The global business landscape is witnessing a remarkable transformation with the ongoing manufacturing shift from China to Vietnam. This strategic move is driven by the ever-growing desire to invest in Vietnam as a cost-effective and dynamic alternative to the saturated manufacturing industry in China. In this article, we will explore the compelling reasons behind this pivotal China manufacturing exodus and highlight the key sectors attracting businesses to invest in Vietnam, ultimately reshaping the Vietnam manufacturing landscape. This shift isn't just a passing trend; it's a tectonic shift with far-reaching implications.

Analyzing the Key Industries Shifting Production to Vietnam

Electronics and Technology

The electronics and technology sector's transition to Vietnam exemplifies the broader manufacturing shift. A prime illustration is Apple, the American tech giant, which has strategically diversified its supply chains. In an effort to reduce its heavy dependence on China, Apple has been assembling its products in Vietnam for several years, with plans to expand its presence and production volume in the country. Notably, Apple operates 11 factories in Vietnam through its Taiwanese partners. Companies like Foxconn, Luxshare, Pegatron, and Wistron are expanding their operations in Vietnam. During a meeting with Vietnam's Prime Minister Pham Minh Chinh, Apple's CEO Tim Cook expressed interest in involving more Vietnamese suppliers. As a testament to this shift, Apple moved its iPad production from China to Vietnam, marking a significant milestone.

Textile and Apparel

The textile and apparel industry is another key sector shifting its manufacturing operations to Vietnam. Major multinational retail giants, including Nike and Adidas, have diversified their manufacturing bases to Vietnam, driven by cost-effectiveness. Notably, during the first half of 2014, these renowned fashion brands transitioned substantial orders from China to Vietnam. The decision was influenced by the rising wages in China, which prompted manufacturers to seek alternative locations. Currently, Vietnam boasts an average production worker wage of approximately $284 per month, making it a competitive choice. Nike, for one, has established a strong presence in Vietnam with over 100 suppliers, including 96 factories concentrated in the southern region, as revealed in the Vietnam Footwear Manufacturing Industry Report 2022.

Automotive and Manufacturing

Vietnam's automotive and manufacturing sector is experiencing substantial growth, fueled by various factors. Notable companies like TCL and Mitsubishi have chosen Vietnam as a strategic location for their production operations. TCL is in the process of shifting its TV production to Vietnam, aligning with the trend of companies seeking to diversify their manufacturing locations. Mitsubishi, too, has opened an assembly plant in the southern province of Binh Dinh, Vietnam. ZF, an automotive manufacturer based in Germany, has recognized the advantages of Vietnam and established its own production plant in the country. The growth of these industries aligns with the DBS report released in April 2023, which identifies Vietnam as a key beneficiary for the relocation or co-location of production. The nation's competitive costs, skilled workforce, extensive free trade agreements, and proximity to China, along with its bright medium-term growth prospects, contribute to its appeal as an emerging manufacturing hub.

Benefits and Challenges of Shifting Production to Vietnam

Benefits

Shifting production to Vietnam offers a range of advantages, making it a strategic choice for businesses. The Vietnamese government has taken a calculated approach, transforming the nation into a 'China plus one' alternative for global production. This transformation is supported by a series of free trade deals, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU Vietnam FTA (EVFTA). These agreements facilitate access to numerous markets and enhance the ease of conducting international trade.

Vietnam's strategic location and expanding infrastructure also position it as a global export hub. The country's comprehensive transportation network, which includes seaports and airports, facilitates the efficient movement of goods. These developments contribute to the nation's appeal as a source for global exports.

Moreover, Vietnam's sizeable consumer market, with a population exceeding 99.4 million according to the General Statistics Office of Vietnam, presents immense potential. The nation's increasing income levels and evolving population structure have led to a surge in consumption demand. This shift creates significant opportunities for businesses, including those from China, looking to invest in Vietnam and tap into the growing consumer base.

