Pros and Cons: Manufacturing Moving from China to Vietnam?

Dec 09, 2023 Chapter 1. Sourcing

Vietnam has become the primary manufacturing hub for major brands like Adidas and Nike, and many other fashion companies are following suit. It’s on track to become the premier location for manufacturing in industries such as fashion, footwear, furniture, garments, and electronics.

Over the last ten years, manufacturers have been deeply involved in discussions regarding the manufacturing leave China to Vietnam.

The key advantages of China manufacturing moving to Vietnam investing include a sizable labor force, low labor costs, a strategic location, and political stability. This guide will compare China and Vietnam to help you make an informed decision.





Why Are Companies Moving out of China to Vietnam?

Prominent global brands, including Apple, Samsung, Nike, Adidas, LG, Foxconn, and others, have chosen to relocate their manufacturing facilities from China to Vietnam. Many of the world’s largest corporations are in the process of transitioning their outsourcing operations entirely to Vietnam. Several factors have contributed to this significant shift:

1. Impact of the US-China Trade War

  • The US-China trade war imposed substantial tariffs on Chinese goods, making it less cost-effective to manufacture in China.
  • In contrast, importing Vietnamese products remained relatively hassle-free, further incentivizing companies to move production to Vietnam.
  • As a result, Vietnam experienced a substantial annual increase in exports to the US, with growth rates ranging from 20% to 30%.


2. Attractiveness to Small Companies

  • Smaller enterprises have recognized the cost-efficiency of relocating their manufacturing operations to Vietnam, resulting in a diverse range of industries making the move.
  • Vietnam, known for its prowess in footwear manufacturing, now hosts major players like Nike, producing over 12% of its footwear there annually, and Adidas, with extensive production facilities.
  • The footwear export industry alone in Vietnam is valued at nearly $22 billion per year.


3. Expansion of High-Tech Manufacturing

  • The technology sector is increasingly embracing Vietnam as a production hub, complementing their operations in China.
  • For instance, Apple has started producing AirPods in Vietnam to reduce import costs from China.
  • Samsung has also relocated one of its Chinese factories to Vietnam, leading to a 300% increase in electronics production.


4. Favorable Business Environment

  • Vietnam offers a business-friendly environment conducive to international companies, simplifying factory setup and shipping logistics.
  • Membership in international trade organizations and numerous trade agreements with countries worldwide facilitate exports.
  • The country adheres to international standards, ensuring manufacturing capabilities and safeguarding employee rights.


5. Competitive Labor Costs

  • Vietnam’s primary advantage over China is its low labor costs, which can be as low as one-third of China’s wages.
  • While China’s minimum wages in major cities have surged, Vietnam remains a cost-effective choice.
  • Vietnam’s labor costs are increasing but at a pace slower than that of China, maintaining its appeal to manufacturers.


6. Political Stability

  • Vietnam boasts political stability, with no involvement in international or domestic conflicts, making it an attractive destination for both business and tourism.
  • The government supports development and business-friendliness by reducing red tape and offering tax incentives to foreign investors.


7. Efficient Shipping Logistics

  • Vietnam’s extensive 3,200-kilometer Pacific coastline simplifies exports to international markets like the US, EU, and Oceania.
  • Shorter shipping times compared to other low-cost countries enhance competitiveness.
  • Proximity to China ensures ease of sourcing raw materials when needed.


8. Robust Infrastructure

  • Vietnam is heavily investing in modernizing its infrastructure, including highways and seaports.
  • The extensive railway network designed for cargo transport facilitates swift goods movement within the country.
  • Vietnam’s growing wealth is driving improvements in shipping infrastructure, reducing transit times for goods from factories to global destinations.


These factors collectively contribute to Vietnam’s record economic growth, positioning it as the fifth-largest economy in terms of trade surplus with the US. The World Bank anticipates continued export growth and a 10% increase in total GDP in the coming years, reflecting Vietnam’s burgeoning role in global manufacturing and trade.





Pros and Cons of Manufacturing in China vs. Made in Vietnam

To conduct a direct comparison between China and Vietnam, we will examine various critical factors that are of utmost importance to investors, including:


Made in China vs. Vietnam: Labor Costs

Vietnam offers substantial advantages over China in terms of labor costs. For instance, the average cost of hiring a factory employee in Vietnam is one-third of that in China, especially in factories located near major cities where average salaries in China approach $30 per day.

Vietnam’s primary advantage over China lies in lower labor costs, with equivalent output and quality. While wages continue to rise in both countries, Vietnam generally remains more cost-effective.


Made in China vs. Vietnam: Manufacturing Capability

China boasts the world’s largest manufacturing capacity, offering a wide range of product choices. Virtually any product can be manufactured in China. Vietnam, while somewhat more limited in this regard, still possesses substantial manufacturing capacity for most general products. China maintains its lead as the world’s largest manufacturing economy due to its extensive experience, but Vietnam is rapidly catching up.

For example, Vietnam has become a major footwear exporter and can manufacture products spanning furniture, fashion, packaging, plastics, electronics, and more. However, China holds an edge in producing custom products for companies due to its sheer size.


