Setting up Manufacturing in Vietnam vs China_ Focus on VietnamIt’s common to see news of large multinationals moving manufacturing out of China to countries like India and Vietnam, such as Apple, for instance.
Based on the Economist’s report ‘Rising star: Vietnam’s role in Asia’s shifting supply chains,’ I created an assessment of manufacturing in China vs Vietnam with a focus on Vietnam as the location for at least some of your supply chain.


Why are companies moving to Vietnam?

For the last few years, specifically during the Trump administration, the US/China trade war and its tariffs have led a number of US companies to seek to move some or all of their supply chains out of China, and Vietnam has been a major recipient of that trade with its economy set for growing by 6.5% in 2021.

The coronavirus pandemic has hastened the exit from China of companies from other parts of the world, too, as many have realised that they need to diversify their supply chain locations in order to reduce the risks and impact felt during China’s lockdown of early 2020 which disrupted supply for many importers.

So, if you’re considering Vietnam vs China as a base for some of your supply chain, here are the advantages and disadvantages to be aware of:


Advantages of Vietnam vs China

  • Low wages
  • Stable political environment, and relatively steady exchange rate with the USD (however, it may appreciate faster in the next few years, under pressure from the USA)
  • Proximity to China (ability to receive materials & components with short lead times)
  • Part of many regional trade agreements (ASEAN, RCEP, CPTPP, and EUVFTA).

Disadvantages of Vietnam vs China

  • Most of the manufacturing activities taking place in Vietnam are low-value-added (final assembly, cut & sew…).
  • Land use and land ownership – not easy for a foreign investor to ensure that land can be purchased, has good access to infrastructure
  • IPR protection
  • State-owned manufacturing groups distort competition on the local market


Exploring the Economist’s graphs on Vietnam

I’ll walk you through several of the Economist’s graphs regarding manufacturing in Vietnam vs China along with my comments on each:

FDI by source in Asia

FDI by source in asia
Many productions have been transferred to Vietnam over the past 2 years, but the foreign direct investment hasn’t been going up.
Why? Because in many cases only the final assembly takes place in Vietnam, with components coming from China and other places.


Vietnam’s exports by category and share percentage

vietnam export categories
“Electrical machinery” includes phones, computers, DIY tools, etc.
Vietnam is the second exporter of footwear, and its share of this market has been growing at China’s expense.
Vietnam is behind China and Bangladesh in apparel exports, but it is also a major player.


Vietnam’s wages will remain competitive

Wages are still competitive compared with China and other Asian neighbours.
The country only opened up to international trade in the mid-1980s, so wages come from a very low base.
There is a surplus of labor in agriculture, and labor has been flowing to the manufacturing sector (this trend is probably not over yet). It means wages have not risen very quickly.
In addition, there are no independent unions or pro-labor movements.

vietnam wages in manufacturing
According to forecasts from The Economist, Cambodia’s wages of low-skill manufacturing workers are lower still, but that country doesn’t have good infrastructure and has far fewer industrial clusters.
Technical and management skills are in short supply, in part because of low enrolment in universities. This is structural and won’t go away soon — there will probably be more tension in the next few years. In the short term, the COVID pandemic has made it worse.


The stability of the exchange rate with the USD

vietnam dong to usd exchange rate
The bilateral surplus in Vietnam/USA trade, and the surprising (suspicious?) stability of the exchange rate against the USA, may lead to sanctions from the USA. The specialists from The Economist think the USA will take a few narrow measures – but probably nothing extreme.


A close similarity with China where cybersecurity and internet freedom is concerned

Regulations related to the recent cybersecurity law might get stepped up. Like in China, Vietnamese authorities can request any data from companies located in-country (which must be stored in-country) – this may be unattractive for businesses who don’t feel comfortable with providing that level of access to their operations and IP.

Domestic cybersecurity laws are also strict and criticism of the government and its policies may be prosecuted.


Other resources about manufacturing in Vietnam vs China you can read next…

I’ve written these posts on Sofeast and also over on, and there’s an even a podcast episode, too:


Sofeast: Quality Assurance In China Or Vietnam For Beginners [eBook]

This free eBook shows importers who are new to outsourcing production to China or Vietnam the five key foundations of a proven Quality Assurance strategy, and also shows you some common traps that importers fall into and how to avoid or overcome them in order to get the best possible production results.

Ready to get your copy? Hit the button below:

Quality Assurance In China Or Vietnam For Beginners [eBook]

About Renaud Anjoran

Our founder and CEO, Renaud Anjoran, is a recognised expert in quality, reliability, and supply chain issues. He is also an ASQ-Certified ‘Quality Engineer’, ‘Reliability Engineer’, and ‘Quality Manager’, and a certified ISO 9001, 13485, and 14001 Lead Auditor.

His key experiences are in electronics, textiles, plastic injection, die casting, eyewear, furniture, oil & gas, and paint.

This entry was posted in Vietnam and tagged , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *