How to Move Your Supplier From China To Vietnam Guide // 5-Steps To Move Your Manufacturer To Vietnam
In the dynamic and ever-shifting landscape of global manufacturing, businesses continually seek strategies to optimize their operations, reduce costs, and mitigate risks. One such strategy that has gained significant traction in recent years is the shift of manufacturing bases from China to Vietnam. This move, driven by factors such as rising labor costs in China, trade tensions, and the diversification of supply chains, presents immense opportunities and notable challenges.
This comprehensive blog post is designed to serve as a guide for businesses contemplating or in the process of transitioning their manufacturing operations from China to Vietnam. Whether you're a small business owner looking to capitalize on the cost advantages of Vietnam, a large corporation aiming to diversify your manufacturing footprint, or an entrepreneur seeking agility in your supply chain, understanding the intricacies of this transition is crucial.
We will explore the key considerations and steps in moving your manufacturing base. This includes understanding the differences between China and Vietnam regarding the business environment, legal and regulatory frameworks, labor market, and cultural aspects. Additionally, we'll discuss how to identify and partner with reliable manufacturers in Vietnam, manage logistical challenges, and navigate the local bureaucratic landscape.
Moreover, this post will offer insights into the strategic advantages of manufacturing in Vietnam, such as access to emerging markets, favorable trade agreements, and a rapidly developing infrastructure. We will also show how to approach this transition to minimize disruption to your supply chain and maintain the quality and consistency of your products.
Embark on this journey with us as we transition your manufacturing operations from China to Vietnam, which could redefine your business's efficiency, scalability, and global reach.
We developed a 5-step process for moving manufacturing from China to Vietnam—scroll below for the guide. If you want insights on getting started manufacturing in Vietnam, no matter how big or small, email us, and we’ll gladly help! Depending on your business sector and investment volume, we can provide personal insights.
Is Vietnam Becoming The “New China”?
There is a lot of hype surrounding manufacturing in Vietnam, especially after the US-China Trade War, resulting in trillions of capital leaving China. Most of that capital ended up in Vietnam – a rising regional manufacturing star. Chinese manufacturers are moving to Vietnam to save on labor costs and expand their production capabilities. So, what is the first choice for manufacturers leaving China? Vietnam, of course!
Vietnam has a population of 95 million, making it one of the easiest countries in the region to find a suitable workforce, including academically educated personnel. Vietnam borders the southern Chinese province of Guangxi (a large manufacturing province) near Shenzhen and Hong Kong. Most manufacturing in Vietnam is clustered in Hanoi province, at the northern edge of China.
The trend of factories moving to Vietnam seems to accelerate as manufacturers move out of China, with rising salaries in China and Chinese exports becoming the target of US and EU tariffs. Other factors contributing to the decrease in Chinese manufacturing include the virus pandemic, currency devaluations, and the Chinese Government’s push to move to high-end industrial manufacturing, such as aerospace and tech. In contrast, Vietnamese manufacturing remains focused on essential consumer goods.
Vietnam’s proximity to China makes importing goods from China easy by road, while labor costs remain 1/3rd of China’s. Shipping from Vietnam takes the same to reach international markets in the US and Europe, providing significant savings for businesses. There are shipping options by sea freight, air freight, and rail. As a result, Vietnam is rapidly becoming the #1 choice for Chinese outsourcing giants – including domestic Chinese companies.
Vietnam’s Manufacturing History
Vietnam has a long history of manufacturing goods, specifically handcrafted items. During French colonial rule in the early 20th century, Vietnam was a large handcraft manufacturing economy. The handicraft industry in Vietnam specializes in fabrication and delicate sewing. However, it was never a large-scale manufacturing economy, and the country is undergoing that shift now.
US corporations such as Nike moving billion-dollar to Vietnam are reshaping the manufacturing landscape and echoing a migration in the early 80s when companies from the US and East Asia moved to mainland China and established large factories (after the country opened up to trade).
