Craft Village Report Eng

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    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, generating11 million jobs, both regular and casual, including those for the elderly, children and peoplewith disability. According to the statistics from 38 cities and provinces, nine craft villageshave 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 50percent of the workers (less than 30 percent being casual workers and over 20 percent skilledones) from the craft villages became unemployed, which equals to over five million workers.

    The outstanding debts of the craft villages, businesses, cooperatives and household producersin the reported 38 cities and provinces amount to 2,169.064 billion VND with 12.324 billionVND overdue. Many businesses have bad debts. The situation is particularly serious in thecraft 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 inrecent days. On the occasion of announcing the foregoing statistics, much of theVietnamese media has concurrently generated a misleading impression that most of

    the craft villagers have become unemployed and fallen in critical production andliving conditions, and it is the on-going global crisis that is totally responsible fordifficulties of Vietnamese craft villages. Whilst this impression may be trueelsewhere, it is not really the case in the three craft villages that the research teamvisited in the middle of February 2009.

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

    1. Bearing the first brunt of the economic slowdown are migratory workers tothese craft villages. The reason is clear: as a result of the Asian values thatremain 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 tothe core. In addition, migratory workers usually are less skilful than indigenousones who should thus be retained in order to avoid de-skilling, or to producenew designs for displays or for exhibition fairs. Therefore, immediateconsequences 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 GiangCao) and Ha Thai lacquer, in order to provide information on social impacts of the financial/economiccrisis 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 thatis quite popular amongst northern rural people, many businesses and household

    producers have accumulated somesavings 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 salesof assets for food) have been recorded.

    3. Unlike in Bat Trang and Giang Cao where households mobilise all resources forceramic and porcelain production and business, many households in Ha Thaimaintain their approach of livelihood diversification with a combination oflacquer work, agriculture, paper-gold making and others. Therefore, the impactsof the current economic crisis on households in Ha Thai are less obvious thanthose in Bat Trang and Giang Cao. Also, there exists a different division of

    labour in the production chain, resulting in different livelihood impacts, in thethree villages. In Bat Trang and Giang Cao, production is more concentratedwithin 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 moreflexible in adjusting their production scales in the difficult time.

    4. The on-goingglobal crisis is not the sole cause of the business decline in thethree craft villages. Rather, their decline is caused by multiple problemsaccumulated over the past few years in these villages. The two biggest blowsare 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 anumber 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 11residential units. The Commune has 1,721 households with 7,528 people. In theemployment 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 lessworkers), and two army enterprises involved in ceramics and porcelain production. Ithas one joint-stock company for tourism and trade,3 which does not fare well socurrently rents its space for other producers. The Hapro Fair in the middile of BatTrang village has generated more outlets for its residents. Giang Cao villagers used tohave 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 Peoples 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 ofhousehold producers was reduced from 1,200 in 2004 to 970 in 2007 and to 800 bythe end of 2008. Meanwhile, the total revenues of the Commune were decreased from226 billion VND in 2007 to 175 billion VND in 2008.4 An annual per-capita incomeis 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 21ha will be designated for growing sandalwood and mother-of-pearl trees.

    Production and input supply: Main inputs for ceramics and porcelain productioninclude clay, fuel, mould, paper packages (or pallets), gas, petroleum. Amongst these,enamel and colouring have to be imported from China and Japan, respectively. Manyothers, such as clay, fuel, and paper, can be supplied on credit. Workers for a producerinclude 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 requirehigher labour costs while product quality is not high. Some local households aresuppliers of inputs for the village producers.

    Export orientation: Around 70-80 percent ofbusinesses revenues chiefly comefrom exports. Most household producers operate as satellites for businesses.5 Productsare exported to Japan, Taiwan, South Korea, New Zealand, European Communitymembers, and the USA. Big market shares come from Asian countries due to somecultural similarities.6 As many as 70 percent of the commune households have beenusing broadband Internet services (ADSL). Producers have launched several hundredsof websites to market their products. All producers have their own email addresses to

    communicate with their customers from southern provinces and abroad. Customerscan order samples or send pictures through e-communication. On-line search forcustomers accounts for 10-15 percent of the marketing strategy. Recently, someforeign corporate customers, such as those from Taiwan and South Korea, have

    purchased products at production kilns to reduce intermediary costs. They sell theseproducts to supermarkets or other outlets in their home countries.

