Moving Production Out of China: How to Set Up a Factory in Vietnam

For more than two decades, China sat at the center of global manufacturing. Cost efficiency, scale, and supplier depth made it the default choice for apparel and textile production. Today, that model is under pressure. The shift away from China is no longer driven by cost alone. It is driven by risk.

From pandemic-related shutdowns to geopolitical uncertainty, global manufacturers have learned a hard lesson: supply chains optimized purely for efficiency tend to break when disruption hits. As a result, moving out of China has become a strategic decision rather than a reactive one.

Vietnam has emerged as one of the most credible destinations in this transition. But setting up a manufacturing plant in Vietnam is not a simple relocation exercise. It requires a fundamental rethink of market entry decisions, factory setup, sourcing strategy, and long-term supply chain design.

From Supply Chain Shock to Structural Change

COVID-19 marked a structural break in global supply chains. Factory closures, logistics bottlenecks, and raw material shortages exposed the fragility of highly concentrated manufacturing models that had been optimized for cost and speed, but not resilience.

Manufacturers heavily dependent on a single country, particularly China, experienced cascading delays that disrupted retail calendars, inventory planning, and customer commitments. In contrast, companies with diversified production footprints were able to reallocate capacity and recover faster.

The conclusion across the industry has been consistent: diversification is no longer a hedge. It is a requirement. This realization accelerated the adoption of the China+1 strategy, in which manufacturers retain production in China while actively developing alternative manufacturing bases in Southeast Asia. Among these alternatives, Vietnam has emerged as a preferred destination due to its balance of scale, infrastructure readiness, and industrial maturity.

A recent Vietnam factory tour offers a practical reference point for how international manufacturers are setting up textile production plants navigating this shift.

Vietnam’s Role in the Global Manufacturing Shift

Vietnam’s growing role in global manufacturing is supported by more than shifting supply chain strategies. It is underpinned by a stable political environment, consistent pro-investment policies, and deep integration into global trade networks.

In 2025, total registered foreign direct investment reached approximately USD 38.4 billion, while record disbursement levels confirmed that investors are not only committing capital but actively executing projects on the ground. This momentum is expected to strengthen further in 2026 as manufacturers expand capacity beyond initial pilot operations.

Vietnam also stands out as one of Southeast Asia’s fastest-growing economies. In 2025, GDP growth reached around 8.0%, with total trade turnover approaching USD 930 billion and overall GDP exceeding USD 514 billion. Economic growth is projected to remain strong into 2026, with upside potential nearing double-digit levels, reinforcing confidence in long-term manufacturing investment.

Within the China Plus One landscape, Vietnam has positioned itself as a leading alternative manufacturing hub. Competitive labor costs, a scalable industrial base, and a steadily improving skilled workforce continue to attract production shifts from China. In 2025 alone, disbursed FDI reached USD 27.62 billion, up approximately 9% year-on-year and the highest level in five years, directly supporting supply chain diversification strategies that will extend into 2026 and beyond.

Together, these factors explain why Vietnam is no longer viewed as a backup option, but increasingly as a core manufacturing destination in global supply chain redesign.

Setting Up a Manufacturing Plant in Vietnam: Strategic Decisions That Matter

Setting up a manufacturing plant in Vietnam begins long before machinery is installed or production lines are activated. The most critical decisions are made at the market entry stage, where early missteps can be costly and difficult to reverse.

Industrial parks and clusters for setting up a factory in Vietnam

>> Related article: North vs South Vietnam for Manufacturing: A Strategic Comparison Guide for Businesses

Location selection remains a defining factor across industries:

• Northern Vietnam is closely integrated with China and has developed strong capabilities in electronics, industrial components, and supporting industries, making it attractive for manufacturers prioritizing supply chain connectivity and speed.
• Central Vietnam offers emerging industrial zones with improving infrastructure and lower land and labor pressure, suitable for manufacturers seeking long-term expansion and cost balance rather than immediate scale.
• Southern Vietnam remains the most established manufacturing hub, with dense industrial clusters, port access, and experienced labor pools, supporting export-oriented production across multiple industries.

Equally important is the choice of investment structure. Manufacturers must determine whether to establish a wholly foreign-owned entity, enter a joint venture, or begin with contract manufacturing before committing to full-scale investment. Each model involves trade-offs in terms of speed to market, operational control, regulatory exposure, and capital commitment, and the optimal structure often depends on the complexity of the product and the maturity of the local supply base.

Timeline expectations must also be grounded in reality. From initial approval to stable production, setting up a manufacturing operation in Vietnam typically takes several months and can extend to a year or more, depending on project scale, compliance requirements, localization of the supply chain, and the level of technical complexity involved.

