Vietnam has emerged as a top manufacturing hub for major brands such as Adidas and Nike, with many other fashion companies following suit. The country is on track to become the premier location for manufacturing in industries like fashion, footwear, furniture, garments, and electronics. Over the past decade, manufacturers have been discussing the migration of their production operations from China to Vietnam due to several advantages.
These advantages include a sizable labor force, low labor costs, a strategic location, and political stability. In this guide, China and Vietnam will be compared to help readers make an informed decision. The guide will cover topics such as why companies are moving out of China to Vietnam, made in China vs. made in Vietnam, and whether China should worry about manufacturing moving from China to Vietnam.
Key Takeaways
- Vietnam has become a primary manufacturing hub for major brands and is on track to become the premier location for manufacturing in various industries.
- Advantages of Vietnam over China include a sizable labor force, low labor costs, a strategic location, and political stability.
- The guide will compare China and Vietnam, covering topics such as why companies are moving out of China to Vietnam, made in China vs. made in Vietnam, and whether China should worry about manufacturing moving from China to Vietnam.
Why Are Companies Moving out of China to Vietnam?
1. Impact of the US-China Trade War
The ongoing trade war between the US and China has led to several prominent brands relocating their manufacturing facilities from China to Vietnam. The imposition of substantial tariffs on Chinese goods made it less cost-effective to manufacture in China, while importing Vietnamese products remained relatively hassle-free. This further incentivized companies to move production to Vietnam, resulting in a substantial annual increase in exports to the US with growth rates ranging from 20% to 30%.
2. Attractiveness to Small Companies
Vietnam’s cost-efficiency has attracted smaller enterprises, resulting in a diverse range of industries making the move. Known for its prowess in footwear manufacturing, Vietnam 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.
Made in China vs. Made in Vietnam
When it comes to manufacturing, China and Vietnam are two of the most popular choices for investors. Both countries offer significant advantages and drawbacks, making it essential to assess various factors before deciding where to establish a manufacturing base. In this section, we will examine key factors that investors must consider when choosing between China and Vietnam.
Made in China vs. Vietnam: Labor Costs
Labor costs are among the most important factors to consider when choosing between China and Vietnam. Vietnam offers a substantial advantage over China in terms of labor costs. The average cost of hiring a factory employee in Vietnam is one-third of that in China, particularly 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
Regulatory hurdles and bureaucratic red tape can be significant obstacles for investors. 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
Shipping logistics is another crucial factor to consider when choosing between China and Vietnam. 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
Scalability is a critical factor for investors. 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
Should China Worry about Manufacturing Moving from China to Vietnam?
Vietnam’s labor force is only 7 percent of China’s, making it unlikely that it will absorb a large share of manufacturing from China. Even if Vietnam attracts 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. Therefore, it seems that China’s share of global manufacturing is unshakable, at least in the short term.