    Gender dimension: In many cases, male workers are believed to be more skilful so areengaged in sophisticated painting work and earn more money (also due to the harmfulnature 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 seenas 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.5For 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 forcertain types of products, his company cannot obtain the quality as high as some household producers

    can (e.g. enamel), so contract them out.6Minh 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 Peoples Committee.

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    Ha Thai village has around 780 households with 3,300 people. As many as 85-87percent of the village households are engaged in lacquer production while the rest isinvolved 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 35-40percent in 2008, as compared with those in 2007. Some producers chiefly provideproducts, of both average- and high-quality, for domestic consumption. A productionand business centre is under construction in order to promote the craft.

    Boom times: The years of 1995-96 (when lacquer products have been marketedwidely) and 2000-2005 were the most successful, when a business might employ upto 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 andChina while abrasive paper is imported from Taiwan, Japan and South Korea.

    Export orientation: Up to 70 percent of the village lacquer products have beenexported. The villages products have been exported to Japan, South Korea, Taiwan,Western Europe, and the USA, with Japanese customers and then South Korea beingthe 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 manylarge orders, especially after Vietnams WTO entry. The USA is an important market asit has many large distributors that sell the villages lacquer products not only to retailingsupermarkets within the USA, but also to 40 other countries.

    Environmental problems: water sources from pond and wells are believed to bepolluted by paint- and oil-produced waste. Water from septic tanks and lacquer workare 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 of1,000 household producers that have their own shops. However, the figure dropped tomore than 600 by last September.8 The rest have shifted to other types ofemployment. Many people believe that if the crisis lingers on in 2009, more producerswill follow suit. Households with stronger financial capacity may shift to gas-firedkilns, possibly using loans from banks or the Environment Fund (if the fundsrequirements become more relaxed). In Ha Thai, around 10 household producersclosed 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 their8 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 theprevious years.9Anyway, the 20 days before the recent Tet was considered the onlychance over 12 months when local producers could sell a relatively large amount oftheir products. Even so, many producers still have many products in stock as a resultof 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 forChristmas presents (usually in November and December) and had to work hard untilthe (lunar) New Year Eve.11 Despite the general downward trend of orders, thereappears to be a sharper decline of orders for exports and lower-quality products fordomestic consumption. Several producers of high-quality products for domesticconsumption (paintings) say they have not been affected significantly and stillanticipate high demands. Furthermore, those who produce paintings for celebrationsof long-lived people earned well in 2008.

    Rescheduled delivery: Five businesses in Bat Trang Commune have their contractsrescheduled.12For 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 tostudy their market demands (of supermarkets, retailers) more carefully.ConcerningHa Thai village, distributors become more uncertain about their demands. Normally,

    products should be delivered 1.5 or two months after contract signing, but in recentmonths, delivery can commonly be made three or four months after contract signing.

    Partial contract cancellation: In Ha Thai, an estimated 15 percent of the contractswere partially cancelled in the last few months of 2008, with no specific reasons

    provided,13 although it had never happened before. Consequently, some producerskeep a substantial amount of finished products in stock. When orders are cancelled, itis hard to sell products with designs ordered by foreign customers. However, no ordercancellation 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 havereportedly been reduced from all import countries. Customers ask local producers towait and see. Some foreign customers have sent a facsimile, saying that they havesold 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 asbackpacker touristswho visit the village and come up with the idea to trade some

    products to earn small profits). They become life-saviours for some businesses inthe crisis although they buy several millions VND worth of goods in stock.

    9The 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.11One of the biggest companies in the village disclosed that it barely received any orders from foreigncustomers 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.13Customers 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 BatTrang as compared with the same periods of the previous years, althouth there is noavailable 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 totheir lacquer exhibition in Germany in late February 2009. The nearest hope isanother fair in Thailand in early March. If no contracts are signed after this fair, it isquite certain that 2009 would be a gloomy year for Ha Thais 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 butreschedule new orders as a consequence of their slow sales. Some businesses, such asHop 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 Lucs monthly salesdropped substantially from three or four containers per month (from early 2008

    backwards) to only one or even no container. The number of its employees hasdecreased from the previous 100 to only seven now.

