China Vs. Vietnam Manufacturing Guide // Vietnam and China Sourcing Pros and Cons
Vietnam, a rapidly emerging Asian economy, has positioned itself as a significant player in the manufacturing industry, poised to become China's second-largest manufacturing hub. With the ongoing debate among manufacturers on whether to relocate their production from China to Vietnam, it has become increasingly crucial to explore the possibilities offered by this transition. In light of this, this comprehensive guide aims to shed light on the steps and considerations involved in moving your factory from China to Vietnam, providing a comprehensive overview of the pros and cons of such a strategic move. Boasting a business-friendly environment with minimal bureaucracy, Vietnam has been attracting a substantial influx of factories, particularly following the intensification of the US-China trade war. By analyzing the advantages and the potential pitfalls, this guide aims to equip manufacturers with the necessary insights to make informed decisions about relocating their manufacturing operations to Vietnam.
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Vietnam is the primary manufacturing country for large brands such as Adidas and Nike, and many other fashion companies are packing their bags. Vietnam is poised to become a premier manufacturing hub for fashion, shoes, furniture, garments, and electronics. The primary benefits of investing in Vietnam include a vast labor force, low labor costs, a convenient location, and political stability. This guide will compare China and Vietnam, helping you decide which country is best for you.
Why Manufacturing is Moving from China to Vietnam
The world's largest brands are opening factories in Vietnam: Apple, Samsung, Nike, Adidas, LG, Foxconn, and others are examples of companies that have shut down Chinese factories in favor of Vietnamese factories. Many of the world's biggest corporations plan to outsource operations to Vietnam. In addition, the US-China trade war imposed significant tariffs on Chinese goods, while Vietnamese products are still easy to import. As a result, annual exports from Vietnam to the US increased, growing at a rate of 20-30% per year.
Many small companies have recognized the cost-effectiveness of relocating their manufacturing to Vietnam, rather than remaining in China. Vietnam attracts companies, from small textile companies to big tech electronics manufacturers. Vietnam is one of the biggest footwear manufacturers, and Nike manufactures more than 12% of its products annually. Adidas has extensive production facilities in Vietnam and plans to manufacture most of its footwear there. The footwear export industry in Vietnam is valued at nearly $22 billion annually.
Big tech companies are moving into Vietnam and balancing their production with that in China. For example, Apple has recently started producing AirPods in Vietnam to reduce import costs from China. Samsung has also expanded its presence in the country by shutting down one of its Chinese factories and opening a new factory in Vietnam. The last few years have seen an increase of over 300% in electronics, resulting from decades of the Vietnamese government fostering a friendly business environment and rising labor and export costs in China.
As a result of multinationals opening factories in the country, Vietnam has seen record economic growth, even amid the pandemic's slowdown. Vietnam's economy grows at an average rate of 7-10% per year, and it is a manufacturing and export-based economy, making it the 5th largest economy in terms of trade surplus with the US.
The World Bank estimates that Vietnamese exports will continue to grow, and the country's total GDP is expected to increase by 10% over the next few years. Vietnam even exports historically Chinese-dominated products, including promotional items and fashion goods. In addition, Vietnam can manufacture high-tech products, and recent investments by Apple and Samsung are a testament to that.
Top 5 Benefits of Outsourcing Your Suppliers From China To Vietnam
✔ Business-Friendly Environment
Vietnam is a business-friendly nation with an open economy that seeks to attract international companies. It is more business-friendly than China, and investors find it easy to set up factories, establish shipping logistics, and complete company registration in the country. Vietnam is a member of many international trade organizations and has signed hundreds of trade agreements with countries worldwide to facilitate exports.
Vietnam is a core member of ASEAN, a market association for Southeast Asia, and the country was supposed to benefit the most from the Trans-Pacific Partnership project. Vietnamese factories adhere to international standards, ensuring a robust manufacturing and production capability while also guaranteeing employee rights.
✔ Low Labor Cost in Vietnam
Vietnam's primary advantage over China is its lower labor costs. While wages in major Chinese cities have surged, and manufacturers are struggling to stay profitable, Vietnam's labor cost can be as little as 1/3 of China's. For instance, the minimum wage in Vietnam can be as low as $125 in certain regions. With that in mind, wages in Vietnam are increasing faster than in China and, in some cases, are reaching parity.
