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 seeing how sourcing products from Vietnam compares to China? Do you want to know the pros and cons 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 many reasons to look at Vietnam instead of China to source 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 3rd fastest growing economy globally and is expected to keep 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 go over what each of these means. There is no right approach for everyone, so you must 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 a little simplistic to turn the source into a two-country comparison; regardless, comparing China and Vietnam is an excellent place to start, giving some perspective and scale.
Cosmo offers services to sources from Vietnam no matter how you view it, in case you’re looking. Whether you are looking at just Vietnam, want to compare or move your existing supply chain from China, or have a robust, dual-sourcing strategy from 2 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. Anytime Vietnam manufacturing comes up, it inevitably gets compared to China, which is understandable as China is currently at the top. Despite China’s dominance, Vietnam punches above its weight and has several advantages over China.
By the numbers!
Numbers can only tell so much, but several items show Vietnam can outperform China in terms of size; for instance, Vietnam, despite being 1/15 the size of China, produces 1/10 the total amount of China’s exports.
Is Vietnam better for sourcing?
Pros
Young skilled labor force
Vietnam has one of the youngest labor forces globally, but they can perform complex manufacturing tasks. For example, Vietnam’s labor force includes high-level technical assembly, semiconductor fabrication, and smartphone assembly. On average, the labor cost is half what it is in China. Also, Vietnam’s labor force is seven years younger than that of China, and even though 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 sees more and more restrictions and regulations against its manufacturing sector, Vietnam’s government is highly proactive in pursuing free trade agreements worldwide. Vietnam has trade agreements that will soon be completed with the EU (including non-full EU members Norway, Iceland, and Switzerland), South Korea, and Southeast Asia via ASEAN, Russia, and more. 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 US and Vietnam in 2007 and has been in effect.
Smaller Bureaucracy
Vietnam, compared to China, has a smaller bureaucracy and fewer restrictions on foreign direct investment. Vietnam has removed all restrictions on foreign ownership of production and manufacturing facilities for several industries. Further, Vietnam has relaxed restrictions and rules on foreign ownership and investment in hundreds of industries. If you are at the scale that you are considering setting up and owning your manufacturing capabilities, then Vietnam is much, much 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 is not world-class. Vietnam has one of the world’s better systems but 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 cheaper electrical grid, new ports, and more. 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, is limited in what it can produce. However, to be fair to Vietnam, most of what it can produce is very often cheaper or higher quality than what can be found in China, and with some industries like clothing, it’s both cheaper and higher quality. So, if you are wondering what can be made in Vietnam, we have made 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 MOQ is often higher than in China, and they are not as 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 are ready to commit. 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 could make millions of T-shirts yearly 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 is still a one-stop shop when it comes to 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 expand to almost any size.
Access to raw materials
China also has better access to raw materials despite China’s lack of natural resources. This is because China’s government and businesses aggressively go to the source and buy the needed raw materials. 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 figured out, so we only need to talk to 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 make the finished goods and a supplier of the materials. In some cases, this can be good as you have 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 terribly polluting coal plants, the electricity is 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. On top of its size and complexity, China chooses which laws to enforce almost randomly. While setting up short-term relationships and projects is simple, it gets exponentially more difficult the more you wish to expand. 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 hit $50 billion worth of goods in China, and the current administration seems intent on following through with another $200 billion 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 actively pursuing and signing free trade deals instead of getting hit with Tariffs.
Raising Cost
Beyond Tariffs, prices of goods exported from China have been increasing little by little each year. The rising cost in China is because of a few overall positive trends, such as raising 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 getting ripped off 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 figure out where the 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 places such as hiring a sourcing company that makes 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 you source products, you must be highly vigilant, 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 many people are starting to look elsewhere for suppliers with significant changes going on. It’s common for larger companies to audit their supply chain and find backup suppliers to adapt to market changes quickly. A robust supply chain is essential for companies that want to deliver the best 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 allow them to have the absolute best supplier possible and move quickly to keep their supply chain 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 find similar or suitable suppliers, get quotes and make a complete and detailed list of suitable suppliers. You must update this list regularly to maximize your supply chain’s robustness. 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 dislike putting 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 take advantage of the best features of both countries and hedge your bets against any significant changes in one country. Furthermore, with recent tariffs slapped against China, FBA buyers and major companies that use this policy could quickly shift production to Vietnam without any noticeable impact on their sales or supply chain.
The China + Vietnam Sourcing strategy started with the clothing and footwear industries, which have been used 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 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.