Is Vietnam the Next China: Myth vs. Reality
The ongoing US-China trade war has brought a renewed urgency in recent months resulting in my crisscrossing this tiny nation from the northern capital of Hanoi to the country’s economic epicenter to the south, Ho Chi Minh City – formerly known as Saigon, and every stop in between. Once viewed as an emerging market with potential, Vietnam today is considered the hottest “go-to” sourcing destination as supply chains uproot from China and President Trump and President Xi continue to work out their disagreements.
However, despite logging thousands of miles of travel and spending days upon days conducting factory audits in the remotest corners of the country, I’ve discovered Vietnam’s manufacturing industry and export products may not live up to the hype as China’s best alternative.
Myth #1: Vietnam manufacturing is on par with China.
One striking difference I noticed immediately is that Vietnam’s manufacturing is at least 10-15 years behind China. On my factory tours, I witnessed outdated machinery, lack of modern equipment and saw few signs of the latest supply chain best practices, including LEAN certification standards and supply chain manufacturing principles in action. In my daily research on vetting manufacturers, I consistently come across poorly designed websites- if I am lucky to find one at all, sales pages listing professional contacts using Gmail and Yahoo accounts, and often encounter few staff members who can converse or speak English well. These deficiencies contribute to the challenging task of sourcing products meeting global export standards.
Myth #2: Vietnam’s pricing is cheaper than China.
With labor about one-third of China, the cost of living and land is much cheaper than its northern neighbor, many falsely believe that Vietnam-made products automatically translate into big savings.
There are three contributing factors:
1. In nearly every industry, Vietnam lacks quality raw materials and must import them from China, thereby, increasing costs
2. As new foreign direct investments set record highs, industrial park land costs have increased dramatically to coincide with this boom
3. Manufacturers (well aware that the US-China trade war has put American buyers in a corner) have raised their prices accordingly.
These all contribute to the drowning out of any major cost savings. In my experience, several times North American buyers have responded that my Vietnam price offer is wildly off the mark and not competitive with their current China suppliers, China tariff included.
Myth #3: In Vietnam, you can expect to find everything as in China.
In the world of manufacturing and supply chain, I constantly hear: “Just start sourcing from Vietnam.” That would be all fine and dandy assuming an apples to apples comparison, but Vietnam is anything but China. Over the past two decades, China has perfected their manufacturing and supply chains to the point of employing robotics and automation churning out sophisticated products by the millions. Just take a trip to the hugely popular Canton Fair or attend one of the hundreds of trade shows and expos throughout the year; you will find every product imaginable, in every variant and color, too.
Furthermore, China has the most up-to-date and modern infrastructure—from container ports, highways, railways, and warehouses—to deliver goods globally. In contrast, Vietnam only in recent years has started to emerge onto the manufacturing scene, known mostly for light furniture, textiles, sewing, and electronics parts.
Exasperated by the US-China trade war, Vietnam’s manufacturing industry has been red hot, however, it’s not an equivalent replacement for China. Buyers can expect less-than-stellar quality products and choices than what China offers, met with challenging business practices and frustration due to the lack of manufacturing transparency, data, and information. While Vietnam might be a manufacturing dream destination for many of your gains, it might be just that in the end: a pipe dream.
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