There has been an uptick in news recently regarding big supply chain companies like Foxconn moving their sourcing operations over to Vietnam from China. Foxconn isn’t alone in this move either, many of the Chinese factory owners are moving their own factories to Vietnam to take advantage of the lower labor costs..
Does that mean it’s time for you and your company to start sourcing in Vietnam? In this guide we’ll cover the top 8 benefits of moving your production to a country like Vietnam and if it’s the right move for your company.
As a business owner, you always want to budget well and Vietnam is one of the best places for that. Entrepreneurs are finding more opportunities in Vietnam as one of the key emerging markets. Suitable age structure and low minimum wages are an attractive asset, despite the uprising economy.
Let’s go through a quick example:
Minimum wage in a big city – $165 (as of 2019)
Minimum wage in a subregion like Hanoi – $145 (as of 2019)
Minimum wage in a smaller city – $115 (as of 2019)
That’s relatively cheap compared to other countries with a stronger economy.
Wages will make up less than 20% of the final unit price once material costs are factored in. However, you’re still looking at roughly a 15% in savings compared to outsourcing your production in China.
2. Trade agreement
Recent news around the U.S. and China’s trade war is causing a lot of entrepreneurs to panic. Many entrepreneurs have immediately felt the 25% increase in their production costs leaving them with little recourse without raising their prices.
Both sides have expressed an interest in settling their tariff fight over Beijing’s technology ambitions, however this is not guaranteed. We never know what will happen in the near future.
The Vietnam is considered a favourable area for manufacturing. In addition to that the government is committed to improving the level of this specific business line, it has been made simpler to register a company in the field of manufacturing.
In addition to today’s market’s benefits, entrepreneur’s will enjoy the incentives after the bilateral free trade agreement (EVFTA) between the EU and Vietnam. This will allow friendly and efficient importing.
3. Shipping cost
If you are just starting off and shipping a few boxes, then shipping costs probably isn’t a big deal, but when your business expands and you receive more orders, every little expense will add up.
Each courier has its own policies regarding additional taxes and surcharges. There are also additional taxes that are imposed by each individual country, but here’s the good thing about Vietnam. There aren’t any additional tax cost for shipping out of Vietnam.
With that said, it doesn’t mean that you won’t have to pay additional fees once your items arrive at the USA port. Depending on where you need your shipment to arrive from Vietnam, you may face custom fees to get them into your country which does add up when it comes to shipping cost and expense. The cost of this varies depending on the type of item, size, and more, but at the end of the day, you will still save a good amount considering the fact that you don’t have to pay the initial taxes to ship your items out.
4. Material specialization
There’s a certain place for everything. There are certain types of materials that China specialize in and there are certain types of materials that Vietnam specializes in.
While Vietnam is widely known for being a prime location for investors operating in the textile industry, there are many other business areas that are seeing significant growth in the country. Interestingly,
Vietnam is well on its way to becoming a key location for high-technology manufacturing, with companies like Foxconn, LG, Samsung and Intel making massive production investments into the country. We’ve also been seeing trends from healthcare suppliers moving into Vietnam.
The economy in Vietnam is still growing and most of their materials are being sourced within the country now. Previously it was being imported from China.
Let’s quickly dive into some of the material stats:
Apparel – As of 2019, Vietnam has over 6,000 factories that specializes in apparel production.
Wood products – Exports of wood products have increased by 13% in 2019.
Hair products – Vietnam is slowly becoming the capital for hair related products. Previously India was well known for this.
Bags and women accessories – Revenue for bags past $69million in revenue last year.
As of 2017, Vietnam is the largest ASEAN supplier to the U.S. with a net export value of US$48.43 billion. In fact, Vietnam is likely to become the wealthiest Southeast Asian country in terms of trade.
5. There are a good amount of foreign owned ventures in Vietnam
Foreign ownership means that you will be working with companies that you are already familiar with. This makes it easy to transfer existing QC checklists, specification sheets, or other documentation that might have been written in English directly to them.
One of the biggest problems with sourcing from China is learning how the Chinese culture works. Communication and the language barrier could be a huge issue that may arise as well. To prevent all these problems, companies usually prefer to work with foreign owned companies to speed up their production process. This will prevent errors in the long run.
Want to learn more about Vietnam?
View our guide on the ins and outs of manufacturing in Vietnam to learn more about their production specialization, labor costs, and to see if the move is right for you.
6. Workers in Vietnam are happy and love what they do
The workers are happy because they’re being listened to and have good working conditions, and when workers put their heart into putting together your product, your customers will be happy as well.
The boss listens to the staff on the production line to get insight into how the process could be done better and it’s the boss’ job to make sure the staff get the best working conditions they can possibly have. In doing so, he creates an environment where workers feel they are able to do their best work.
As a result, the workers are happy because they’re being listened to and have good working conditions, and our customers end up with the best product.
In Vietnam, factory workers go through a “shorter work week”. Most factories in Vietnam operate 6 days a week, which means only Sunday is a free day for the workers. Other factories will employ a 5 day longer work week. Either format, the workers are happy that they can get a break.
7. Living cost
For the last reason, we’re going to throw in a “fun” one. You might think that China has a low cost of living and it can be compared to the rest of the world, but when you are comparing China to Vietnam, Vietnam wins.
Chances are that if you are running your business out of Vietnam, you will need to stay there for an extended period of time or travel there frequently. In that case, it’s a much better bang for your buck in Vietnam.
Take a look at these quick stats for 2018:
- Consumer Prices in Vietnam are 5.16% lower than in China
- Consumer Prices Including Rent in Vietnam are 11.11% lower than in China
- Rent Prices in Vietnam are 25.67% lower than in China
- Restaurant Prices in Vietnam are 34.42% lower than in China
- Groceries Prices in Vietnam are 6.27% lower than in China
- Local Purchasing Power in Vietnam is 51.72% lower than in China
Vietnam has a strong and growing economy, but the living cost is still relatively lower compared to China and other rapid growing countries in Asia.
Both China and Vietnam are good options for running your production line. What’s more important is that you have a reliable process and plan moving forward. The beauty of Sourcify is that we connect you with pre vetted factories located around the world, including Vietnam, so that we can handle all the grunt work for you. You can also manage production and communicate with your manufacturer through our platform.