Over the last five years, imports from China as a percentage of total imports from low-cost countries (LCCs) have been declining. This downward trend is expected to continue, with 33% of global supply chain leaders indicating they’ve already moved or plan to move business out of China by 2023.
The impact on China is significant, amounting to a loss in export volume of approximately $32 billion from 2013 to 2018. More importantly, the pace of business moving away from China to other LCCs accelerated in 2019, with an additional $40 billion of purchases being relocated.
Many of the manufacturers moving away from China are considering Vietnam as a lower-cost, reliable and quality source of parts, materials and manufactured components. Let’s explore why this shift is happening and the reasons why you should consider moving your manufacturing supply base from China to Vietnam.
Why Should You Move Manufacturing from China to Vietnam?
Vietnam has established a solid position to compete for additional business as companies close factories in China and look to develop supplier relationships elsewhere. Vietnam's hard work at building out infrastructure, establishing business-friendly policies and improving market access have created a modern and dynamic country seeking to become a dominant regional business center.
For supply chain managers considering manufacturing moving from China to Vietnam, below are seven reasons to pick Vietnam:
1. Vietnam’s Explosive Growth
In the past year, U.S. manufacturing imports from Vietnam surged, while imports from China flattened, which contributed to Vietnam’s rank as one of the fastest-growing suppliers among the LCCs. While Vietnam has benefited from China's inability to fulfill customer demands during the pandemic, this isn’t the start to Vietnam’s growth. Since 2013, the country’s GDP has grown steadily.
Among the 10 largest Asian exporters, Vietnam was first in export volume growth since 2015, at 96.4%. This growth reflects purchasers’ confidence in Vietnam’s ability to meet demands and is due, in part, to a trend called “right-shoring,” which refers to a business’s change in manufacturing operations to countries with the best combination of cost and efficiency. Clearly, organizations are finding this combination in Vietnam's manufacturing industry. In fact, Vietnam is now the eighth largest Asia exporter, accounting for $318 billion in dollar volume in 2019.
2. Lower Cost of Labor
The difference in cost of labor between China and Vietnam is significant. As of 2020, hourly factory workers in Vietnam make $2.99 per hour, versus $6.50 per hour in China. Since 2016, the average increase in hourly wages per year in China is more significant than the increase in Vietnam.
Depending on the product, worker salaries can have a significant impact on the cost per unit. While wages make up around 20% of the final unit price, which does not seem significant, the price of materials needs to be factored in. With products that require more expensive materials, savings on higher priced units can be found in the cost of labor. Over time, these savings add up, making a partnership with a Vietnam manufacturer the better long-term investment.
3. Quality Infrastructure
Vietnam offers heavy national investment in infrastructure and excellent, up-to-date shipping facilities with three major ports at Saigon, Ho Chi Minh City and the SSA International Terminal, Cia Mep, along with many smaller ports. Air shipments can also be easily managed via the country’s four major airports, along with numerous smaller facilities.
4. Stable Political System
Vietnam is dedicated to continuing to develop its business and manufacturing sector.
Over the past ten years, Vietnam has attracted $143 billion in foreign direct investment (FDI). Over 59% of this investment has gone into the manufacturing sector, which has been a significant contributor to the growth of Vietnam. The country continues to see investment due to its dedication to ongoing economic reform, new free trade agreements, inexpensive labor costs and overall political stability.
In the manufacturing world, stability has become an indicator for business partnerships. China’s ongoing aggression towards neighboring countries touching the South China sea, and increasing push against U.S. warships, continues to increase tensions with the U.S. This plus tensions caused by China’s trade war are reasons the U.S. has increased a significant portion of its imports from Vietnam.
5. Dynamic Workforce
Vietnam is home to a vigorous young workforce known to possess a strong work ethic and commitment to quality. This population is capable of performing manufacturing tasks, including high-level technical assembly of automotive parts and new smart devices.
This population has the upper hand with China when it comes to benefiting manufacturers. In addition to a lower cost of labor, Vietnam’s labor force is seven years younger than China’s. Of Vietnam’s 90 million citizens, 54 million are between the ages of 18 and 60, and a significant portion are part of the labor force.
6. Free-Trade Agreements
Vietnam has participated in significant international free-trade agreements to increase economic power and financial security, benefiting its international partners along the way. For the past several years, Vietnam has signed bilateral trade agreements throughout the world to expand its membership beyond the Association of Southeast Asian Nations (ASEAN) to fuel its growth.
These free-trade agreements have contributed to Vietnam’s economic development and allowed the country to shift away from exporting low-tech manufacturing products and into more complex high-tech products, including electronics, machinery, medical devices and vehicles. This means international partners can take advantage of a highly skilled workforce for a less expensive cost of labor compared to China.
Partner With a World-Class Producer of High-Quality Products
Based on the country’s economic and political profile, Vietnam is well ahead of other LCCs for gaining additional sourcing business. As conditions unfold and American supply chain managers seek to build more robust supply chains at lower costs, Vietnam offers an excellent primary source for parts and materials.
Purchasing officers seeking resilience in their supply chains, lower costs, and reliable delivery and quality should look to Vietnam as a sourcing option. Connect with VPIC to discuss how we can be your Vietnamese source for parts and materials.