Understanding Vietnam’s Manufacturing Advantage Beyond Cost

Vietnam’s manufacturing appeal is often framed around cost advantages, but in practice, cost is only part of the equation. The country’s growing role in global supply chains is better understood through its operational trade-offs rather than as a universal upgrade from existing manufacturing bases.

Sustained foreign investment has improved manufacturing standards across several sectors, particularly where production processes are moderately complex and highly repeatable. Many factories in Vietnam are now familiar with international compliance requirements, quality management systems, and audit procedures. However, the level of maturity still varies significantly by industry, region, and factory ownership structure.

Vietnam has developed a stronger pool of local managers and technical staff, especially in operations that have been present for multiple production cycles. This has reduced dependence on expatriate oversight in some cases, but execution quality remains uneven and often requires close buyer involvement, particularly during ramp-up phases or product transitions.

For international manufacturers, Vietnam offers production environments that can meet global requirements in areas such as traceability and consistency, but not without active governance. Process discipline, supplier development, and risk management typically demand more hands-on engagement compared to long-established manufacturing bases. In this sense, Vietnam’s advantage lies less in being a “plug-and-play” solution and more in its capacity to evolve with the right operational investment.

Guillaume Rondan, CEO of MoveToAsia : leading market entry and sourcing company in Vietnam

>> Related article: Supply Chain 2026 Redesigning Procurement Manufacturing and Risk Management

Local Sourcing and Supply Chain Resilience

If Vietnam’s manufacturing advantage is not a plug-and-play solution, then local sourcing is where that reality becomes most visible.

As manufacturers move production out of China, reducing dependence on Chinese raw materials proves to be just as challenging, and just as important, as relocating assembly capacity. Vietnam has made tangible progress in this area, but the transition is gradual rather than immediate.

In several industries, including textiles, industrial components, and consumer goods, Vietnam’s supplier base increasingly supports local and regional sourcing of key inputs. This shift has practical implications for certificates of origin, trade agreement eligibility, and tariff exposure, particularly for manufacturers serving European and US markets.

Beyond compliance considerations, local sourcing improves lead-time control and production visibility. However, supplier qualification and material consistency often require deliberate development efforts. The resilience benefits only materialize when manufacturers actively invest in supplier onboarding, testing, and dual-sourcing strategies, rather than assuming local availability alone will reduce risk.

Factory Audits and Compliance as Operational Filters

Factory audits function less as formal checkpoints and more as operational filters in Vietnam market entry.

For global manufacturers and brands, audits determine not only whether a factory meets baseline compliance requirements, but whether it is capable of scaling, sustaining quality, and managing risk over time. Manufacturers entering Vietnam typically pass through multiple audit stages, from initial capability assessments to compliance verification and follow-up evaluations before volume transfer.

Audit outcomes frequently outweigh cost or capacity considerations. Factories that fail to demonstrate process discipline or management readiness are often excluded, regardless of pricing advantages. As a result, audit readiness has become a defining factor in supplier selection.

Vietnam’s growing familiarity with international audit frameworks reflects years of exposure to global buyers. However, audit performance still varies widely by factory, reinforcing the need for buyers to treat compliance as an ongoing governance process rather than a one-time qualification exercise.

Why Global Brands Continue to Expand Manufacturing in Vietnam

Despite these constraints, global brands continue to expand manufacturing operations in Vietnam, not because the environment is frictionless, but because it offers a workable balance between scalability and risk management.

Factories serving international buyers are expected to demonstrate transparency across the supply chain, stable quality systems, and management teams capable of operating under global compliance standards. In practice, this often requires closer buyer engagement during ramp-up phases and tighter coordination across sourcing, quality, and operations.

Foreign investment continues to flow into Vietnam’s manufacturing sector because the country offers relative political stability, a growing industrial base, and alignment with long-term supply chain diversification strategies. These factors do not eliminate operational challenges, but they provide a foundation upon which manufacturers can build resilient production networks.

This evolution is increasingly visible at industry events such as VIATT 2026 (26–28 February), where international buyers gain direct exposure to Vietnam-based manufacturers that have already adapted to global brand requirements. Beyond product showcases, such this event allow buyers to assess how factories operate in practice, from quality systems and compliance readiness to management depth, supporting more informed, long-term sourcing decisions.

VIATT forums connect buyers and manufacturers through practical sourcing discussions.

Moving Out of China Is a Supply Chain Redesign

Moving manufacturing out of China is not about replacing one country with another. It is about redesigning supply chains to function under uncertainty.

Manufacturers that succeed in Vietnam tend to approach factory setup as a long-term operational commitment rather than a short-term workaround. They invest in local sourcing development, apply rigorous supplier qualification, and design supply chains capable of absorbing disruption rather than collapsing under it.

Vietnam is therefore best understood not as an alternative manufacturing destination, but as an increasingly important pillar within a broader, diversified supply chain strategy.

Related

Source: Vietnam Insider