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

    14Hop 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 December2008, 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)

    Gasprices15 increased four times within last April and May, from13,000 to 13,500 to 17,000 to 19,000 VND.16 While the price of oilin the world market declined from 148 USD to less than 50 USD per

    barrel, the prices of gas decreased from 20,500 VND to 10,800VND, and then raised to 15,500 VND without any further reduction;

    The price of petroleum went up sharply in mid-2008 while theVND appreciated against the USD, which meant lower profits forproducers;17

    The prices of coal, wood and clay sky-rocketed (the prices ofwood 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 estimatedincrease of worker wages, so many workers demanded for increasedwages even before the National Assembly met up to discuss thisissue;

    The prices of paper packages increased remarkably, by 250percent, from 2,800 VND to 9,000 VND per meter. Some producersshift to pallet packaging, which reduce costs but result in more break-ups and thus deduction in payment. Some unsympatheticcustomers request for considerable compensations.

    Prices of oil and petroleum soared up in mid-2008. Theprices ofpaint 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 VNDper litre, the prices of paint went down to 600,000 VND percan only (whilst many producers believe it should be down to300,000 VND per can);

    Labour wages have increased;

    Many producers express deep concerns over expectedincreases ofelectricity prices and basic salaries in the comingmonths of 2009.

    15Fuel accounts for 25-40 percent of the costs of pottery production, according to local producers.16Producers 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 ofcommitted 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 inputprices.

    At customers requests, selling prices of lacquer productscannot be raised;

    Therefore, many producers earn some money from their ownlabour only, without earning good business profits as they dida couple of years ago, to maintain their production and avoid

    worker de-skilling to wait for growth recovery. Otherwise, itmay not be easy to find skilled workers immediately.

    Limited

    business

    capacity

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

    Some households cannot do their business well due to limitedcapacity.

    Businesses and household producers struggle on their own,and only bigger businesses afford international fairs, whichcannot produce substantial impacts on the villages production;

    Most businesses and producers cannot approach foreigncustomers19 as:

    They operate on a small-scale basis, lack physicalfacilities 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 andnegotiation;

    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 catchup 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 villageand like some products but then involve a professional trading company in Hanoi as an intermediary. Many local producers believe that direct transactions would have earnedmore contracts for them.

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

    Except for businesses, most local producers do nothave clear investment and business plans for their production. Only businesses have some separateamounts of working capital;

    The villages reputation and trademarks remainlittle known.

    Saturated

    demand

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

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

    Increasingly

    fiercer

    competition

    (resulting inlower output

    prices and

    producers

    profits)

    Internal:

    Some businesspeople may offer customers of neighbouring shopssome concessions, such as on-credit purchase or reduction of a fewcents per certain product;

    Some producers copy designs of others and reduce productioncosts;Legal loopholes in intellectual property rights may lead to somedisadvantages for some designers. Some households that can produce special enamel strictly protect their formula as it isimpossible to make a suit against rather common infringements ofintellectual property rights.20

    Intra-craft: There are more producers while the demandcannot catch up this pace; 95 percent of the households areengaged in lacquer production. Ha Thai also has to competewith newly-emerging lacquer craft villages, such as DuyenTruong 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 theproduction chain for certain products. For instance, producersfrom Bat Trang try to attract workers from Ha Thai, thusenabling themselves to produce lacquer-covered porcelain and

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    External: Traditional producers compete, chiefly in designs andenamel colour, with new rivals from neighbouring communes withinthe District, such as Kim Lan, a Tn, and ng D, and even fromthe neighbouring District ofChu Qu.

    ceramics products to compete with producers from Ha Thai.

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

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

    Foreign

    exchangeThe USD appreciated against the VND, which resulted in moreexpensive imported inputs;

    Infrastructure

    Lack of good tourist infrastructure. The tourist infrastructure is poor, even without signposts toaccess the village;

    Goods-transport infrastructure is poor: 29-seat automobilescannot enter the village, and trucks are uploaded onto trucks onthe side of the highway;23

    No exhibition centres in the village.24

    20Therefore, 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.22 Approximately one percent of the households remain loyal to the traditional manual arts work.23 The Districts Peoples Committee has recently upgraded the entry road. Tradesmen could have doubled or tripled their selling prices for tourists as compared with thoseapplicable to Hanois 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 areencountering the following difficulties in the global crisis:

    Amounts of many orders depend on the number of tourists, especially foreignones. 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 bumpyrides ahead;

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

    Different types of products may result in different types of demand shock. Forinstance, many ceramic and porcelain products of Bat Trang can be used for bothdecorative display and more practical purpose whilst lacquer products of Ha Thai

    can be used for decorative display only. Therefore, decorative-only products will becut off first of all in the austerity list, whilst some Bat Trang products may still besold for domestic consumption. Even so, ceramics and porcelain products are notessential commodities in daily consumption (like food or clothes).

