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 will soon become the premier location for fashion, shoes, furniture, garments, and electronics manufacturing. The main benefits of investing in Vietnam are the vast labor force, low labor costs, convenient location, and political stability. This guide will compare China and Vietnam and help you decide between the two countries.
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 put significant tariffs on Chinese goods, while Vietnamese products are still easy to import. As a result, annual exports from Vietnam to the US surged, growing at 20-30% per year.
Many small companies realize the cost-effectiveness of shifting manufacturing to Vietnam and leaving 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 enormous production facilities in Vietnam and plans to manufacture most of its footwear. The footwear export industry in Vietnam is worth nearly $22B/year.
Big tech is moving into Vietnam and balancing its production with China. For example, Apple recently started producing AirPods in Vietnam to cut down on import costs from China. Samsung has also moved into the country by shutting down one of its Chinese factories and opening up a Vietnam factory. The last few years have seen an increase of over 300% in electronics, which results from decades of the Vietnamese government fostering a friendly business environment and rising labor/export costs in China.
As a result of multinationals opening factories in the country, Vietnam sees record economic growth even with the pandemic's slowdown. Vietnam's economy grows at an average rate of 7-10% per year, and the economy is manufacturing/export-based, making it the #5th largest economy in terms of trade surplus with the US.
The World Bank estimates that Vietnamese exports will continue growing, and the total GDP will increase by 10% in the next few years. Vietnam even exports historically Chinese-dominated products, such as promotional products and fashion. 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 their factories and shipping logistics from the country + company registration. 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 follow international standards, guaranteeing manufacturing/production capability and employee rights.
✔ Low Labor Cost in Vietnam
Vietnam's main advantage over China is the low cost of the labor force. 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 is over $350; in some, hiring workers for less than $500/month is impossible. While both countries have an abundant young workforce, Vietnam is still the more cost-effective choice for manufacturers looking to lower their labor spending. China's rising labor costs, combined with an increase in tariffs, make Vietnam a desirable option comparison.
✔ Political Stability
Vietnam is politically stable without involvement in international or domestic conflicts. As a result, Vietnam is a major tourist destination and annually attracts millions of visitors to its beaches and mountains. In addition, the country has one of the best governments in the region that emphasizes development and business-friendliness, making it easy for foreign investors to set up shop in the country and conduct business.
The Vietnamese government reduces red tape and creates industrial zones where foreign investors can receive tax cuts and other benefits if they set up 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. In addition, Vietnam has a large population with hundreds of shipping companies that offer abundant shipping options by sea or air.
Vietnam's proximity to China means that if your company experiences material shortages, it will be easy to source raw materials in China. In addition, cities in the north of Vietnam are only 800km from the most significant Chinese manufacturing city, Shenzhen, while the operating costs are nearly one-third less. Combined with the international shipping routes, Vietnam is one of the most geographically convenient locations to invest.
✔ 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 the long 3200km coastline on the Pacific Ocean, with dozens of large seaports scattered all over the coast. The long coastline gives easy access to factories located all over the country.
What's more, Vietnam has developed an extensive railway network spanning 2,600 kilometers, designed for cargo transport and transporting goods swiftly from north to south. As the country gets wealthier, Vietnam should catch up with China regarding shipping infrastructure, which will decrease the time necessary to get your goods from the factory to your 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 want to explore this topic further, 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 1/3 of that in China - especially in factories near major cities where the average salary is approaching $30/day in China.
Vietnam's main advantage over China is that the labor cost is lower, but the output/quality is identical. Chinese wages keep increasing; however, this also keeps happening in Vietnam, with young talent changing jobs often to boost their earning potential. Overall, Vietnam is cheaper 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 a bit more limited in this regard, but the manufacturing capacity exists in Vietnam for most general products.
While China remains the world's largest manufacturing economy and has more experience, Vietnam is quickly catching up. For example, Vietnam is becoming the biggest footwear exporter; it can manufacture 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 regulation 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, but now this is 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 work long hours and are willing to work hard. While both countries have an educated workforce, China is better due to superior educational institutions and a higher population.
China is a better option for businesses relying on educated workers, such as tech/machinery, while Vietnam can also provide a skilled workforce near major cities. Unskilled factory workers are equally available in both countries, and it will be 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 wrote a complete guide to shipping in Vietnam. China's infrastructure is vastly superior to Vietnam's, but this didn't stop major corporations from moving their production to Vietnam. China's infrastructure near major cities is world-class, and they have the best highways, high-speed rail, and shipping ports - making 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 enormous ship fleets carry 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 as far as subsidizing 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, but its ports are outdated compared to China's.
Vietnamese shipping companies are also competitive and can ship to the US or Europe at a rate similar to that of Chinese companies. Many offer "door-to-door" services and can ship directly to your US warehouse from the factory. Ocean freight takes 3-4 weeks to reach the US from Vietnam, similar to 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 the materials, increasing the total costs. Both countries are relatively large and have easy access to raw materials for various 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 means that Chinese manufacturers can supply all buyers.
In Vietnam, it's much harder to scale a factory if you manufacture a unique product, and you may experience delays in production if your demand exceeds the supply. So, if you're investing in Vietnam, you'll have to plan the scale you need and build the factory in an area with the workforce necessary to supply 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-Chinese trade war has led to a shrinking trade between the two largest economies in the world - China and America. The trade war caused US investments in China to decrease, as American companies had to pay higher tariffs to import their goods on US soil. As a result, many investors chose to pack up for 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 hit a bottleneck in terms of how many factories the country can accommodate.
The trade war triggered events that made people speculate on trade-dependent countries' futures. Vietnam emerged as the biggest beneficiary, and some reports claimed manufacturers were moving 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 leaving China and moving to Vietnam for lower labor costs. As a result, manufacturers benefit from a low-cost labor force but can also import their goods to the US uninterrupted. 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 main Vietnamese export after electronics, and Vietnamese footwear exports currently exceed $22.5B/year. The quality of footwear manufactured in Vietnam is identical, if not better, to footwear manufactured in China, but the labor costs are lower. As a result, the world’s biggest footwear companies, including Nike and Adidas, are leaving China and moving to Vietnam.
Adidas cut 50% of their Chinese footwear production and moved it to Vietnam. Nike has also closed down significant factories in China and moved them to Vietnam. In addition, fashion/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 show how the manufacturing landscape is shifting in Asia, and China is 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 manufacture the same quality goods as factories in China. Clothing and fashion accessories are a $30B/year export industry in Vietnam and one of the country’s fastest-growing industries. Clothing exports in Vietnam grow at an average rate of 10% per year. Vietnam is a top global exporter of textiles and products in the fashion industry. Vietnam’s bags/luggage industry records a 3.5% growth each year, 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 industry, estimated at $117B/year. 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 Asia’s 2nd largest furniture exporter after China. In addition, Vietnam is the 5th largest wood exporter globally, with over 4500 wood production companies.
How To Move Your Manufacturing To Vietnam
Want to move your company to Vietnam? No matter the industry you’re working in, sourcing the best suppliers in the country is detrimental 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 figuring out if you should move to Vietnam includes audits and checking their trustworthiness. Will the manufacturer have the finances and capability to manufacture your product? Are they going to 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 only companies that can find suppliers in 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 do everything to take your idea, turn it into a product, and ship it to the final destination. Cosmo can do everything from creating a product spec sheet to validating, sourcing, ordering, evaluating samples, arranging inspections, finding freight forwarders, quality assurance, negotiations, 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 part of your business in China and Vietnam so you can focus on the rest of 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.