Challenges

While the benefits are substantial, there are challenges to consider when shifting production to Vietnam. One challenge is the diminishing cost advantage of land. The cost of industrial land is increasing, particularly in major cities. For instance, industrial land rent in Ho Chi Minh City reached a record high of $198 per square meter, followed by Hanoi at $140, and Da Nang City at $80, according to a report by real estate consultancy Cushman Wakefield. This increase reflects the growing demand for industrial space and heightened competition.

Another challenge is the reliance on parts and raw materials from China. Many factories in Vietnam source essential components from China, which can create vulnerabilities in the supply chain, especially during times of global disruptions.

Navigating regulatory compliance and adhering to various local standards can be complex for businesses entering the Vietnamese market. Furthermore, the need for continuous infrastructure development is vital to support the country's growing manufacturing sector and maintain efficient logistics and transportation networks.

Vietnam's Role in ASEAN and the Global Market

Vietnam's ascendancy as a manufacturing powerhouse holds considerable implications for global trade and supply chains. As businesses worldwide seek to reduce their reliance on single production sources, Vietnam's emergence as a viable alternative presents new opportunities for enhancing supply chain resilience. The country's growing presence in the global manufacturing arena has the potential to reshape the dynamics of international trade, fostering a more diversified and interconnected global supply network. Additionally, Vietnam's proactive measures to improve infrastructure, streamline trade procedures, and foster a conducive business environment are further strengthening its role in global trade. By leveraging its strengths and actively participating in regional and global economic initiatives, Vietnam is poised to play a pivotal role in shaping the future of the ASEAN and global markets.

Final Thoughts

The ongoing manufacturing shift from China to Vietnam marks a pivotal moment for businesses worldwide. Exploring the significant opportunities and challenges within the electronics, textile, and automotive sectors, it becomes evident that Vietnam's manufacturing prowess is on a dynamic rise. Emphasizing the benefits of investing in Vietnam, such as lower labor costs, a skilled workforce, and strategic trade agreements, it is clear that the country presents an enticing proposition for companies seeking to diversify their production bases. While the transition entails navigating complexities such as supply chain disruptions and regulatory compliance, Viettonkin's comprehensive services stand ready to guide your seamless entry into the flourishing Vietnam manufacturing industry. Reach out to us today and capitalize on the full spectrum of expertise we offer to support your successful venture.

The pandemic is still happening complicatedly on a global scale and in Vietnam, affecting many economic sectors. In this context, businesses need to have a continuous “rotation” in strategic directions as well as methods of implementing those strategies. To catch your opportunities for doing business in Vietnam, you are recommended to ensure a plan to adapt and maintain operations, review the business model and strategy, and define the market position for a long-term growth.

READMORE: Vietnam Market Entry Strategy: Joint Ventures

The opportunities for doing business in Vietnam development from a strategic perspective

To Ms. Dao Thi Thien Huong, Deputy General Director of EY Vietnam, In charge of Strategic Consulting (EY-Parthenon *), The COVID-19 pandemic transformed consumers globally - from a value perspective, their behavior, to the way they consume it, and it impacted greatly on the business opportunities in Vietnam.

According to the EY Future Consumer Index in May 2020, 89% of surveyed consumers are and will change the way they shop, 76% are and will change their product and service choice (SPDV), and up to one half (50%) will probably spend only on a few essential SPDVs.

Therefore, these changes certainly have far-reaching effects on the operations of businesses.

EY-Parthenon (5/2020) analysis shows that businesses in the aviation, travel and hospitality, and oil and gas industries are facing many challenges due to declining customer demand and revenue. supply chain breakdown and liquidity risks increase. It is estimated that the global airline industry alone lost about $ 48 billion in revenue between January and April 2020 due to flight restrictions and flight cancellations, according to an EY-Parthenon analysis in June. / 2020.

Companies in the automotive manufacturing, retail real estate (supermarket group), also suffered some negative effects from supply chain uncertainties, declining demand and revenue. However, the impact of COVID-19 on this group of industries is less severe and firms are still able to maintain operations relatively close to the pre-pandemic period.

At the other end, some industries and businesses are finding opportunities for growth and expansion, including last-mile delivery, e-commerce and consumer technology. consumer tech, FMCG and pharmaceuticals.

However, what we want to say is ‘in danger’. In the picture with the dominant gray, EY-Parthenon's analysis shows that there are still bright spots and opportunities ahead. Firms with industry advantages, long-term adaptation strategies, and tailor-made, will be able to better grasp short-term emerging opportunities and new long-term opportunities.

Business opportunities in Vietnam development strategies

About business opportunities in Vietnam, due to the different levels and trends of COVID-19's impact on industries, there will not be a common formula for an adaptation strategy for all firms. In general, businesses should build adaptive strategies according to three groups of solutions.

The first group of solutions: focus on crisis management and liquidity management. For example, set up a quick response team to deal with unusual problems that arise in terms of safety, supplies, and production materials. This is an effective way that Vietnamese businesses can apply.

Liquidity management requires businesses to balance cash flows, cut down unnecessary expenses and closely monitor liabilities. Property procurement plans can consider shelving and choose alternatives such as renting a property to maintain a sufficient amount of backup cash.

The second group of solutions: aiming to create short-term value through reviewing and offering immediate actionable solutions to increase operational efficiency and increase cash flow. Solutions may include reviewing portfolios and selling or divesting appropriately, reallocating investment resources to maximize efficiency, and optimizing loans.

In addition, businesses also review product structure, customer structure, and price policy; Review procurement and supply chain costs, optimize taxes and optimize working capital.

However, program cuts often do not create growth and development drivers in the long term, even the tightening of costs and excessive resources can negatively impact growth and development. development in the future - pushing businesses into a difficult competitive situation and leading to a new state of crisis after the crisis.

Therefore, in the third group of solutions, businesses need to focus on repositioning strategies, including business model reform, growth model review, supply chain diversification, and lateral reform. feedback formula, in order to interact better and more effectively with customer behavior and needs. Because this is the core content in the "new normal" period.

These groups of solutions can be implemented individually or in combination, or prioritized for implementation depending on the actual situation and capabilities of each enterprise's resources.

Predicted business development trends for the long term

On business opportunities in Vietnam, Ms. Dao Thi Thien Huong emphasized, first, to catch business opportunities in Vietnam, businesses will appreciate the importance of increasing resilience to unfavorable circumstances (build resilience). This will include some key areas such as:

Develop response scenarios - at the same time look at macro effects more deeply and broadly, instead of focusing primarily on micro-drivers as before.

Supply chain transformation or re-creation. At this stage, the business will have to better control the increase (potential) in the supply chain costs, due to the choice of diversified sources to avoid the failure or availability of the chain.

Strengthen or diversify measures to protect workers, at the same time, apply automation in production to gradually reduce the dependence on ineffective factors, including labor costs.

Second, there is a possibility that there will be a swapping of positions in the same industry, although it may not be as fast and dynamic as that of industries - due to the impact of the pandemic. Enterprises with strong balance sheets, good management staff, can continue to promote investment in the current period, will have a "once in a lifetime" opportunity to break through and thrive. to lead the market. Tightly managed businesses may have to cede the latest short-term business opportunities to those that are able to adapt quickly, flexibly and dynamically in changing business directions and strategies. .

Third, the "margin" will shift in the value chain, towards the customer touch point. Retail operations, traditional distribution channels become less important, giving way to digital platforms (digital platforms) and more margins are created downstream. It will be easier than ever to reach and serve consumers from the manufacturing side, facilitating last-mile delivery for businesses.

Fourth, the application of robotics and artificial intelligence (AI) in supply chain operations and other business functions, is becoming increasingly apparent.

Fifth, digital transformation is expected to continue to increase, leading the link between traditional business models and digital platforms. In addition, strategic M&A activities and investments in "unicorn businesses" can become exciting when (possibly reduced) valuations are considered more reasonable by investors.

Keep it in mind, if you are unsure or know nothing about the local regulations and laws for doing business in Vietnam, you can ask for our help. Viettonkin will always be ready to assist you anytime!