November 15, 2022
Vietnam Manufacturing -
Manufacturing in Vietnam – The New China? | OneLink Holdings
A recent article in the Economist highlights Vietnam as a rising manufacturing powerhouse. Here’s what you need to know about the booming manufacturing industry in Vietnam.
When it comes to Asia, China has long been the go-to destination for manufacturing. However, with rising labour and production costs, as well as increased environmental regulation, many companies are looking for new places to set up shop. Enter Vietnam – a country that offers all the benefits of manufacturing in Asia without the drawbacks of China.
In 2021, the manufacturing sector in Vietnam accounted for 25.13% of the total GDP, with a value of over 2.1 trillion Vietnamese Dong. According to Reuter, the country’s exports are forecast to rise 9.5% to $368 billion in the year (2022). Foreign direct investment inflows are also going to rise 6.4%-11.5% to $21 billion-$22 billion. The economy is expected to grow 8%, beating the governments estimated expansion of 6-6.5%.
In this blog post, we’ll look at some of the reasons why Vietnam is becoming the new hot spot for manufacturing.
How did COVID affect Vietnam Manufacturing?
In the 2020-2021 period, significant impacts of COVID occurred to the manufacturing sector; much like it did to China and other critical manufacturing countries. There were significant supply chain disruptions with temporary business closures, transportation difficulties and large staff shortages. The industry also experienced an increase of input prices, raw material shortages and a lack of shipping capacity and transportation.
There are many advantages that have drawn businesses around the world to Vietnam. They are outlined below:
Attractive Labour costs
The most attractive advantage from manufacturing in Vietnam is the low-cost manufacturing ability. Vietnam has extremely competitive labour costs, on average it costs US$2.99 (VND 68,000) per hour compared to US$6.50 (VND 148,000) per hour in China; providing a more cost-effective alternative to other manufacturing countries.
Location
Being centrally located in Southeast Asia, it is easy and relatively cheap to ship goods to all markets, including Australia and New Zealand. Vietnam has the ability to source raw materials and parts needed in manufacture from neighbouring countries such as China, Cambodia, Laos and Thailand. There are 3 international airports located in Hanoi, Da Nang and Ho Chi Minh City, and several ports with major freight forwarders and air couriers such as FedEx and DHL who operate in Vietnam.
Tax and Investment Incentives
There are several government incentives provided such as tax holidays and preferential treatment for foreign investors. Vietnam are also members of several free trade agreements, including the Trans-Pacific Partnership and the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA). These free trade agreements allow for reduced or zero export taxes and tariffs, providing a more facilitative market.
US-CHINA Trade War
The higher US tariffs on Chinese exports have made businesses and manufacturers switch production to countries such as Vietnam, to avoid these excess tariffs.
Vietnam is showing fast growth in the manufacturing industry; however, as it’s still a developing country, it does experience slow infrastructure improvements. Land availability in urban areas with transport infrastructure is hard to find and can be expensive, making it harder for manufacturers to find suitable space for their factories. There can also be electricity shortages, with power outages still occurring from time to time.
Key Economic Regions in Vietnam
The Northern region consists of 7 regions including Hanoi, Hai Phong, Quang Ninh, Vinh Phuc, Bac Ninh, Hai Duong, and Hung Yen. This region acts for 80% of Vietnam’s exports, and is responsible for heavy manufacturing, oil and gas, and industries such as automobile manufacturing. Electronics are also manufactured in the Northern Region. This region has the highest percentage of trained labour force with 48.5%.
The Central region consists of Da Nang City, Thien-Hue, Quang Nam, Quang Ngai, and Binh Dinh. The Central region is focused on food, beverage and food processing due to the region having favourable marine economy and agriculture. The region has a fantastic political-economic geographical position, with road, railway, air and sea transportation all within the city.
The Southern Region includes Binh Duong, Tay Ninh, Long An, Dong Nai, Ba Ria – Vinh Tau, and Ho Chi Minh City. This region is the most important economic region, with 40% of the national GDP. This region has a wide range of manufacturing ability, with textile and garment manufacturing occurring in Ho Chi Minh City; the country’s largest garment manufacturer. It is the leading zone for advanced manufacturing, with key sectors such as electronics, finance, healthcare, software and telecom.
Ho Chi Minh City and Hanoi remain the largest regions for manufacturing in Vietnam, with 70% of factories located in and around these cities.
Key Manufacturing Industries
Textiles and Garments
Vietnam’s textile industry continues to rank highly on leading exports, with over 6000 textiles and garments manufacturing companies, employing upwards of 2.5 million workers. It has claimed the title of the world’s second largest exporter of ready-made garments. Vietnam’s garment and textile industry has 3 sub-sectors, the upstream (fiber production), the midstream (fabric production and dyeing) and the downstream sector (garment manufacturing). The downstream sector makes up 70% of the total garment and textile industry. According to the Vietnam Textile and Apparel Association (VITAS), in the first nine months of 2021, the total export value of Vietnam’s textiles and garments was estimated at US$29 billion, up by 13.2 percent over the same period of 2020.
Footwear
Footwear in Vietnam is a growing industry, having recently become second-biggest supplier of footwear behind China. The World Footwear Yearbook 2021 announced Vietnam’s share of the global footwear market rose to over 10% for the first time. It has acquired some big names in western apparel and footwear such as Nike and Adidas, who use 200 and 76 factories respectively in Vietnam.
Electronics
While not as developed as their textile and garment industry, electronics is slowly gaining hi-tech industry companies who are putting large investment into Vietnam’s electronics industry. The industry mainly focuses on assembling simple parts and simple production processing however the government is eager to continue growth in this industry by attracting more hi-tech companies into Vietnam. In 2021, FDI projects in electronics manufacturing accounted for 95 percent of the total export turnover of the industry, with 33 electrical projects licensed and total registered capital of over US$1.7 billion. The well-known company, Foxconn; who is the key supplier for Apple, has invested significant money into Vietnam, contributing US$1.5 Billion in 2020 and a further US $700 Million in 2021, with employment also increasing by 10,000 local workers.
Automotive
Perhaps a surprise to many is the establishment of an automotive manufacturing industry. Vietnam is a country that relies heavily on the use of scooters and motorbikes, with only 5.7% of Vietnamese households owning a car. They are expecting to sell an estimated 750,000-800,000 units by 2025, with significant growth by 2035, when they are expecting to sell 1.7-1.85 million units. Vinfast, Vietnam’s automaker, have officially launched Vietnamese made automobile models to the foreign market, starting what could become a promising industry for Vietnam.
Vietnam is a key player in the global manufacturing industry. With its strategic location and well-educated workforce, many companies are choosing to manufacture their products in Vietnam. The country’s key industries include electronics, textiles and clothing, and footwear. In addition, there are several economic regions that offer unique opportunities for businesses. Despite the COVID pandemic, Vietnam remains a strong investment destination. We can help you navigate these waters and find the best opportunity for your business. Contact the OneLink team today! We are happy to discuss any product sourcing ideas you may have.
Written By
One Link Holding team
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