    3.5. Credit-related issues:

    Traditional practices save villagers from vulnerabilities in production and business

    Many Bat Trang producers have been operating for dozens of years so have accumulatedsome 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 lastyears soaring interest rates and later credit crunch. Similarly, in Ha Thai, many producerstry to operate within their own equity.

    However, some local suppliers in Bat Trang complain about their substantial losses as aresult of producers bad debts, some of which may last for seven or eight years, with nointerests. 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 becamebankrupt after being cheated by a South Korean importer.

    Few producers have debt-related problems

    Few producers who attempted to upgrade their production facilities have borrowed frombanks. For instance, in late 2007, one of the apparently most pioneering producers in theCommune borrowed over one billion VND from a commercial bank to transform theirgas-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 levelsafter Vietnams WTO entry, from 800,000 VND per tonne in mid-2007 to 1.5-2 millionVND per tonne in late 2007, to 4.5 million VND per tonne in early 2008. The producerhad to buy this coal from the sole distributor in Quang Ninh. Consequently, it cost ninemillion 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 thebank.

    Recently, only two or three household producers have become bankrupt and have to rely ontheir 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 theWomens Union, the Youths Union and the Veterans Union from which they can receivesoft loans without collateral. In Duyen Thai Commune, some credit sources include thosefrom the Fund for Poor Households, the Fund for Students, the Social Policy Bank, and theAgricultural and Rural Development Bank (AgriBank).

    In Ha Thai, some producers26 have borrowed cash from banks to invest in productionfloor and facilities in the villages production and exhibition centre and now fail to paydebts as a result of prolonged losses. Sacombank has recently frozen their debts totallingfour billion VND. However, no producers have been subject to the Guilds penalty ofcraft suspension. Few have sold their land whilst others have borrowed from their socialnetwork to pay amortisation debts. Many producers (an estimated 80 percent of thehouseholds) that have borrowed cash to invest in their shop floors in the villages

    production and exhibition centre are deeply concerned about what to do when fewer or noorders are obtained.27

    Barriers in credit access

    Local officials and producers have heard about the subsidised credit scheme in theGovernments stimulus package through the media, but official information has notreached 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 subsidisedinterest rates;

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

    Through the craft guilds, commercial banks can provide loans (without preferentialtreatment to non-poor household producers) but loan eligibility conditions arenormally hard for local producers and businesses to satisfy (for instance, requirementsof good production and business plans, );

    Some producers in Ha Thai turn to loan sharks28 for quick cash to pay suppliers (fromHanoi and other localities) which, unlike local suppliers in Bat Trang, refuse to sell oncredit, 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 thismoney effectively.

    IV. Strategies to adjust production and consumption patterns in

    response to demand shocks

    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 workingcapital while receiving no export orders.28 Interest rates levied by loan sharks may amount to 30 percent per month.

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    4.1. Household producers with the greatest difficulties:

    Bat Trang & Giang Cao Ha Thai

    Outdated production (use of boxkilns);

    Limited designs and samples;

    Poor technical skills;29

    No reputation for product quality.

    Newly-established;Limited capital (which results in difficulty to survivelosses, 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;30Good production techniques;Good management;

    Better marketing strategy (improved trademarks, extendedconnections 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 distributionnetworks;

    Diversification of livelihoods;

    Having members who pursuehigher 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 theirown 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 GiangCao) and 10,000 VND per day (Ha Thai).

    Strategies Bat Trang & Giang Cao Ha Thai

    29For instance, whilst good workers can produce 10 quality products per batch, poor-skilled workers can

    make only six.30For instance, some producers have created a special type of enamel and kept it as a family secret.

    31For 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 fakeantiquities and light holders. However, as it is very costly to attend international fairs, although manycontracts may be obtained hereby, few businesses can afford.

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    Labourrestructure

    Reduce numbers of employees;32

    Some retain few skilled workers to avoiddeskilling.33

    Some send children to vocationalcourses, or to work overseas;

    Some shift to other types of employment (retailing, paper tradingand other services);

    Some producers are engaged inproduction steps which they contractedout in the period of good growth.

    Livelihood

    shiftMany producers have closed workshopsor put them for rent.

