Vietnam as a Key Player in the China Plus One Strategy

As global supply chains change, businesses are looking for new places to manufacture instead of relying only on China. The “China Plus One” strategy means companies set up production in other countries to reduce risks. Vietnam has become an important choice because of its growing factories, good location, and helpful trade policies. This article explains why Vietnam is key in this strategy, looking at its advantages, challenges, and future as a manufacturing hub.

Vietnam’s Growth as a Manufacturing Hub

Over the past 20 years, Vietnam has changed from a farming-based economy to one focused on industry and exports. It has become a strong option for global companies that want to expand their production. With more foreign investments and government support, Vietnam has attracted many multinational corporations (MNCs) that are looking to move some of their production away from China.

According to the General Statistics Office (GSO), the industrial sector’s contribution to GDP in 2024 grew by 8.52% compared to the previous year, adding 2.7 percentage points to the country’s overall economic growth. Breaking it down further, processing and manufacturing grew by 9.83%, adding 2.49 percentage points; water supply, waste management, and wastewater treatment grew by 9.43%, adding 0.06 percentage points; electricity production and distribution grew by 10.05%, adding 0.37 percentage points. However, mining activity dropped by 7.24%, reducing economic growth by 0.21 percentage points. These numbers show how fast Vietnam’s industrial sector is expanding and its increasing role in global manufacturing.

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In the video below, we will explore in greater detail the benefits and challenges of establishing manufacturing hubs in the top 5 “China Plus One” countries including Vietnam as alternatives to China

Why Vietnam?

Several key factors make Vietnam a popular destination for manufacturing. First, labor costs in Vietnam are lower than in China, making it a great choice for industries that require many workers. Vietnam has also signed important free trade agreements (FTAs), such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA). These agreements help companies save money by reducing or eliminating export taxes to major markets.

The Vietnamese government has created policies to attract foreign investors, including tax benefits, reduced land rental costs, and an easier process for setting up businesses. Special economic zones (SEZs) and industrial parks provide companies with good infrastructure and logistics to support their operations. Vietnam’s location close to China is another advantage. Companies can still source raw materials from China while benefiting from lower manufacturing costs in Vietnam. This helps businesses reduce risks while keeping their supply chains efficient.

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Challenges and Risks

Although Vietnam has many advantages, there are also challenges that businesses must consider. One issue is that labor costs in Vietnam have been rising as demand for skilled workers grows. Another challenge is Vietnam’s infrastructure, as some ports are overcrowded, roads are not fully developed, and power supply issues can affect production. These factors can create delays and increase costs for businesses. Vietnam’s manufacturing industry also depends heavily on China for raw materials, especially in textiles, electronics, and machinery. This dependence creates risks, as any supply chain disruption in China can affect production in Vietnam.

To overcome these challenges, businesses can take several steps. Training and developing local workers can reduce reliance on foreign expertise. Sourcing raw materials from other countries, such as India and Indonesia, can help businesses reduce their dependence on China. Companies should also use government incentives to offset infrastructure-related costs and work closely with local manufacturers to build a stronger supply chain

Key Industries Benefiting from Vietnam’s Growth

Vietnam has quickly become an important center for electronics manufacturing, attracting international companies due to favorable trade policies, infrastructure improvements, and skilled workers. A good example is Samsung, which has invested about $20 billion, turning Vietnam into an important global electronics manufacturing location and boosting jobs and exports.

In textiles and garments, Vietnam is a leading clothing exporter benefiting from competitive production costs and wide-reaching trade agreements. ASICS is a good example, operating 14 of its 37 global factories in Vietnam, highlighting the country’s ability to handle large-scale production.

The furniture and wood products industry effectively uses Vietnam’s local resources and skilled workers to meet growing global demand. Likewise, the automotive and machinery industries, although still developing, are increasingly attracting attention and investment, showing strong potential.

In the field of technology and innovation, NVIDIA recently announced plans to open two AI centers in Vietnam. This decision highlights Vietnam’s growing importance as a center for advanced technology, improving its global standing.

Additionally, the Trump Organization has just invested 1.5 billion USD in an urban complex project including eco-tourism, sports, and a high-end golf course in Hung Yen province.

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Final Thoughts

Vietnam has positioned itself as a major player in the China Plus One strategy, offering lower labor costs, a strong trade environment, and a strategic location. However, challenges such as rising wages, infrastructure limitations, and dependence on China for raw materials must be addressed. As more businesses seek to diversify their supply chains, Vietnam is expected to become an even more important global manufacturing hub. The country’s success will depend on further investment in infrastructure, workforce training, and diversifying supply sources to ensure long-term stability and competitiveness in the manufacturing sector.

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Source: Vietnam Insider