Vietnam Flourishes, as More Manufacturers Seek a Cheaper Market

Many industries in China are opting for cheaper manufacturing locations due to the country’s increasing labour wages. The apparel industry is one such. This has resulted in an immense boost in sourcing from Vietnam.

Manufacturing giants, like Panasonic, Foxconn and Samsung, recently has announced huge investments in countries like India and Vietnam, which most-likely would have been China’s catch in the past.

Vietnam has benefited from this exodus like none other. Importing goods from Vietnam is on the rise. In 2014, footwear exports to the US grew 24%, while that of China was only 0.3%.

Vietnam’s purchasing manager’s index projects 24 consecutive months of expansion.

A senior manager at SDG, Jugnu Sakuja said, “Considering both wages and productivity, the low-end production cost in Vietnam on average is about 30 per cent lower than in China.”

The minimum monthly wage in Vietnam is US$145. This clearly explains why a rising number of traders prefer importing from Vietnam.

Sakuja added that tariff cuts, expected after Vietnam enters the Trans-Pacific Partnership agreement (TPP), are also another reason why manufacturers are considering relocation.

In the next four to five years, the factory exodus from China will reach a peak, says Song Hong, a director with the international trade department at the Chinese Academy of Social Sciences.

With China’s changed policies, the manufacturing focus aims to shift from low-end to high-end products such as computers and airplanes, he said.

“In the short term cities relying on labour-intensive manufacturing will be impacted,” Song said. “For China, moving factories away is the easy part. The challenging part is how to upgrade the industries smoothly.” When it comes to overall efficiency as a manufacturing hub, Lim believes China still has the edge over its regional competitors. Lim said, China’s robust supply chain, a skilled labour base and a well-developed logistics infrastructure is still superior, compared to most Southeast and South Asian nations.

“That said, it doesn’t mean there will be a lot of increments in the manufacturing capability,” Lim added. “A company can be very happy keeping its existing plants in China, and going elsewhere for the next plant.”