As manufacturers reassess their manufacturing strategies, factory relocations and shoring strategies from China to Vietnam are becoming increasingly popular. This transition is fueled by Vietnam's lower costs, strategic location, and favorable trade relations, particularly with the USA. However, challenges such as finding local suppliers, establishing new facilities, navigating a shortage of skilled labor, and dealing with infrastructure limitations complicate the shift. Navigating the manufacturing transition to Vietnam reveals a landscape filled with promising opportunities and significant challenges. This piece offers essential insights for businesses weighing the pros and cons of such a strategic move.
4 Pros of Moving Manufacturing From China to Vietnam
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Vietnam Is Cheaper
Vietnam offers a compelling cost advantage over China, with labor costs roughly half—$2.99 per hour in Vietnam versus $6.50 in China. This affordability extends to gas, electricity, and industrial space leases, making operations significantly more cost-effective. Such economic benefits are amplified for labor-intensive manufacturing, where reduced expenses directly translate to enhanced profitability.
The Vietnamese government further sweetens the deal with incentives like tax breaks and subsidies, particularly in designated economic zones, aiming to attract foreign investment. Additionally, Vietnam's strategic location optimizes shipping and logistics costs for businesses targeting major global markets. The combined effect of lower operational costs and strategic incentives makes Vietnam an attractive alternative for manufacturers prioritizing cost-efficiency and market access. -
Your China Supply Chain Will Still Be Useful
Relocating to Vietnam doesn't mean leaving behind the robust supply chain established in China. Many businesses continue to leverage their Chinese connections by transporting components and materials for assembly in Vietnam. Notably, major companies like Samsung and Foxconn have positioned their assembly centers near the Vietnam-China border, capitalizing on the proximity for easier logistics. While Vietnam's supply infrastructure is growing, it currently doesn't match China's maturity. This strategic approach allows companies to combine the best of both worlds—utilizing China's extensive supply network and Vietnam's cost-effective manufacturing environment, ultimately mitigating supply-chain risks when undergoing factory relocation.
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Better Environmental and Intellectual Property Protection
Vietnam is not the China of 25 years ago. From our experiences, we see the Vietnamese government consciously trying not to repeat the same mistakes as China regarding environmental and intellectual property protection. This effort includes Vietnam's proposal to introduce an environmental emission fee, reflecting a significant commitment to sustainable environmental practices and waste reduction. This move sets a precedent for economic accountability in pollution, positioning Vietnam as a leader in ecological stewardship in the region. By incentivizing businesses to reduce their environmental footprint through economic measures, Vietnam is aligning its industrial growth with global sustainability goals. This strategic approach enhances the country's attractiveness to environmentally conscious investors and ensures a greener future for its citizens and the global community.
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Exporting to the USA
The relationship between America and Vietnam has deepened, largely due to shared concerns over China's influence and Vietnam's aim to expand its export markets. This partnership has led to a significant growth in trade, with Vietnamese exports to the USA increasing by 13.6% from 2021 to 2022. This increase reflects Vietnam's strategic role as an alternative source for American importers diversifying away from Chinese products amid geopolitical tensions.
Vietnam's growing importance to the U.S. is underpinned by its capacity to supply a diverse range of goods, from textiles to electronics, meeting American demand for quality and cost-effectiveness. Efforts to improve trade conditions, including legal and infrastructure enhancements, have further cemented Vietnam's position as a key player in the global supply chain. It is advised to have someone on the relocation team who has export-import expertise to take the most import-export advantage from the relocation project.
4 Cons of Moving Manufacturing From China to Vietnam
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Finding Local Suppliers Is Difficult
Moving manufacturing from China to Vietnam introduces the challenge of sourcing local suppliers, as Vietnam's supplier network is not as developed or extensive. This scarcity often results in higher costs and fewer options for manufacturers. The logistical difficulties of managing supply chains are heightened if suppliers are far from production sites, especially when dealing with incorrect or damaged components. The risks of delays and increased operational expenses can significantly impact manufacturing efficiency. To navigate this less mature supplier landscape, strategic planning and establishing robust quality control measures with local suppliers are essential for mitigating potential setbacks.
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You Might Have to Set Up Your Own Factory
Establishing your own factory is often necessary for start-ups or small producers moving to Vietnam. Large conglomerates in the region typically focus on high-volume projects, making it challenging for smaller entities to partner with them. This scenario compels smaller businesses to invest in building their own manufacturing facilities to maintain production control and meet specific needs. While this can offer direct oversight and potential for custom solutions, it also requires significant capital investment for site development costs and an understanding of local regulations and market dynamics. An understanding of Vietnam's geographical fabric is crucial, too, for land acquisition purposes.
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Lack of Skilled Labor
Vietnam has a relatively large shortage of skilled technical labor compared to China. This is especially evident outside of Ho Chi Minh City, where electricians, pipefitters, robotics engineers and plumbers are difficult to come by. As a result, tooling often has to be made in the Shenzhen/Dongguan area and then sent to Vietnam for testing and approval. Generally, higher-end manufacturing in Vietnam is more complex than in China.
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Manufacturing Capacity and Infrastructure
Vietnam's smaller size and population compared to China mean it has a more limited capacity to absorb expansive manufacturing operations. As businesses increasingly relocate to Vietnam, this could lead to a swift increase in labor costs due to heightened worker demand. Additionally, Vietnam's infrastructure, though improving, does not yet match China's, particularly in regions farther from the coastline. This discrepancy can affect logistics, transportation, and the overall efficiency of manufacturing operations, posing challenges for companies accustomed to the comprehensive infrastructure available in China.
Navigating the Transition from China to Vietnam
The strategic pivot from China to Vietnam includes an exploration of cost efficiencies, market access improvements, and enhanced protections against the backdrop of logistical complexities and infrastructure nuances. This landscape, marked by Vietnam's compelling economic incentives and a vibrant yet developing supply chain, offers a ground for manufacturers seeking agility and strategic diversification. However, the journey will be filled challenges, from the intricacies of establishing new operational bases to navigating a competitive labor market amidst evolving infrastructure. In this dynamic setting, the essence of a successful transition lies in the pros and cons and the strategic synthesis of opportunities and challenges. Embracing this shift requires a vision that sees beyond immediate hurdles to the long-term gains of geographical diversification, setting the stage for sustainable growth and innovation in global manufacturing.
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