Manufacturing: China vs. Vietnam
Manufacturing in China has been the synonym for production in Asia for a few decades. However, things are changing. Vietnam, Thailand, Malaysia, India, and Indonesia are all perceived as the “new-China” due to significantly lower wages. But are salaries the most important factor in the decision of where to manufacture? Let’s find out by comparing manufacturing in China vs. Vietnam.
1. Wages In Vietnam Are Two Times Lower
In the past 10 years, salaries of factory workers in China have doubled. When manufacturing processes depend on actual labor work, it is more likely production costs will be cut down in Vietnam, not in China. But keep in mind, there is a trend of wages rising across the whole of Southeast Asia.
Score: China — Vietnam 0:1
2. Semi-Complex And Complex Products
While it might be cheaper to manufacture jeans in Vietnam, printing any application on those jeans will put China ahead. Not only is it cheaper, but the experience is on China’s side. Not to mention all the other products such as plastics, electronics, printing, packaging, etc. China has decades long experiences in the manufacturing of EVERYTHING. Nobody will beat that at least for another 10 years.
Score: China — Vietnam 1:1
3. Access To Raw Materials
China, by and large, has the advantage in raw materials. First, China has been the world’s manufacturing hub for a long time. Second, China is the most attractive consumer market in the world. These two factors alone mean there are massive stocks of all types of raw materials. This makes raw materials both accessible and affordable. Vietnam’s manufacturing industry heavily depends on the importation of raw materials. Sometimes, importation costs might prove to be too expensive, and the savings from affordable operations are unable to outweigh those costs.
Score: China — Vietnam 2:1
4. Overall Experience and Hardworking Culture
With a mature manufacturing industry, China has millions of skilled workers and factory managers. These people are raised to become hardworking individuals who all contribute to making their country great again. In fact, only six years ago average labor productivity in Vietnam was only 7% of that in China. This is pretty much the case across all the other countries in Southeast Asia.
Whenever you manufacture a new product, you need to train staff, optimize production lines, etc. Big corporations usually do that themselves by employing manufacturing experts. That’s why Samsung or H&M can move manufacturing to Vietnam, or even on Mars if Martians are cheap enough and willing to sew for humans.
If you’re just looking for a factory to take care of manufacturing processes themselves, then you will find what are you looking for in China. Yes, many manufacturing horror stories happen in China. But wait awhile for Vietnam and India to get more orders, and then you will also have more horror stories coming from there.
Score: China — Vietnam 3:1
5. Infrastructure
China has developed all types of infrastructure, and they are among the best in the world. In reality, if you need to send a package from the north of China to the south, it will probably be the fastest and most affordable delivery of any given distance in the world. Whether you ship by air, ground, sea, internationally or locally, China is the most competitive in this area.
The railway and highway systems are incredible. China’s harbors and trading fleet are huge and busy, which means competitive. Sometimes, international shipping is subsidized by the government. Also worth mentioning are excellent communication and power grid infrastructure. All of the above affect the final price of manufacturing and ultimately, what a factory can or can’t make.
It takes time to build such a massive and high-quality infrastructure, and no country will be able to beat that for decades. While Vietnam’s infrastructure isn’t inadequate, China’s is a lot better.
For example, China’s widespread across the country bullet trains can reach up to 350 km/h (218 m/h). Officially, Vietnam is planning to achieve that by 2050.
Score: China — Vietnam 4:1
6. Scalability and Options
Most of the Chinese factories can scale production. And even when they can’t, just cross the road and enter a factory that can produce whatever is necessary. Sometimes, there are thousands of factories in a single city. They often do the same or similar types of products. Chances are you’ll find what you need.
There are always factories willing to work with small, medium and large businesses. As opposed to what most people think, it is fairly easy to find factories willing to manufacture lower quantities here. For anywhere else in the world, a few thousand units is not a big enough order. Factories in other countries have a significantly higher MOQ (Minimum Order Quantity). Vietnam can’t keep up with China in this regard. Its population is 15 times smaller.
Score: China — Vietnam 5:1
7. Bureaucracy
While in the past, people had a truly tough time communicating with Chinese factories, things have gotten better now. Most factories have English speaking sales representatives. Their English isn’t that great, but they can still get things done.
However, China has three times more restrictive regulations on foreign investments. It is difficult and expensive to navigate through the Chinese legal system. All in all, it is easier to do business in Vietnam if you want to set up your own production line. The entry bar is way lower in Vietnam than compared to China.
Score: China — Vietnam 5:2
Bottom Line
Vietnam is gaining experience in manufacturing and learning. The government does a lot of good things to attract foreign investments and the political situation is stable. Therefore, having Vietnam as an option for manufacturing, especially for clothes, shoes, furniture and industrial machinery is still a good idea.
However, manufacturing equation includes many elements. Vietnam offers some important advantages over China, especially in the low-cost manufacturing. But China is still the central hub for both low and high-end manufacturing. The crown could be taken in the future, but for now, China wins.
Are there some other countries that can compete against China in manufacturing, maybe India, Eastern Europe or some African countries? Share your opinion below.
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NOA Labs is a German-owned company with operations based in Shenzhen and Hong Kong, China.
The company offers fairly priced in-house R&D, prototyping, manufacturing and shipping services.
