Why Vietnam Is The Best Alternative To China For Manufacturing // Vietnam Sourcing Guide
Vietnam is the best alternative to China for Product Manufacturing. Are you interested in comparing sourcing products from Vietnam with those from China? Would you like to learn about the advantages and disadvantages of sourcing products from Vietnam? Are you curious about how a sourcing company in Vietnam works? We made this guide to help you out!
Sourcing products is a very complex task, and adding the variable of a second country makes it even more complicated. Despite the difficulties, there are several reasons to consider Vietnam as an alternative to China for sourcing your products. China is a maturing market for industrialization and manufacturing, while Vietnam is rapidly growing its manufacturing base. As a result, Vietnam is the third fastest-growing economy globally and is expected to continue growing for over a decade. When I compare the two countries, I try to think of China as a giant, mature corporate behemoth and Vietnam as a small but promising and rapidly growing start-up. In this guide, we’ll go through whether it’s better to source from China or Vietnam for your next product.
How To View Sourcing From Vietnam
Generally, there are three ways to view sourcing from Vietnam:
A primary sourcing Destination
A secondary or backup destination
As a complementary destination, such as a China + Vietnam dual-sourcing strategy
In this guide, we’ll cover what each of these terms means. There is no one-size-fits-all approach, so it's essential to keep your product or existing supply chain in mind as you read. This guide also focuses on the benefits of Vietnam over China when Vietnam competes with many other countries, including the rest of the ASEAN countries and India. It is somewhat simplistic to reduce the source to a two-country comparison; nonetheless, comparing China and Vietnam is an excellent starting point, providing some perspective and scale.
Cosmo offers services to sources from Vietnam, regardless of your perspective, if you’re looking. Whether you are looking at Vietnam alone, want to compare or relocate your existing supply chain from China, or have a robust, dual-sourcing strategy across two countries, Cosmo can help you. If you are unsure if your product can be made, check out our guide on what can be made in Vietnam here: https://www.cosmosourcing.com/blog/sourcing-fba-products-in-vietnam. In this guide, we’ll go through what all three of these ways to view Vietnam mean.
China Vs. Vietnam Manufacturing
While Vietnam’s manufacturing capacity can stand independently, most focus first on China’s product sourcing. It’s understandable, given that China is the manufacturing epicenter of the world and can function as a one-stop shop. Whenever Vietnam's manufacturing is mentioned, it inevitably gets compared to China, which is understandable, given China's current dominance. Despite China’s dominance, Vietnam punches above its weight and has several advantages over its larger neighbor.
By the numbers!
Numbers can only tell us so much, but several items indicate that Vietnam can outperform China in terms of size; for instance, Vietnam, despite being 1/15 the size of China, produces 1/10 of China’s total exports.
Is Vietnam better for sourcing?
Pros
Young skilled labor force
Vietnam has one of the youngest labor forces globally, yet its workers can perform complex manufacturing tasks. For example, Vietnam’s labor force includes high-level technical assembly, semiconductor fabrication, and smartphone assembly. On average, labor costs are half of what they are in China. Additionally, Vietnam’s labor force is seven years younger than that of China. Although Vietnam has a population of 90 million, 54 million are between the ages of 18 and 60. Therefore, they can participate in the labor force.
Fewer restrictions and more free trade
While China faces increasing restrictions and regulations on its manufacturing sector, Vietnam’s government is highly proactive in pursuing free trade agreements worldwide. Vietnam has trade agreements that are soon to be completed with the EU (including non-EU members Norway, Iceland, and Switzerland), South Korea, and Southeast Asia via ASEAN, as well as Russia, among others. They are actively negotiating a revival of the TPP (without the US) and already have a Bilateral trade agreement that stops short of being entirely free trade with the US. The Trade and Investment Framework Agreement was signed by the United States and Vietnam in 2007 and has been in effect since then.
