It’s common to see news of large multinationals moving manufacturing out of China to countries like India and Vietnam, such as Apple, for instance.
Based on the Economist’s report ‘Rising star: Vietnam’s role in Asia’s shifting supply chains,’ I created an assessment of manufacturing in China vs Vietnam with a focus on Vietnam as the location for at least some of your supply chain.
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For the last few years, specifically during the Trump administration, the US/China trade war and its tariffs have led a number of US companies to seek to move some or all of their supply chains out of China, and Vietnam has been a major recipient of that trade with its economy set for growing by 6.5% in .
The coronavirus pandemic has hastened the exit from China of companies from other parts of the world, too, as many have realised that they need to diversify their supply chain locations in order to reduce the risks and impact felt during China’s lockdown of early which disrupted supply for many importers.
So, if you’re considering Vietnam vs China as a base for some of your supply chain, here are the advantages and disadvantages to be aware of:
I’ll walk you through several of the Economist’s graphs regarding manufacturing in Vietnam vs China along with my comments on each:
Many productions have been transferred to Vietnam over the past 2 years, but the foreign direct investment hasn’t been going up.
Why? Because in many cases only the final assembly takes place in Vietnam, with components coming from China and other places.
“Electrical machinery” includes phones, computers, DIY tools, etc.
Vietnam is the second exporter of footwear, and its share of this market has been growing at China’s expense.
Vietnam is behind China and Bangladesh in apparel exports, but it is also a major player.
Wages are still competitive compared with China and other Asian neighbours.
The country only opened up to international trade in the mid-s, so wages come from a very low base.
There is a surplus of labor in agriculture, and labor has been flowing to the manufacturing sector (this trend is probably not over yet). It means wages have not risen very quickly.
In addition, there are no independent unions or pro-labor movements.
According to forecasts from The Economist, Cambodia’s wages of low-skill manufacturing workers are lower still, but that country doesn’t have good infrastructure and has far fewer industrial clusters.
Technical and management skills are in short supply, in part because of low enrolment in universities. This is structural and won’t go away soon — there will probably be more tension in the next few years. In the short term, the COVID pandemic has made it worse.
The bilateral surplus in Vietnam/USA trade, and the surprising (suspicious?) stability of the exchange rate against the USA, may lead to sanctions from the USA. The specialists from The Economist think the USA will take a few narrow measures – but probably nothing extreme.
Regulations related to the recent cybersecurity law might get stepped up. Like in China, Vietnamese authorities can request any data from companies located in-country (which must be stored in-country) – this may be unattractive for businesses who don’t feel comfortable with providing that level of access to their operations and IP.
Domestic cybersecurity laws are also strict and criticism of the government and its policies may be prosecuted.
I’ve written these posts on Sofeast and also over on QualityInspection.org, and there’s an even a podcast episode, too:
This free eBook shows importers who are new to outsourcing production to China or Vietnam the five key foundations of a proven Quality Assurance strategy, and also shows you some common traps that importers fall into and how to avoid or overcome them in order to get the best possible production results.
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