From the global perspective, Vietnam has appeared as the main country to consider in case businesses will decide to adopt a production tactic different from China’s.
As a result of the increase in costs for production in China, as well as ongoing trade disputes, the companies change their strategy and start to evaluate the strengths of the Vietnamese way.
Among the factors that condition the dynamic of the network of their trade are strong partnerships and the fact that they use both growing logistics and digital trading.
Vietnam’s Ascendance as a Manufacturing Powerhouse
Vietnam’s textile, furniture, and electronics industries have demonstrated remarkable achievements. The country’s efforts to enhance industrial relations within the garment sector have yielded positive results.
Electronics manufacturing has experienced remarkable growth. This is especially true with major global players like Samsung and Intel investing heavily in the country, with Samsung investing more than $17 billion in manufacturing operations in Vietnam, which produces about 60% of smartphones. Additionally, Intel’s $1.5 billion investment in a chip assembly and testing facility in Ho Chi Minh City underscores Vietnam’s growing role in the growing global semiconductor supply chain.
In 2023, Vietnam’s manufacturing expanded at an impressive rate, growing 8.5% year-on-year. Although Vietnam’s production scale is still smaller than China’s, this represents approximately 30% of global manufacturing output. But Vietnam’s rapid growth and strategic location in Southeast Asia is what makes Vietnam a popular destination for international businesses looking to diversify their sourcing.
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Advantages of Procurement from Vietnam
For businesses looking to move or enhance their manufacturing operations outside of China. Vietnam has many interesting advantages. These benefits include cost-effective labor, favorable trade agreements and a relatively stable political environment
Cost-Effective Labor
Vietnam’s wages are much lower than in China, this makes Vietnam an attractive destination for labor-intensive industries such as textiles, clothing and electronic assembly. Manufacturing wages in Vietnam are approximately $3 per hour, while in China it has increased to around $6.50 per hour. These lower labor costs help companies reduce production costs without affecting product quality and improves the overall cost effectiveness.
Favorable Trade Agreements
Vietnam’s integration into global trade networks has been significantly enhanced by key trade agreements that reduce tariffs and provide better access to international markets. The EU-Vietnam Free Trade Agreement (EVFTA) removes most tariffs on Vietnamese goods entering the EU. Vietnam has made significant strides in its economic development. Participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will further facilitate trade with countries in the Asia-Pacific region. By reducing costs for exporters, these agreements enhance Vietnam’s position as a global manufacturing center.
Political Stability
Vietnam’s relatively stable political environment adds another layer of attractiveness for foreign investors. While China has faced increasing geopolitical tensions, particularly in its trade relations with the United States, Vietnam has maintained a more neutral stance on global issues. This stability provides businesses with greater confidence in their long-term investments and partnerships in the country.
Sourcing Challenges and Considerations
Although there are many benefits, sourcing from Vietnam also faces a number of challenges that businesses should consider carefully. The main challenge lies in the integrity of Vietnam’s supply chain infrastructure which, although developing rapidly , is still not as advanced or integrated as China’s.
Supply Chain Sophistication
China has spent decades building highly complex and interconnected supply chains. Although Vietnam has made rapid progress, still developing the capabilities of the supply chain for industries that require highly specialized production factors and components. For example, although Vietnam is a major producer of electronic components, it often requires importing important components. This causes delays and additional costs. Businesses looking to source from Vietnam need to invest time in finding reliable suppliers to ensure a smooth supply chain and build strong relationships.
Quality Control
While Vietnam continues to increase its manufacturing operations, quality control remains a major concern. Although foreign investment has stimulated improvements in production standards, it is necessary to be diligent to ensure that the product meets its specifications. Strict quality control procedures includes regular factory inspections and quality checks. It is important to address this challenge and businesses must also consider potential variations in product quality. This is especially necessary when working with smaller or less experienced manufacturers.
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Overcoming Sourcing Challenges
To successfully overcome the challenges of sourcing from Vietnam, businesses must take a structured and systematic approach. The process begins with thorough market research to understand the local production situation and identify suitable suppliers. Screening and selecting suppliers is important to ensure that partners are competent and have the expertise and the necessary infrastructure to meet production needs.
Once a reliable supplier has been identified, businesses should develop strong contractual agreements that outline quality expectations, delivery schedule and pricing conditions including strict quality control measures with regular inspection to help reduce the risk associated with product defects or inconsistencies.
Vietnam’s infrastructure, particularly in logistics and rural areas, still lags behind that of more developed manufacturing countries. However, companies can overcome these challenges through strategic partnerships and proactive planning. By collaborating with experienced logistics providers and developing contingency plans for potential delays, businesses can ensure a smooth flow of goods.
Vietnam’s rise as a manufacturing hub provides key advantages for businesses looking to diversify their sourcing strategies away from China. With competitive labor costs, favorable trade agreements and a stable political environment, Vietnam is therefore an attractive option for companies looking to reduce production costs while maintaining access to global markets.
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Source: Vietnam Insider