In many Chinese cities, the minimum wage exceeds $350; in some, hiring workers for less than $500 per month is impossible. While both countries have an abundant young workforce, Vietnam remains the more cost-effective choice for manufacturers seeking to reduce their labor costs. China's rising labor costs, combined with an increase in tariffs, make Vietnam a desirable option for comparison.
✔ Political Stability
Vietnam is politically stable, with no involvement in international or domestic conflicts. As a result, Vietnam has become a major tourist destination, attracting millions of visitors annually to its stunning beaches and majestic mountains. In addition, the country boasts one of the best governments in the region, which prioritizes development and business friendliness, making it easy for foreign investors to establish operations and conduct business.
The Vietnamese government reduces bureaucratic hurdles and establishes industrial zones where foreign investors can receive tax incentives and other benefits if they establish a factory. As a result, factory investments are safe in Vietnam, unlike in other countries in the region that experience internal conflict.
✔Shipping Logistics in Vietnam
Vietnam has a convenient geographic location and a 3,200-kilometre-long Pacific coast. Its Pacific coastline allows goods to be exported quickly to international locations such as the US, EU, and Oceania. Most products arriving from Vietnam take as little time as those from China. The shorter shipping times are a significant advantage over other low-cost countries such as India and Bangladesh, where products might take double the time. Additionally, Vietnam has a large population and numerous shipping companies that provide extensive shipping options by sea or air.
Vietnam's proximity to China means that if your company experiences material shortages, sourcing raw materials in China will be relatively easy. In addition, cities in northern Vietnam are only 800 km from the most significant Chinese manufacturing city, Shenzhen, while operating costs are nearly one-third lower. Combined with its international shipping routes, Vietnam is one of the most geographically convenient locations for investment.
✔ Infrastructure Links
Vietnam is rapidly modernizing its infrastructure with billion-dollar investments in highways and seaports. The Vietnamese government focuses on improving its ports to facilitate international shipping and make it easier for multinationals to ship heavy cargo between Vietnam and international destinations. Vietnam's main advantage is its 3,200 km coastline on the Pacific Ocean, with dozens of large seaports scattered along the coast. The long coastline provides easy access to factories located throughout the country.
Furthermore, Vietnam has developed an extensive railway network spanning 2,600 kilometers, designed for cargo transport and facilitating the swift movement of goods from north to south. As the country becomes wealthier, Vietnam should catch up with China in terms of shipping infrastructure, which will decrease the time required to transport goods from the factory to the warehouse in the US.
Made In China Vs Made in Vietnam: Comparison
To compare China vs. Vietnam directly, we're going to analyze different aspects of critical importance to investors, such as:
Labor costs.
Manufacturing capability/product output.
Material sourcing.
Workforce availability.
Shipping logistics.
Red tape.
Production limits.
Beyond these, there are still a few more issues with sourcing from Vietnam. If you would like to explore this topic further, please view our post on the Challenges of Sourcing in Vietnam.
Made In China Vs. Vietnam: Labor Costs
Vietnam offers significant advantages over China in terms of labor costs. For example, the average cost of hiring a factory employee in Vietnam is one-third that of China, especially in factories near major cities, where the average daily salary is approaching $30 in China.
Vietnam's main advantage over China is that labor costs are lower, but the output and quality are identical. Chinese wages continue to increase; however, this trend is also evident in Vietnam, where young talent frequently changes jobs to enhance their earning potential. Overall, Vietnam is generally less expensive than China in terms of labor costs.
Made In China Vs. Vietnam: Manufacturing Capability
China has the largest manufacturing capacity in terms of product choice. Virtually any product can be manufactured in China. Vietnam is somewhat limited in this regard, but manufacturing capacity for most general products exists in Vietnam.
While China remains the world's largest manufacturing economy and has more experience, Vietnam is quickly catching up. For example, Vietnam is becoming the largest footwear exporter, capable of manufacturing a wide range of products, including furniture, fashion, packaging, plastics, electronics, and more. However, China has an edge over Vietnam in producing custom products for companies due to its size.
Made In China Vs. Vietnam: Red Tape
Vietnam has a lot less red tape and regulations for start-ups than China. The Chinese communist government implements strict regulations on factories, and its legal system is hard to navigate for non-natives. In the past, manufacturers struggled to work in China because most factory owners didn't speak English; however, this is now better because companies hire English-speaking representatives.
