If your company has been outsourcing product manufacturing to China, or you have been considering China for contract manufacturing, you must be wondering whether you should keep to your China plan or shift production to another country. Will there be a second wave of COVID-19 in the fall, as some epidemiologists have projected? Will supply lines be disrupted again? As companies that have been doing business in Eastern Asia consider these questions, one alternative begins to look particularly attractive: Vietnam.
For many companies, the shift from China began well before the COVID-19 outbreak in November of last year. Kenneth Rapoza, writing for forbes.com, explains that China had already been losing its share of U.S. manufacturing. “In 2013, … China held 67 percent of all U.S.-bound Asian-sourced manufactured goods. By the second quarter 2019, its share collapsed 56 percent, a decrease of more than 1,000 basis points.” Where has that manufacturing gone? Rapoza explains that “46 percent was absorbed by Vietnam, sometimes by the same Chinese suppliers who left the mainland.” How much has this shift benefited the Vietnamese economy? The country “exported an additional $14 billion worth of manufactured goods to the U.S. in 2019 versus 2018 ….”
COVID-19 only accelerated the shift from China to Vietnam. According to the Kikkei Asian Review, Google, Apple, South Korea’s Samsung, and Japan’s Nintendo are among the giants moving from China to Vietnam. “Google is set to begin production of its latest low-cost smartphone … in northern Vietnam as soon as April. Google also plans to manufacture its next-generation flagship smartphone … in the second half of 2020 directly from the Southeast Asian nation.” Microsoft has plans to produce its Surface line of PC hardware in northern Vietnam. During the pandemic, Samsung has been “flying electrical parts to factories in Vietnam to maintain production schedules,” because the Chinese land border has been closed down.
Of this seismic shift, Kikkei quotes an anonymous “supply chain executive” as saying, “No one could ignore risks after [COVID-19]. … It’s more than just cost — it’s about continuity of supply chain management.” It’s worth noting that despite Vietnam’s proximity to China and the Chinese ownership of many of its facilities, Vietnam has reported just 268 cases of Covid-19 with zero deaths, as of April 20.
So, what should your company keep in mind as you consider outsourcing your manufacturing to Vietnam? Here are a few pros and cons you ought to weigh:
- Labor — Vietnam has generally high literacy and a fairly skilled workforce, yet labor is less costly than in China. But, with the influx of business, it’s fair to ask whether Vietnam has the capacity to meet increased demand for skilled labor and what the increased demand might do to wages. According to the business blog intouch-quality.com, “China has nearly 14 times the number of workers as Vietnam. And Vietnam is already seeing a major shortage of skilled labor following a surge of manufacturing in the wake of the Sino-U.S. trade war.”
- Raw materials — Vietnam has many resources within its borders, such as coal, oil and gas to power industry, and wood for furnishings. But Vietnam is very dependent on China. Intouch estimates that Vietnam relies on China for 70 to 80 percent of textiles, up to 77 percent of product value for electronics, 85 to 90 percent of materials used in its pharmaceutical industry, and 70 to 80 percent of production in its plastics industry.
- Infrastructure — As with labor, there is a question as to whether Vietnam’s roads, transport, and manufacturing facilities can support its industrial growth. China boasts “well-paved roads, seven of the world’s 10 busiest shipping ports and a massive rail network.” Yet, Vietnam is no slouch; on the World Bank’s 2018 Logistics Performance Index, Vietnam ranked 39th, “well behind China (26th),” but ahead of regional rivals that include Bangladesh (100th), Cambodia (98th), Indonesia (46th) and India (44th). Moreover, “construction of Vietnam’s $5 billion North-South expressway … is expected to bring a major boost to the nation’s logistics industry.”
- Quality control — The quality of your finished product is generally the bottom line. All other savings are for naught if you can’t proudly market your goods. The quality of finished products depends on materials, facilities, labor and other factors, including the contract manufacturer’s commitment to quality control. Many facilities in Vietnam are the result of Chinese investment, and these can deliver the same level of performance you would get in China. However, as the Vietnam economy grows, there will inevitably be more unproven manufacturers. Companies must research their options and choose wisely.
At Genimex, we are committed to delivering contract manufacturing solutions that work for our clients. We have been engaged in Eastern Asia for almost fifty years and have created a reliable network of suppliers in Vietnam. If you would like more information about how outsourcing to Vietnam could help your company reach your business goals, call us today to schedule a consultation