Smaller Bureaucracy
Vietnam, compared to China, has a smaller bureaucracy and fewer restrictions on foreign direct investment. Vietnam has lifted all restrictions on foreign ownership of production and manufacturing facilities across several key industries. Furthermore, Vietnam has relaxed restrictions and rules on foreign ownership and investment in numerous industries. If you are at the scale of considering setting up and owning your manufacturing capabilities, then Vietnam is significantly more attractive than China. Having experienced Vietnam and China, I have often felt pushback from China when trying to source and do business, while in Vietnam, I feel much more welcomed.
Cons
Logistics and Infrastructure
Vietnam has a decent logistics and infrastructure network, but it is not of world-class standard. Vietnam has one of the world’s better systems, but it is not world-class and falls very short of China, which is widely considered the best in the world. If Vietnam wants to take its industrial growth to the next level, it must invest in new roads, Freight Rail, a more efficient electrical grid, new ports, and other infrastructure. Unfortunately, in many cases, despite the lower cost of the factory in Vietnam, it is still cheaper to buy from China due to the lower transportation cost.
Selection
Another downside of Vietnam is that you can’t get everything you want from here. The limited selection is because Vietnam, unlike China, has limited capacity for production. However, to be fair to Vietnam, most of what it can produce is often cheaper or of higher quality than what can be found in China, and in some industries, such as clothing, it’s both cheaper and of higher quality. So, if you’re wondering what can be made in Vietnam, we've created a guide for you [Link coming soon!].
Scalability
Not only can your item be found in China, but you can also order it in almost any quantity. In Vietnam, the minimum order quantity (MOQ) is often higher than in China, and suppliers are less flexible. It’s a common practice when sourcing a new product to place a small order to test the market, and then place a larger order when you’re ready to make a commitment. While it’s still possible to do that in Vietnam, it’s not as easy as in China. For example, I had a client who needed 2,000 custom-designed shirts, so I contacted several factories that could make shirts. Many factories can produce millions of T-shirts annually and supply significant retailers like H&M and Uniqlo. However, while they could handle that volume, they couldn’t shift production to handle a smaller order.
Is China Better For Sourcing?
Pros
One-stop shop
China remains a one-stop shop for finding a manufacturer. If it can be made, it can be made in China. No other country anywhere in the world can offer this. When I source from Vietnam, the first question I ask is, “Can it be made here?’, but when I source from China, the first question is, “What price can I buy it?” Even for products that can be made in Vietnam, the factories are often not designed to handle different scales. In China, smaller buyers can make a small purchase to test a product idea and then scale up to almost any size.
Access to raw materials
China also has better access to raw materials, despite its limited natural resources. This is because China’s government and businesses aggressively source the raw materials they need. A notable example is China’s control of 90% of the rare earth metals essential in modern electronics. As a result, factories have their back-end supply chain in place, so we only need to communicate with the end manufacturer as a sourcing company.
When sourcing from Vietnam (and anywhere outside of China), it’s not uncommon to find both manufacturers who can produce the finished goods and suppliers of the materials. In some cases, this can be beneficial, as it provides full accountability in the supply chain and control over what is used. For instance, we recently sourced high-end Italian wool for some apparel in Vietnam, while in China, you have to take the factory at their word on the material they use or hire a third-party inspection service.
Infrastructure
China also has better infrastructure than Vietnam. That’s not to say that the infrastructure in Vietnam is terrible; it’s pretty decent, but China has invested trillions of dollars in creating possibly the best infrastructure in the world. Even though they have the largest ports in the world, they are incredibly efficient. China has a freight rail network that connects the entire country and has over twice as many high-speed rail connections as the rest of the world combined. And even if it does come from highly polluting coal plants, the electricity is still relatively cheap. In many cases, China’s infrastructure and logistics network is so good that transportation cost savings compensate for the higher labor costs.
Cons
Difficult Bureaucracy and regulations
To say China has a massive, complex, and ever-changing set of rules and regulations is an understatement. China’s Bureaucracy is massive, and navigating it can sometimes feel like living in a Kafka novel. In addition to its size and complexity, China chooses which laws to enforce almost arbitrarily. While setting up short-term relationships and projects is simple, it becomes exponentially more difficult the more you wish to expand them. It can be a nightmare if you get to the level of setting up your manufacturing. Foreign ownership, while possible, is challenging and can take years. China almost forces Joint Ventures with Chinese partners that may or may not be reliable.