Investors will find it easier to set up their factories in Vietnam because the Vietnamese government is more investor-friendly and has zones where investors can get perks.
Made In China Vs. Vietnam: Workforce Availability
China and Vietnam have large populations: China has 1.4 billion residents, and Vietnam has 95 million residents. The smaller population means that an employer could find millions of factory workers near every city to work at their factory. As a result, millions of workers and factory managers are available in both countries.
China and Vietnam have workers with strong work ethics who are willing to work long hours and put in considerable effort. While both countries have an educated workforce, China is better equipped due to its superior educational institutions and larger population.
China is a better option for businesses that rely on educated workers, such as those in the technology and machinery sectors. At the same time, Vietnam can also provide a skilled workforce near major cities. Unskilled factory workers are equally available in both countries, making it easy to find hundreds or thousands of employees for every significant investment. Labor productivity in Vietnam is lower than in China, but this is due to China's larger population.
Made In China Vs. Vietnam: Shipping Logistics
We have written a comprehensive guide to shipping in Vietnam. China's infrastructure is vastly superior to Vietnam's; however, this has not deterred major corporations from relocating their production to Vietnam. China's infrastructure near major cities is world-class, boasting the best highways, high-speed rail, and shipping ports, which makes international shipping easy. China has thousands of shipping companies and forwarders that can ship globally via various shipping methods. Their shipping is affordable and among the most competitive in the world.
China has large harbors, and its extensive fleet of ships carries millions of tons of cargo annually. The competitive environment of Chinese shipping companies means that prices remain low despite high output. The Chinese government has even gone so far as to subsidize international shipping from the country to increase exports. China also has the advantage of a newer infrastructure with a stable power grid that facilitates all shipping. Vietnam does not severely lack this regard, as it has dozens of highways and ports; however, its ports are outdated compared to those of China.
Vietnamese shipping companies are also competitive and can ship to the US or Europe at rates similar to those of Chinese companies. Many offer "door-to-door" services and can ship directly to your US warehouse from the factory. Ocean freight typically takes 3-4 weeks to reach the US from Vietnam, similar to the transit time for shipping from China. The prices are also near-identical. So, in terms of logistics and international shipping, it's a tie (despite China's superior infrastructure).
Made In China Vs. Vietnam: Material Sourcing
Materials are required to streamline production. If the raw materials are unavailable in the country where you manufacture the goods, you'll have to import them, which increases the total costs. Both countries are relatively large and have easy access to raw materials for a wide range of products.
As the premier manufacturing country, China will have a more extensive selection of raw materials, and sometimes, companies in Vietnam import raw materials such as textiles. Still, the transport cost between Vietnam and China is negligible, and your materials can be transported between the two countries in as little as a day. China holds the edge regarding material sourcing, but most materials should be available in Vietnam.
Made In China Vs. Vietnam: Production Limits
What happens if you need to ramp up production and the factory can't handle it? Chinese factories have near-unlimited production capability because even when the factory fails to meet your requirements, you can drive to a different factory in the city and make your product. China has such a tremendous manufacturing capability that tens of thousands of factories are in a single city. This availability enables Chinese manufacturers to supply all buyers.
In Vietnam, scaling a factory to manufacture a unique product is significantly more challenging, and you may encounter production delays if demand exceeds supply. Therefore, if you're investing in Vietnam, you'll need to plan the scale you require and build the factory in an area with the necessary workforce to support that scale. This process is much faster in China because dozens of factories manufacture the same product in every city.
US Vs. China Trade War: How Vietnam Benefits
President Trump's US-China trade war has led to a decline in trade between the two largest economies in the world - China and the United States. The trade war led to a decrease in US investments in China, as American companies had to pay higher tariffs to import their goods into the US. As a result, many investors chose to relocate to alternative countries and manufacture in markets with lower tariffs and labor costs.
Vietnam is the 1st destination for companies leaving China due to the trade war, and this trade war has been one of the biggest economic boosters for the country. Thousands of major companies have closed their Chinese factories and moved to Vietnam over the last few years. However, some speculate that Vietnam will eventually reach a bottleneck in terms of the number of factories the country can accommodate.