    Production

    restructure

    Cancelling plans to expand shop floorsand invest in equipment;

    Stopping seeking new partners to expandproduction;

    Shrinking production scales;

    Reducing production capacity;

    Not changing employment structure butworkshop conditions to reduce thenumbers of batches.34

    Slowing down and downsizingproduction to wait for the return of the

    growth;

    One big producer considers the crisis agood 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-printingtechnologies in lieu of conventional

    manual work);

    Some attempt to skip production steps,lowering product quality andundermining the villages reputation.

    Newmarketing

    New products and new customers. Marketing more new samples abroad;

    Turning to other parts of the domesticmarket: delivering products directly tosouvenir shops in Hanoi, in which theywere not keenly interested during the

    period of good growth;35or production of

    32 In its peak time (early 2008), Minh Hai Co. employed 200 workers but now has 70 employees. Thecompany also plans to reduce the number of shop-keepers if the numbers of tourists continue to be on thedecline. Its shop-keepers are local village girls who have been taught some English and Japanese and somemarketing skills, as locals are believed to be able to introduce the production process better than non-locals.33Although 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 peaktime, Hop Luc Cooperative employed 100 workers with 75 being women. It now retains only sevenworkers but has nothing for them to do.34

    For instance, it is reduced from 20 batches to five or six per month.35Many businesses only delivered goods directly to souvenir shops in Hanoi after their loss of USSR andPolish customers in the early 1990s. During the period of good growth, people from souvenir shops had to

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    worship articles.

    Unclear

    orientation

    Suffering from revenue losses to retaincustomers and production;

    Some wait for 2009s first quarter to beover and see what to do next.

    Continued efforts to sustain oneself aslong as possible;Some producers will think about copingstrategies only when lacquer work diesout completely.

    4.4. Alternative livelihoods:

    Bat Trang and Giang Cao:

    After closing down their production, many failed households have shifted to thefollowing types of employment:

    Becoming employed for other producers (painting, turning, transporting products bybicycles);

    Providing tourist fun services (shaping, painting, breaking pottery products torelieve stress);

    Retailing services (confectionary, food, fruit, clothes );

    Cooking and selling local specialities;

    Agricultural activities (renting land for growing green vegetables andenvironment-friendly trees);

    Repairing bicycles;

    Housemaid; child-minding.According to some permanent members of the Bat Trang Guild Management Board, if thecrisis 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 fundsfrom either bank loans or the Environment Fund jointly set up by the Ministry of Scienceand Technology and a UN agency. However, to be eligible for an amortisation loan fromthe Environment Fund, household producers must strictly follow its guidelines which maynot be always suitable to household conditions.

    Ha Thai:

    Most officials and people believe that when lacquer production slows down, only part oftheir livelihood and incomes has been affected, and therefore no households have falleninto poverty instantly, as there exist other employment opportunities. For instance, theCommune 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 householdis allocated some field land although areas may vary depending upon household membercharacteristics. In the period of good growth of lacquer work, producers rent or give theirfield land to poorer farmers,36 many of whom hail from Thanh Hoa Province,37 forcultivation, which requires hardwork but provides low incomes. Often, only old people

    come to village businesses and producers to collect goods.36Some households employ farmers from Thanh Hoa to work on their rice fields.

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    work on the field. However, most of the field land may be acquired for the construction ofthe Bac Thuong Tin industrial zone in late 2009. Local officials and people are deeplyconcerned 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 Communes 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 Hanois wholesalerswhich export it to Taiwan and Macao as these countries have the same practice of burning

    paper commodities to the dead. But very makers of paper-gold, who are often oldpeople or children, do not earn much but wholesalers can earn considerably, especiallyover 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, bringslow returns and high risks for human health and the environment. Only those youths whoare 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 communes craft guilds:

    The positive role of the communes craft guilds:

    Serving as a useful forum for members to exchange experience in production;

    Providing guarantee for members to receive loans, for instance, from theEnvironment 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 treatmentof workers; attraction of each others good workers ).

    Nevertheless, some members are not convinced of the role of the guilds, listing some oftheir 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 forfurther settlement).

    4.6. Plans for new investments:

    Bat Trang and Giang Cao: The concentrated 18-ha craft site is under construction, aquarter 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.

    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 localvillagers from Ha Thai.38 Each household spends only two months on its rice field every year.