Tariffs are only going to get worse.
Tariffs have already affected $50 billion worth of goods in China, and the current administration appears intent on implementing another $200 billion in tariffs soon. Even beyond the United States, other countries are looking to restrict the outflow of trade to bolster their competitive advantages. On the opposite end are countries like Vietnam, which are actively pursuing and signing free trade deals instead of being hit with Tariffs.
Raising Cost
Beyond Tariffs, the prices of goods exported from China have been increasing gradually each year. The rising cost in China is due to several overall positive trends, including rising wages and stricter environmental regulations. Nonetheless, China has slowly moved away from the “Cheap” manufacturing base.
Counterfeiting and trust
My clients’ most significant concern when sourcing from China is having their items stolen or counterfeited. For years, China has been notorious for stealing designs, ignoring patents, and sometimes cloning entire businesses. For FBA clients, it’s not unheard of for a Chinese-based supplier to determine where a product is being sold and hijack a listing. Therefore, it would be best to go above and beyond to ensure that you have protections in place, such as hiring a sourcing company that makes non-disclosure agreements (NDAs) mandatory in all contracts and forbids its employees and the factories it works with from selling even unrelated products online.
Corner cutting
‘Chabuduo’ is a Chinese word that roughly translates as “close enough.” The concept is all too prevalent in Chinese manufacturing. When sourcing products, you must be highly vigilant to ensure that the product isn’t made cheaper than expected and cut corners. Commonly, suppliers only do what is necessary, not one bit more, to make your product. There are many ways this concept manifests itself in an end product. For instance, you may get a sample made of one material and the final product made of another, or have internal components that are not what they should be. If you want to ensure that your product is legit and up to your standards, it may be in your best interest to hire a sourcing company to help you.
Vietnam as a backup supplier
Many people are already sourcing from China, but others are starting to look elsewhere for suppliers due to significant changes. It’s common for larger companies to audit their supply chain and identify backup suppliers to adapt to market changes quickly. A robust supply chain is crucial for companies seeking to deliver exceptional customer service.
Regarding robustness, the best way to protect yourself from as much risk as possible is to diversify your supply chain as much as possible. Having backup suppliers in Vietnam isn’t something only large companies can do; it’s becoming more familiar with companies of all sizes, including smaller ones. Suppliers in China and Vietnam enable them to have the absolute best suppliers possible and move quickly to keep their supply chains moving.
The best way to accomplish this is to figure out your current China-based supply chain and replicate it as closely as possible in Vietnam. Once you have found similar or suitable suppliers, obtain quotes and compile a comprehensive and detailed list of suitable suppliers. You must update this list regularly to maximize the robustness of your supply chain. If you are interested in this service, Cosmo can provide it. Cosmo has been helping clients find suppliers in Vietnam since 2014.
China + Vietnam Sourcing Strategy
Many buyers and companies prefer not to put all their eggs in one basket. As a result, many multinationals and larger volume FBA sellers have adopted a China + Vietnam Strategy. By sourcing and buying the same or similar products from both China and Vietnam simultaneously, you can leverage the best features of both countries and hedge against any significant changes in one country. Furthermore, with recent tariffs imposed on China, FBA buyers and major companies that utilize this policy could quickly shift production to Vietnam without any noticeable impact on their sales or supply chain.
The China and Vietnam Sourcing strategy began with the clothing and footwear industries, which have been utilized for years. However, the dual-sourcing strategy is expanding quickly to several other industries. Even if you are already buying or manufacturing in China and do not plan to move, assessing the Vietnamese landscape is valuable to determine if you can do better here. A list of Vietnamese suppliers can also give you a backup plan if things suddenly change in China. A company needs to be robust and have redundant operations strategies to ensure the best service for its customers.
Cosmo Sourcing // Your Trusted Partner In Vietnam
Please email us at info@cosmosourcing.com
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 allow you to access new manufacturers that you would not be able to in China and 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.