The trade war triggered events that led people to speculate about the futures of countries heavily reliant on trade. Vietnam emerged as the biggest beneficiary, with some reports claiming that manufacturers were relocating Chinese products to Vietnam and rebranding them as Vietnamese to lower their import tariffs. As a result, while China is losing its market share in exports to the US, Vietnam is exporting more than ever, and Vietnamese goods easily penetrate the US and European markets.
Effectively, the US-China trade war accelerated companies’ departure from China and relocation to Vietnam, driven by lower labor costs. As a result, manufacturers benefit from a low-cost labor force and can also import their goods to the US without interruption. Overall, while a mass exodus of manufacturers from China is not likely due to the market's sheer scale, most companies looking to relocate to the area will eventually consider Vietnam their first destination.
Shoes Made In Vietnam Vs. China
Shoes/footwear is the second-largest Vietnamese export after electronics, and Vietnamese footwear exports currently exceed $22.5 billion per year. The quality of footwear manufactured in Vietnam is often identical, if not better, to that of footwear manufactured in China, but labor costs are lower. As a result, the world’s largest footwear companies, including Nike and Adidas, are relocating to Vietnam.
Adidas cut 50% of its Chinese footwear production and moved it to Vietnam. Nike has also closed down significant factories in China and moved them to Vietnam. Additionally, fashion and retail giants such as Zara and H&M are also shifting their production to Vietnam.
Footwear is one example of Vietnam exceeding China’s manufacturing capability. Currently, Vietnam produces 2x the amount of Adidas shoes that China does, despite the company manufacturing in both countries. Nike has also shifted virtually all sneaker manufacturing to Vietnam. Changes in the footwear industry reveal how the manufacturing landscape is shifting in Asia, with China now relying on Vietnam for footwear production more than the other way around.
Other Industries Made In China Vs. Vietnam
Vietnam has a large textile industry, and factories in Vietnam produce goods of comparable quality to those in China. Clothing and fashion accessories are a $30 billion per year export industry in Vietnam and one of the country’s fastest-growing industries. Vietnam's clothing exports grow at an average annual rate of 10%. Vietnam is a leading global exporter of textiles and fashion products. Vietnam’s bags and luggage industry records a 3.5% annual growth, and the country has a large population of artists who can design bags. Vietnam also produces luxury bags for companies such as Prada.
Vietnam’s top export industry is the electronics and machinery sector, valued at approximately $117 billion annually. The machinery industry has increased by $300% since the Trade War started. Vietnam also has a significant furniture and wood manufacturing sector. Regarding furniture exports, Vietnam currently ranks as Asia’s second-largest furniture exporter, after China. In addition, Vietnam is the fifth-largest wood exporter globally, with over 4,500 wood production companies.
How To Move Your Manufacturing To Vietnam
Want to move your company to Vietnam? Regardless of the industry you’re working in, sourcing the best suppliers in the country is crucial to success. Rather than rushing into a commitment with the first manufacturer, we suggest exploring your options and analyzing whether they’re legitimate and can meet your demands. The process of determining whether to move to Vietnam involves audits and verifying their trustworthiness. Will the manufacturer have the finances and capability to manufacture your product? Will they meet your deadlines? Will the products be of high quality? We can help you find suitable suppliers in our company.
Cosmo Sourcing // Your Trusted Partner In Vietnam
If you want to source from Vietnam, contact the Cosmo Sourcing team; we have been helping clients source from Vietnam since 2014. Cosmo Sourcing has the skills and the team to find you the best supplier possible. We are also established in China and are among the few companies that can source suppliers in both China and Vietnam. Pick the one you think is best.
Our Vietnam Sourcing services enable you to access new manufacturers that are not available in China, allowing you to avoid Tariffs. Our services are designed to take your idea, turn it into a product, and ship it to its final destination. Cosmo can handle everything from creating a product spec sheet to validating, sourcing, ordering, evaluating samples, arranging inspections, finding freight forwarders, ensuring quality assurance, negotiating, and shipping. We aim to handle every single step of your business in Vietnam for you.
If you start a new business, finding products and suppliers for your products is one of many things you need to handle. Our services are designed to handle every aspect of your business in China and Vietnam, allowing you to focus on growing your own business.
We have helped clients from Fortune 500 companies, brick-and-mortar stores, FBA sellers, and brand-new businesses. So don’t hesitate to contact us and let us know how we can help you.