Manufacturing in Vietnam has been a poorly-kept secret for years. But a recent spike in the U.S.-China trade wars and international tariffs has changed the landscape. Thanks to these tariffs, the viability of Vietnam is not just an option for many companies. It’s the clear choice.
Vietnam’s manufacturing has not been an overnight success. It’s been a growing manufacturing industry for years, including an 11.9% growth in manufacturing from 2018 to 2019 alone.
Combine that with growing infrastructure and easy access to major southeast Asian shipping lanes, and you have a recipe for a regional manufacturer capable of rivaling China.
Is sourcing your manufacturing in Vietnam the right option? This post will help you understand the benefits of moving production to Vietnam. You’ll find multiple advantages when compared to production in countries like China.
Vietnam Sourcing: The Basics
Vietnam’s “remarkable development record” over the past 30 years–as characterized by the World Bank–is no accident. The Vietnamese economy is a source of consistent, robust growth. Improving infrastructure and decreasing inequality have helped modernize the country.
Just as importantly, Vietnamese manufacturing is ready to handle more.
But it’s not just the broad economy that makes Vietnam a safe haven from international tariffs. You’ll also see noticeable improvements in Vietnam’s manufacturing sector.
- Manufacturing in Vietnam is Growing Quickly
As of 2014, Vietnam’s manufacturing sector has grown to account for 25% of its GDP. And investors have noticed. Foreign investment into Vietnam has grown to exceed regional powers like Indonesia, the Philippines, and Thailand combined.
Vietnam also has a broad spectrum of manufacturing specialties, ranging from home textiles and apparel to furniture, wood products, and printing. We’ll cover the top 10 Vietnamese exports later, but brands can expect Vietnam to add more versatility as its manufacturing scene grows.
- Vietnam is Not Associated with China’s Tariffs
Expect the new tariffs imposed on more than $250 billion of Chinese goods don’t come without consequences. Companies who have grown to rely on Chinese manufacturing can expect greater costs. Vietnam’s manufacturing sector provides another location in southeast Asia that won’t be subject to these tariffs.
Companies are taking note. Nintendo made news recently when it announced it would be moving some of its manufacturing out of China and into other areas in southeast Asia, possibly including Vietnam. Nintendo isn’t alone. One of Apple’s chief manufacturers, Foxconn, announced that it was prepared to do the same and move out of China if the tariff threat continues to loom.
- Big Brands Trust Vietnam
In 2010, Vietnam became the primary supplier of Nike-branded footwear. Since then, Adidas has seen the wisdom of that move and joined in. As of 2018, Vietnam’s share of Nike manufacturing has grown to 47%, with China only contributing 26%. Another major fashion brand, Uniqlo, increased suppliers from Vietnam by over 40% between 2017 and 2018.
According to the same U.S. fashion industry survey, the model for big brands like these is shifting: “The most common sourcing model is shifting from ‘China Plus Many’ to ‘China Plus Vietnam Plus Many’,” the survey states.
The lesson is clear: big brands already trust Vietnam and view it as a viable alternative to China.
Key Advantages of Vietnam Sourcing
Vietnam’s growth alone isn’t enough to justify a switch to Vietnamese manufacturing. A business needs to be able to count on bottom-line results. When you receive Vietnam-sourced product, you need confidence that the quality is there. And you need bottom-line results to justify the switch.
There are three distinct factors that could lead to advantages in switching to Vietnam sourcing: lower costs, a wide degree of available materials, and improving investment in Vietnamese infrastructure.
The Low Cost of Manufacturing in Vietnam
The most obvious advantage in manufacturing in Vietnam is simple geoarbitrage. Funding a brand with the USD (U.S. dollar) and paying in the VND (Vietnamese dong) favors those brands that fund in dollars. The exchange rate can help lower labor costs as much as one-third, compared to China.
According to Statista, the per-hour rate of labor costs in Vietnam remain less than half of those in China. They also compare favorably to outsourcing to Mexico:
[Manufacturing labor costs per hour. Source: Statista]
Availability of Materials
Manufacturing won’t get you very far if a nation doesn’t have the materials to produce low-cost, high-quality goods. Vietnam excels as a source of rubber and aluminum. This leads to a manufacturing industry that can handle metal production, electronics manufacturing, and injection molds that add to its versatility.
We see that in the data as well. Vietnam counts electronic goods, electric equipment, footwear, textiles, and leather goods as some of its top exports.
Burgeoning Infrastructure in Vietnam
The last question: are these advantages easy to access? A manufacturing industry can be robust, but if its infrastructure makes that industry remote and inaccessible, it means little to the outside world.
Vietnam’s advantages here start with its geography. Vietnam features over 2,000 miles of coastline. Its location places it near some of the world’s busiest shipping lanes.
Heavy national investment in infrastructure is just as important. Infrastructure in Vietnam currently features commitments to national highways to connect an already heavily-urbanized population. More government investments are currently in the works, which will only help modernize Vietnam’s manufacturing sector.
Considerations Around Vietnam Sourcing
Does that settle it? Should you switch manufacturing to Vietnam and call it a day?
As with any move, you’ll want to go about it the right way. Before you make any sweeping changes to your sourcing, consider the following:
Know Vietnam’s Exports
Vietnam has a lot of advantages, but it can’t produce everything. Make sure that you review the country’s categories for top exported goods to ensure that there’s overlap with what you most need.
To get started, here’s a list of Vietnam’s top 10 exports:
- Electrical machinery and equipment: 39% of exports
- Footwear: 7.9%
- Clothing and accessories: 5.7%
- Machinery including computers: 5.5%
- Knit/crochet clothing and accessories: 5.3%
- Furniture, bedding, lighting, signs, and prefab buildings: 3.5%
- Optical/medical/technical apparatus: 2.2%
- Fish: 2%
- Plastics and plastic articles: 1.5%
- Leather articles: 1.5%
According to WorldsTopExports.com, these account for nearly three quarters of the total exports of Vietnam.
Instill and Ensure Quality Control
Sourcing in Vietnam can yield plenty of high-quality products, but you need to double-check quality on any manufacturing source. Here are a few ideas for doing so:
- Put a product inspection system in place. Make sure that you perform a quality inspection “upon receipt,” as well as conduct inspections before you ship out your products yourself. The more touchpoints you use for inspection, the greater the quality control.
- Get a partner. There is a lot to know about the process of sourcing from international manufacturing. To make that go more smoothly, bring on an educated partner who can help simplify the process.
You can do a lot to ensure that the quality of the product you receive is always on-point, but ultimately, the responsibility for double-checking that quality and upholding your brand’s reputation lies with you.
Sourcify can help. Vietnam is a country with a burgeoning infrastructure, low manufacturing costs, and with more favorable trade terms than rivals like China. But none of those advantages will work to your advantage without someone in your corner to keep the process smooth.