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    Many businesses and household producers remain unsure of what to do in the comingtime, if the crisis still lingers. Some think about shifting to tourism but Bat Trang has nothad 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 late2009. Once completed, it is expected to generate only 20 service jobs, but receive moretourists. 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. Nobusinesses 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

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

    Meanwhile, local villagers still maintain their employment either for their ownhouseholds 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 migratoryworkers, chiefly from the neighbouring province ofHung Yen, followed byHa Tay, Hai

    Duong, Ha Bac and Bac Ninh,. Workers from Hung Yen do not stay overnight, whilethose from other provinces do. More than 500 migratory workers rent theiraccommodation in the commune. There exist some small human markets within theCommune, where employers can pick up their casual employees. Before 2008, localhousehold producers employed around 10,000 migratory workers, with no clear genderimbalance, and this figure was reduced by 60 percent after Tet.39

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

    Some producers find it more costly to employ migratory workers. Each migratory workerearns around one million VND, without having to pay board and lodging as they stay withtheir employers. Meanwhile, local workers also earn around one million VND or slightlymore. Most migratory workers have not returned since Tet as producers have not receivedany new orders.

    5.2. Formal and informal assistance39According to some senior members of the craft guild.

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    Formal assistance for businesses and producers:

    The energy-saving project from the Vietnam Environment Fund40 requires someconditions unsuitable to local households in Bat Trang Commune. Somehouseholds have limited space which can fit the proposed model;

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

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

    Mutual support:

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

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

    - Lack of proper awareness and knowledge of intellectual property rights (as aresult 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 studyencouragement fund worth 16 million VND for young students, with contributions fromlocal 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 differentways. However, the crisiss impacts on household welfare in the three villages have not

    been so serious to the extent of bankruptcy, childrens school drop-out or sales of land orassets. 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 accumulatedsome considerable savings by local standards. Nevertheless, they restructure theirconsumption patterns by cutting expenditures on some expensive items, rather than usingtheir 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-screenTVs and other electronic facilities );

    Less spending on tourism: usually, at the beginning of the previous years, manyhouseholds 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 blossomflowers, Kumquat trees, );

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

    40

    This scheme, jointly run by the Ministry of Science and Technology and an UN Agency, offers an annuallending interest rate of 0.6 percent. It is reported to have disbursed 19 billion VND in Bat Trang Communeby the moment of the assessment.

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    Meanwhile, in Ha Thai, which enjoyed more modest growth (than Bat Trang) during itshey day, some local people have to trim down their expenditures on daily-use essentialitems, 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, withpermanently 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 thenew 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, vizTet gifts and some production inputs (fertiliser in 2007). However, near-poor householdshave not received any assistance.

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

    5.5. Rescue measures

    Some rescue measures recommended by local producers:

    Bat Trang & Giang Cao Ha Thai

    The Communes authority has requested for more cashallocations for the Funds of the Womens Union, theYouths Union and the Veterans Union to help theirmembers in difficulty;

    The Government should pay attention to marketing Bat

    Trangs products, through the Guild or the localadministration;

    Financial support should be provided for producerswith box kilns to upgrade their facilities;Scientists should study how to reduce gas consumptionfor various types of products.

    Vietnamese trade attaches abroad shouldhelp explore foreign market demand, which,however, may negatively result in thefavour-granting mechanism in business;

    Local producers should be equipped withsome basic knowledge of trade.42

    41This 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 fromagriculture to handicrafts, without any chance to study basic trade knowledge. They had to start up anddevelop their work on their own, without any formal assistance.

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    Some rescue measures officially recommended by the Bat Trang Guild to Hanois

    Peoples 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.

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    Annex 1: Research methods

    The study was conducted three weeks after Tet, which is a quiet time for shoppingand 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 visitorsduring weekends. Also, according to the interviewees, around 30 or 40 percent of thekilns have not resumed their work after Tet. Therefore, it remains unclear whetherthese 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 thesynthesis of various sources (employees, household producers, businesses, seniormembers of the craft guilds, and commune and village officials) , the comparison ofvarious periods (boom times, the domestic crisis, and the global crisis, including pre-Tetand post-Tet in relation to the same periods of the previous years), and the understandingof 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 companiesand 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 TrangCommune say their pre-Tet sales went down sharply despite many discount offers.

    Photo 2: Some household producers shift to using their workshop floors for touristfun 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 bylocal 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, nowreceives neither orders nor visitors to its showroom.

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    Photo 5:An unsuccessful producer has been employed to transport products on hisbicycle 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 wasdeserted in early 2009.

    Photo 8: This pair of vases should be sold for 1.8 million VNDto 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-foodrestaurant.

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

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    Photo 11:A poor household produces lacquer worship articles for domesticconsumption. The yard used to be packed with products during better business periods.

    But it became rather spacious at the moment of research.