Given the uncertainty of US-China trade relationships soon, major manufacturing importers are considering moving their supply chains to Vietnam, and some already have. Vietnam has a stable political and business environment with more predictable foreign trade relationships. Additionally, its economy has continued to grow at a steady rate despite the global pandemic. As a result, this is a critical time to consider the benefits and opportunities of manufacturing in Vietnam.
Is Vietnam becoming the next best manufacturing destination after China?
Some of the biggest brands to open factories in Vietnam include:
As a result of this, annual Vietnamese exports to the US have grown by 20-30% annually over recent years. In addition, some of these companies have made significant commitments to manufacturing in Vietnam, demonstrating their confidence in its growing industry.
The appeal of Vietnam to international manufacturing firms
While Vietnam lacks the diversity of industries that China can offer, it is still far ahead of many other sourcing destinations in the range of goods it can manufacture and export.
It also has lower overall labor costs. China’s wages have increased by more than 60% in the last decade. This has significantly reduced the profit margins that once made it such an attractive sourcing destination. Vietnam’s minimum wages in 2019 vary from $125 to $180, which might be half of China’s, which, depending on location, range from $140 to $346. Furthermore, the rate of minimum wage growth has remained fairly stable, ranging from a 5.3% to a 7.3% annual increase over the last few years.
Vietnam has shown major improvement in several important metrics that the World Bank tracks to measure the ease of doing business in a country. Vietnam is now significantly ahead of China in:
- Ease of starting a business
- Ease of getting electricity
- Ease of paying taxes
- Ease of trade across borders
- Reliability of contract enforcement
This is partly due to reduced regulatory restrictions that caused higher business startup costs and cut certain tax obligations for employers, such as lowering their labor fund contribution. In addition, Vietnam now publishes the judgments of all commercial cases only, lowering the risk for importers.
Supply Chain Shifts to Vietnam: Garments & Textile Industry
Vietnam has had one of the largest textile manufacturing industries globally for years and recently overtook Bangladesh to become the second-largest textile exporter in the world, behind China.
This comes as a result of several international fashion brands shifting their supply chains away from China. For example, Nike now manufactures more than 12% of its total production in garment factories in Vietnam. Despite the global pandemic, Vietnam clothing manufacturers saw earnings totaling over $16 million in 2020. More than $13 million of this was earned in the first six months of the year, suggesting a much greater capability had international trade not been impacted by the pandemic.
Supply Chain Shifts to Vietnam: Electronic Industry
Vietnam’s export of electronic goods has increased by more than 300% over the last few years, thanks to investment from manufacturers like Samsung and Foxconn. Earlier this year, Foxconn estimated its investment into Vietnamese manufacturing at around $1.5 billion. One $270 million factory in February is expected to produce eight million tablets and laptops a year.
While the regulatory environment is improving, entering the Vietnamese manufacturing market as a foreign investor can still be complex. Besides the legal and licensing requirements to operate in Vietnam, market research and due diligence are vital to understanding the manufacturing capability of different regions. Cekindo can help with all of this and more, specializing in helping your business expand into Vietnam and the Asia Pacific region. So get in touch, and we will tailor an entry strategy to your business’s needs.
Vietnam has a stable political and business environment with more predictable foreign trade relationships. Additionally, its economy has continued to grow at a steady rate despite the global pandemic.
While Vietnam lacks the diversity of industries that China can offer, it is still far ahead of many other sourcing destinations in the range of goods it can manufacture and export. Besides, Vietnam has lower overall labor costs than China.
With mega brands like Nike, Apple and LG establishing their manufacturing companies in Vietnam, the annual Vietnamese exports to the US have grown by 20-30% annually over recent years.