and the Veterans’ Union to help their members in difficulty;The Government should pay attention to marketing Bat Trang’s products, through the Guild or the local administration;Financial support should be provided for producers with box kilns to upgrade their facilities;Scientists should study how to reduce gas consumption for various types of products.

Vietnamese trade attaches abroad should help explore foreign market demand, which, however, may negatively result in the favour-granting mechanism in business;

Local producers should be equipped with some basic knowledge of trade.42

Some rescue measures officially recommended by the Bat Trang Guild to Hanoi’s People’s Committee:

1. The State should provide part of the stimulus package for household producers;2. Household producers should increase their production for domestic consumption;3. Export-oriented businesses should create more designs;4. The State should provide continued training for high-skilled workers;5. Banks should continue reschedule debt payments for businesses in difficulty;6. Tax payment should be rescheduled; more tax reduction and exemption should be

provided to encourage businesses.

41 This household is classified as ‘poor’ according to the old poverty lines.42 Since the collapse of Binh Minh Cooperative in the early 1990s, many local producers have shifted from agriculture to handicrafts, without any chance to study basic trade knowledge. They had to start up and develop their work on their own, without any formal assistance.

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Annex 1: Research methods

The study was conducted three weeks after Tet, which is a quiet time for shopping and for orders in the three craft villages every year. Also, observation was made in two week days, which are not a busy time for shops. They often have more visitors during weekends. Also, according to the interviewees, around 30 or 40 percent of the kilns have not resumed their work after Tet. Therefore, it remains unclear whether these producers will stop their production or just halt it for some time after Tet.

Given these hypothetical biases, the findings presented in this report are based on the synthesis of various sources (employees, household producers, businesses, senior members of the craft guilds, and commune and village officials), the comparison of various periods (boom times, the domestic crisis, and the global crisis, including pre-Tet and post-Tet in relation to the same periods of the previous years), and the understanding of invisible factors underlying visible phenomena. Such an exercise of triangulation aims to achieve the highest possible validity of the information provided herein.

In fact, the research team has interviewed 12 representatives from craft companies and cooperatives, 17 from household producers, 12 workers, with four being female, and six senior officials of the communes, villages and craft guilds.

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Annex 2: Illustrative photographs

Photo 1: Assistants from the electronic and electric equipment shop in Bat Trang Commune say their pre-Tet sales went down sharply despite many discount offers.

Photo 2: Some household producers shift to using their workshop floors for tourist fun services. This is a pottery-breaking service to relieve stress.

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Photo 3: The only ATM located in Bat Trang Commune was much-frequented by local producers and businesspeople who withdrew cash from their sales transactions. It now becomes rarely used.

Photo 4: Song Cuong, one of the few cooperatives in Bat Trang Commune, now receives neither orders nor visitors to its showroom.

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Photo 5: An unsuccessful producer has been employed to transport products on his bicycle for other fellow producers in Bat Trang.

Photo 6: A pottery workshop was closed down in early 2009.

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Photo 7: An old-fashioned box kiln for pottery production was deserted in early 2009.

Photo 8: This pair of vases should be sold for 1.8 million VND to spare some business profits given the soaring input prices. However, the pair has long remained unsold, even only for 1.5 million VND.

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Photo 9: A pottery kiln has been dismantled to make room for a temporary fast-food restaurant.

Photo 10: The shop-keeper has been sitting idle all day during one of the tourist seasons in Bat Trang Commune.

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Photo 11: A poor household produces lacquer worship articles for domestic consumption. The yard used to be packed with products during better business periods. But it became rather spacious at the moment of research.

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