Made in China vs. Vietnam: Red Tape

Vietnam imposes fewer regulatory hurdles and bureaucratic red tape for startups compared to China. China’s communist government enforces strict regulations on factories, and its legal system can be challenging for non-natives to navigate.

Language barriers have historically posed problems in China, though the situation has improved with the hiring of English-speaking representatives by companies. Setting up factories in Vietnam is generally easier, as the Vietnamese government is more investor-friendly and offers incentives in certain zones for investors.


Made in China vs. Vietnam: Workforce Availability

Both China and Vietnam boast large populations, with China’s population exceeding 1.4 billion and Vietnam’s totaling 95 million. The smaller population in Vietnam means that employers can find millions of factory workers near major cities. Both countries offer a workforce with a strong work ethic, willing to put in long hours and work diligently.

While both countries possess educated workforces, China’s is superior due to its better educational institutions and larger population. China is ideal for businesses requiring educated workers, such as those in the tech and machinery sectors.

Vietnam also provides a skilled workforce near major cities. Unskilled factory workers are equally accessible in both countries, making it easy to find hundreds or thousands of employees for significant investments. Labor productivity in Vietnam is lower than in China, primarily due to China’s larger population.


Made in China vs. Vietnam: Shipping Logistics

While China’s infrastructure surpasses Vietnam’s, this hasn’t deterred major corporations from shifting their production to Vietnam. China boasts world-class infrastructure near major cities, including excellent highways, high-speed rail, and shipping ports, facilitating international shipping.

Vietnamese shipping companies also compete effectively and can ship to the US or Europe at rates similar to Chinese companies. Many offer “door-to-door” services, shipping directly from the factory to US warehouses. Ocean freight takes 3-4 weeks to reach the US from Vietnam, similar to shipping from China, with near-identical prices.

Therefore, in terms of logistics and international shipping, both countries are on a par, despite China’s superior infrastructure.


Made in China vs. Vietnam: Material Sourcing

Efficient production relies on readily available raw materials. Both China and Vietnam, being relatively large countries, have easy access to various raw materials for diverse products. China, as the premier manufacturing country, offers a more extensive selection of raw materials.

In some cases, companies in Vietnam import raw materials such as textiles. Nevertheless, transport costs between Vietnam and China are negligible, with materials transported between the two countries in as little as a day. China holds the upper hand in terms of material sourcing, but most materials required for manufacturing should be available in Vietnam.


Made in China vs. Vietnam: Production Limits

Chinese factories possess near-unlimited production capability, allowing for easy scalability. If one factory cannot meet production demands, another can be located in the same city to fulfill orders. The vast manufacturing capacity in China ensures a reliable supply for all buyers.

In Vietnam, scaling a factory, particularly for unique products, is more challenging, potentially resulting in production delays when demand surpasses supply. Therefore, investors in Vietnam must carefully plan their production scale and choose areas with an adequate workforce to meet their requirements. In contrast, China offers a faster process because numerous factories manufacture the same product in every city.


Shoes Made in Vietnam vs. China

Footwear is a significant Vietnamese export, with exports exceeding $22.5 billion annually, following electronics. Footwear produced in Vietnam is of equal or superior quality compared to that produced in China, but labor costs are lower.

As a result, major footwear companies, including Nike and Adidas, have shifted production from China to Vietnam. Adidas, for instance, reduced its Chinese footwear production by 50% and relocated it to Vietnam. Nike also closed significant factories in China in favor of Vietnam. Leading fashion and retail giants like Zara and H&M are also transitioning their production to Vietnam. This trend exemplifies Vietnam’s growing manufacturing capabilities in the footwear industry.


Other Industries: Made in China vs. Vietnam

Vietnam’s textile industry is thriving, producing goods that rival China’s in quality. The clothing and fashion accessories sector here represents a robust $30 billion annual export industry, making it one of the country’s fastest-growing economic sectors.

Notably, clothing exports from Vietnam have consistently grown at an average rate of 10% per year, establishing Vietnam as a prominent global exporter in textiles and the fashion industry. Additionally, Vietnam’s bags and luggage industry has enjoyed steady annual growth of 3.5%, thanks to a talented pool of artists capable of crafting these products. Vietnam has also entered the world of luxury bags, collaborating with renowned companies such as Prada.

Leading Vietnam’s export industries is the electronics and machinery sector, which boasts an impressive annual revenue of $117 billion. This sector has witnessed a remarkable 300% growth since the start of the Trade War. Moreover, Vietnam’s furniture and wood manufacturing sector hold considerable significance.

In terms of furniture exports, Vietnam currently ranks as the second-largest exporter in Asia, trailing only China. Furthermore, Vietnam stands as the world’s fifth-largest wood exporter, home to more than 4,500 wood production companies within its borders.



manufacturing moving from China to vietnam



Should China Worry about Manufacturing Moving from China to Vietnam?

From an economic and demographic perspective, Vietnam is unlikely to absorb a large share of manufacturing from China.

According to the World Bank, Vietnam’s labor force is only 7 percent of China’s. This means that even if Vietnam succeeds in attracting manufacturing in industries such as electronics and textiles, it cannot replace China’s overall production.

Despite the trade war and the pandemic, China’s complete supply chain and strong production capacity have proven resilient to global shocks over the past few years. At least in the short term, the country’s share of global manufacturing is Unshakable.

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