Many pioneer companies that were the first to invest in China are now manufacturing in Vietnam. Want to make history? Now is the best time to get involved in Vietnam. The manufacturing sector has grown so much that even small-scale investments are viable, and you can manufacture virtually every product under the sun - at a low cost.
Chinese Suppliers Are Moving To Vietnam
Want proof Vietnam is the next big thing in Asia? Look at what domestic manufacturers in the area are doing. Chinese manufacturers are looking for lower labor costs and can save as much as 2/3rds by shifting manufacturing to Vietnam. If you’ve dealt with a Chinese manufacturer in the last ten years, there’s a chance they’ve started producing in Vietnam and moving part of their operations there.
The larger your Chinese supplier, the more likely they’ve outsourced some of their production to Vietnam. Many Chinese manufacturers are now “double-dealing” and manufacturing part of their production in China while manufacturing the rest in Vietnam. Some Chinese companies keep their main production lines in China while manufacturing small parts in Vietnam, while others have moved their factories to Vietnam entirely.
If you’ve worked in China for a long time and are accustomed to dealing with Chinese suppliers - this knowledge will prove helpful in Vietnam, as many cultural nuances are the same in both countries. Chinese also influence Vietnamese suppliers and pass down knowledge to the workers. It’s not uncommon to walk into a 5,000-person factory in Vietnam and find out 500 workers are from China.
We at Cosmo Sourcing find that most mid-level managers in both countries are fluent in 3 languages: Chinese, Vietnamese, and English. As a result, transferring manufacturing from China to Vietnam is a relatively straightforward process. If you have specification sheets, product documentation, and checklists written in Chinese/English - you’ll find it easy to translate them into Vietnamese.
What Companies Are Moving From China To Vietnam?
Apple, Nike, Adidas, LG, and Samsung are made in Vietnam!
Companies such as Apple, LG, Panasonic, Nike, Apple, and others have partially or entirely shifted production to Vietnam. As a result, we deal with manufacturers in Vietnam constantly, and there is widespread anticipation that this country will benefit immensely from America’s push to “detach” from China for manufacturing purposes.
The US-China Trade War greatly benefited Vietnamese manufacturing as many companies moved to avoid international tariffs - not only to save on labor costs. The COVID-19 pandemic didn’t stop American companies from continuing the shift in manufacturing from China to Vietnam.
Example: Apple announced that it would start producing 4 million AirPod units in May 2020, effectively moving large supply chains away from China directly to Vietnam. Nearly 1/3rd of all AirPod units will now be manufactured in Vietnam. In addition, Inventec has announced plans to build a plant in Vietnam, which will be Apple’s leading headphone manufacturing partner. The rising tensions between the US and China, causing an outflow of capital away from China, only intensified this year. This accelerates the process of capital inflows in the Vietnamese manufacturing sector.
According to US Census Bureau reports, there was a nearly 36% increase in “Made In Vietnam” goods imported to the US in 2019, compared to a net decrease of 16% for all “Made In China” goods.
On average, the Vietnamese export market doubles every 2-3 years, and the trend seems to have only accelerated during the last 24 months.
As the largest companies globally, from footwear to tech, are leading the revolution in Vietnamese manufacturing, many small and mid-sized manufacturers are expected to follow suit. Vietnam’s innovation in footwear makes it ideal for starting a small business owner because Vietnamese suppliers have lower MOQs than Chinese ones. At the same time, their product costs offer significant savings on consumer goods.
Nike currently manufactures nearly 50% of its products in Vietnam. Nike makes footwear and products like backpacks, jerseys, sports bottles, and other appeals. 2010, the company moved from China to Vietnam, effectively shifting 37% of its total product manufacturing to Vietnam. China was still a large manufacturing center for Nike then, with 34% of all Nike products manufactured in China. Last year, Nike ramped up their production in Vietnam with new factories, and the company now manufactures 47% of its total products in Vietnam.
