China’s long-standing position as the world’s manufacturing hub is evolving. Businesses are increasingly looking to diversify their sourcing strategies to build more resilient supply chains.
Vietnam has emerged as a compelling “China Plus One” destination, offering a unique blend of advantages that can benefit businesses of all sizes.
Sourcing-chine.fr, a leading reference in global sourcing diversification, has written this guide on “Vietnam as an Emerging Alternative for China Sourcing”. In this article, we highlight some of the key takeaways and strategies that foreign brands are implementing to diversify their supply chains away from China.
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Vietnam: Why It’s a Smart Sourcing Choice ?
- Vietnam’s significantly lower labor costs compared to China are a major draw for businesses seeking to cut production expenses. To illustrate this, provide industry-specific comparisons of average wages between the two countries.
- The geographical closeness to China offers a strategic advantage. Companies can maintain a regional focus for their Asian supply chains, minimizing disruptions and easing the transition from a China-centric model.
- Vietnam’s young and dynamic population is a major asset. The country is experiencing a demographic dividend, with a large working-age population eager to enter the workforce.
- Manufacturing zones in Vietnam have made significant strides in infrastructure development. Ongoing investments in ports, airports, highways, and power grids are improving connectivity and reliability.
- The Vietnamese government actively courts foreign investment with policies designed to create a welcoming business climate.
- The country’s participation in free trade agreements, notably the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union–Vietnam Free Trade Agreement (EVFTA) provides companies with preferential access to a vast network of markets. Reduced tariffs and trade barriers within these trade blocs can open new opportunities for expansion and revenue growth for businesses sourcing from Vietnam.
Strategic Implementation: Steps for Sourcing Success in Vietnam
Finding the Right Suppliers: Your Search Strategies
1. Online Marketplaces: The Digital Gateway
- Online marketplaces like Alibaba, Global Sources offer a vast pool of potential suppliers. However, a critical approach is essential. Analyze each platform’s strengths and weaknesses. For example, Alibaba offers a massive selection, while regional platforms might cater to specific Vietnamese industries.
- Narrow down options by product category, supplier location (focusing on relevant Vietnamese regions), certifications (if applicable), and minimum order quantities (MOQs) to match your production needs.
- Be cautious of common warning signs on supplier profiles. These include poor communication, inconsistencies in information, unreasonably low pricing compared to market averages, or hesitation to provide samples. Go beyond the initial profile and request references, certificates, and additional information to conduct a more thorough evaluation.
2. Trade Shows & Exhibitions: Face-to-Face Connections
- Industry-specific trade shows held within Vietnam offer valuable opportunities to meet suppliers and examine products firsthand. Key events include Vietnam Expo and Global Sourcing Fair Vietnam.
- Don’t overlook international exhibitions where Vietnamese manufacturers exhibit collectively.
- At the booths, observe the quality of products, assess the professionalism of the staff, and engage in conversations to gauge their capabilities. Use these interactions to gather information and identify potential partners. Don’t underestimate the power of networking at these events. Connect with industry professionals and leverage their insights to gain a deeper understanding of the Vietnamese market and potential suppliers.
3. Your Network: The Power of Referrals
- Recommendations from trusted industry colleagues, sourcing consultants with Vietnam expertise, local chambers of commerce, or even online industry forums (with careful consideration) can be invaluable. Referrals often come with pre-vetting and insights into a supplier’s track record, reliability, and strengths.
- Network with individuals who have experience sourcing from Vietnam. Their knowledge can be an invaluable resource. Tap into their network to gain first-hand information about a recommended supplier’s strengths, potential weaknesses, and overall suitability for your specific needs.
Additional Strategies to Consider
Partnering with a reputable sourcing agent based in Vietnam like MovetoAsia can offer a more personalized approach.
They can identify suppliers that precisely align with your requirements, conduct on-site visits and quality checks, and navigate cultural nuances to facilitate communication and negotiation.
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Some countries, including Vietnam, offer online directories of verified exporters through their trade ministries or export promotion agencies. While not an exhaustive search method, these directories can be a starting point for your research.
Due Diligence
Site Visits
Assessing production capacity is essential; can the supplier realistically handle your order volumes? Evaluate their machinery, number of production lines, and lead times. Observe the quality standards during production processes to ensure they meet your expectations and look for signs of established quality control procedures. The factory’s organization also plays a significant role in output quality and reliability—ensure it is clean, well-organized, and efficiently laid out.
Additionally, check for adherence to safety protocols, reflecting the supplier’s overall approach and potential liabilities.
Check References
Prepare questions focused on reliability, on-time delivery, responsiveness to issues, quality control effectiveness, and overall communication style. Aim to speak with at least two references that represent a range of order sizes and complexities to get a comprehensive understanding of the supplier’s performance. For a deeper dive, consider third-party audits. Social compliance audits assess adherence to labor laws, ethical treatment of workers, and environmental standards, while factory capability audits evaluate production capacity, technical capabilities, and quality management systems.
Final Thoughts on Global Sourcing in Vietnam
Understanding differences in business etiquette, such as negotiating styles and respect for hierarchy, can significantly impact your interactions.
Respect for seniority matters, so acknowledging the most senior person in meetings, even if they aren’t your primary contact, is crucial. Demonstrating cultural sensitivity lays the foundation for strong partnerships based on mutual respect and trust. Viewing suppliers as partners, not just vendors, fosters loyalty, commitment to quality, and flexibility in addressing challenges.
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While Vietnam offers a compelling alternative to China, relying solely on a single supplier, even within a seemingly stable country, exposes your business to unnecessary risks. Here’s why a diversified supplier base within Vietnam is crucial:
- Labor disputes could potentially impact your supplier’s ability to fulfill orders. Spreading your sourcing across different regions mitigates the impact of such localized disruptions.
- A single supplier might experience unexpected production delays due to equipment malfunctions, material shortages, or internal capacity limitations.
- While rare, unforeseen circumstances can lead to a supplier becoming insolvent. Diversification protects you from the financial and operational consequences of losing a single supplier.
By implementing a well-planned diversification strategy within Vietnam, you can minimize risks and build resilience into your supply chain.
Learning about the registration process for trademarks, patents, and copyrights, as well as receiving advice on the enforceability of your IP rights in Vietnam, can secure your intellectual property for the long run. Proactive measures include requiring suppliers and relevant personnel to sign Non-Disclosure Agreements (NDAs) to protect confidential information like technical specifications, designs, and trade secrets.
Vietnam presents a compelling alternative for businesses seeking to diversify their sourcing beyond China. By strategically implementing the steps outlined, companies can tap into Vietnam’s cost advantages, skilled workforce, and growing infrastructure. Careful planning, strong supplier relationships, and an adaptable mindset are crucial for success in this dynamic market.
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Source: Vietnam Insider