Manufacturing in Vietnam: This is What You Need to Know

by | Jan 22, 2020 | Sourcing, Supply Chain Management

Since the U.S.-China trade war began in 2018, many importers have scrambled to shift some or all of their production to Vietnam. In fact, Vietnam’s imports to the U.S. through November 2019 totaled $60.9 billion, up from $45.4 billion during the same period in 2018, for a year-over-year increase of 34%.

Even before the trade war began, many companies had begun adopting a “China Plus One” strategy, maintaining suppliers in China, but also secondary suppliers elsewhere. One of the goals of such a strategy is to mitigate the risk of geopolitical events, and as the trade war began to ramp up, a significant amount of production was shifted to secondary suppliers in Vietnam.

With the tariffs currently in place, you may be considering moving your own production to the Southeast Asian nation. Here, we provide an overview of Vietnam’s manufacturing sector along with some tips to keep in mind when looking for suppliers.

Vietnam Manufacturing: An Overview of 3 Key Areas

As a manufacturing destination, Vietnam comes with its advantages and drawbacks. Let’s discuss three key areas that you, as an importer, should be concerned about.

#1 Main Export Categories

Vietnam is most well-known for producing garments and textiles, but importers are often surprised to learn that the country’s biggest export category is actually electrical machinery and equipment, valued at US$117.2 billion.

Jean shirt with quality inspection sticker

Clothing is a major export category for Vietnam

In 2018, Vietnam’s top 10 product categories were:

  1. Electrical machinery, equipment: US$117.2 billion (40.4% of total exports)
  2. Footwear: $22.7 billion (7.8%)
  3. Machinery including computers: $15.9 billion (5.5%)
  4. Clothing, accessories (not knit or crochet): $15.9 billion (5.5%)
  5. Knit or crochet clothing, accessories: $14.8 billion (5.1%)
  6. Furniture, bedding, lighting, signs, prefab buildings: $9.8 billion (3.4%)
  7. Optical, technical, medical apparatus: $6.2 billion (2.2%)
  8. Fish: $5.6 billion (1.9%)
  9. Coffee, tea, spices: $4.4 billion (1.5%)
  10. Leather/animal gut articles: $4.2 billion (1.5%)

The size of the electronics and machinery category is mainly due to the large multinational corporations like Samsung and Panasonic that have set up shop there in recent years.

For small and medium-sized companies trying to find electronics suppliers in Vietnam, there are not as many OEM contract manufacturers as you might expect. However, if you are in other categories, like footwear, clothing, or furniture, there are many manufacturers that are capable of making your products.

#2 Infrastructure & Transportation Network

In recent years, Vietnam has made significant investments in its roads, railways, and ports.

According to the World Economic Forum’s Global Competitiveness Report, in 2019, the country ranked 77th out of 144 countries in the Infrastructure category. This puts it in between two other major Asian textile exporters, India, at 70th and Pakistan, at 105th. China has a higher level of infrastructure development, sitting at 36th.

At a more granular level, Vietnam performs particularly well in the area of Liner Shipping Connectivity, ranked 19th in the world. This indicates that the country is well connected to global shipping networks.

The country has 44 seaports dotting its 3,260 km (2,030 mi) coastline, including key ports, Hai Phong (North), Da Nang (Central), and Saigon (South). Vietnam ranks well in the area of Airport Connectivity, at 22nd, but the efficiency of its air transport services is ranked 103rd, and it’s roads are ranked 103rd as well.

#3 Labor Force

Vietnam’s wages are significantly lower than China’s, although, like in China, they are continually rising.

Factory worker working with wood

Wages for factory workers in both Vietnam and China are on the rise

Starting on January 1, 2020, Vietnam’s minimum wages increased in each of the country’s four regions. The minimum wage now ranges from VND 3,070,000 ($132 USD) to VND 4,420,000 ($190 USD) per month.

Last year, China’s minimum wages also increased in various parts of the country. They now range from 1,150 CNY ($163 USD) to 2,480 CNY ($361 USD) per month across the country’s various regions.

Minimum wages don’t tell the whole story in China, though, as a shortage of migrant labor and a declining working population (due to age) have pushed wages up far beyond the minimum wage in certain areas.

Vietnamese workers, on average, have less education than their counterparts in China, but the government has been making significant investments in public education, which is a good sign for the future.

A Large Roadblock for Importers Shifting Production to Vietnam

If you are thinking about shifting production away from China, at this moment in time, you may run into some major stumbling blocks in Vietnam.

Since a large volume of production has already been moved over from China in 2018 and 2019, many factories are now at capacity. This means that if you start reaching out to manufacturers, it is very possible that you will run into issues such as a lack of responsiveness or missed milestones.

It is important to keep in mind that if you are planning to make this type of long-term move, it will require time and patience to make it work.

If you can find suppliers that seem to be a good fit, it is important to consider conducting factory audits to help you evaluate them. Doing so can help you ensure that they have the capability and capacity to produce your products and achieve your goals in the area of product quality.

For more information about how to strike the right balance between price and quality, we recommend reading the following white paper.

Price vs. Quality: What You Need to Know

When you’re making products to sell in the marketplace, you have to consider the tradeoffs between price and quality. Sometimes, producing better quality products can lead to paying a higher price for manufacturing.

Download our free white paper, Price vs. Quality, to learn how to produce great quality while keeping your costs low.

Thanks for reading! Do you have any questions about the article? Is there something else you’d like to add? Leave a comment below.

Andy Church

Founder & CEO, Insight Quality Services


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