The trends in electronics manufacturing follow. Nintendo announced it was going to manufacture Switch consoles in Vietnam. The auto industry is slowly moving into Vietnam as well. Komatsu, a large manufacturer of motor vehicles in Asia, has announced it will open large production factories in Vietnam.
Nike reduced its manufacturing in China to a mere 27%. Adidas closely follows suit and manufactures a significant % of its products in Vietnam. Vietnam is popular not only among textile and footwear giants but also among tech giants. LG, Samsung, Foxconn, Apple, and Nintendo are heavily investing in Vietnam.
Moving Manufacturing From China To Vietnam// Step-by-Step Process
Step_01 // Find Out If You Can Manufacture In Vietnam
The first step is determining if the product you want to manufacture can be made in Vietnam. China is a “do it all” destination that can manufacture virtually every product and source material domestically. Vietnam’s population is ten times smaller than China's, focusing on a few key niche markets - mostly basic consumer goods. The following is a list of the top exports of the Vietnamese economy:
Crude oil: 22%.
Textiles: 17%
Footwear: 10%
Seafood/fisheries: 10%.
Electronics: 4%.
Source: Wikipedia.
Other significant exports include transportation products/auto machinery, wooden products,/furniture, rice, and coffee. If your business is focused on any of the niches mentioned above, you’ll quickly get your product made in Vietnam. In addition, Vietnam is the world’s best destination for manufacturing fashion/appeal, footwear, and handicrafts.
It is also perfect for a diverse range of electronics. We’ve seen increased metal and medical equipment (read our guides on metal manufacturing and medical manufacturing in Vietnam). The top export partners for Vietnam were the United States (19%), Japan (13%), China (10%), Australia (7%), Singapore (5%), Germany (4%), and the UK (4%).
China is advantageous over Vietnam due to its size, especially regarding workforce, experience, and machinery. However, you risk not manufacturing your product if it requires higher technical precision. For example, even though it’s easy to manufacture car wires in Vietnam, it’s near-impossible to manufacture airplane engines. Vietnam is excellent for products that require minimal workforce training and follow simple designs, such as footwear, electronics, and clothes.
We recently partnered with medical manufacturers and metal processing factories, and we can connect our clients with sophisticated manufacturers in the country. The bottom line is this: Vietnam’s labor force lacks experience in industrial manufacturing compared to China. If the product is complex, stick to China. If it’s relatively straightforward to make, opt for Vietnam. Manufacturers exist in various niches in Vietnam, but many are newly established and will take time to gain experience.
The last consideration is the state of the factories and the equipment supply, i.e., equipment/tools. If you attempt to transfer the Vietnam documentation, you can run into problems with an existing Chinese supplier. For instance, if your Chinese supplier designed custom tooling for manufacturing your product (such as molds for product designs), they may refuse to transfer to your new Vietnamese supplier because they want to retain their profits.
We advise our clients to own the Intellectual Property rights to their Chinese-made products before they attempt to move manufacturing to China. Otherwise, the Chinese supplier will try to bind you to his factory permanently. We can work around this by finding new suppliers in Vietnam that can design custom molds. However, this is a bit harder than in China, which has an abundant academically educated labor force.
Step_02 // Calculate Costs & Savings
Let’s look at the numbers. Why move to Vietnam if not to reduce costs and make more money? It’s time to take out the calculator and estimate how much you’ll save on the workforce. We can quote you on labor costs in your area of interest, but you’ll generally be paying 1/3rd of what you’d pay in China. Example: While a Chinese factory worker may demand $600/month, his Vietnamese equivalent will demand $200 or less.
Labor costs are manufacturers’ leading consideration when they move production from China to Vietnam. China also has rising labor costs in large cities, making finding long-term employees increasingly difficult. For comparison, the wages in China have increased by over 60% during the last ten years. If your company intends to conduct business in China for the next decade, expect a payroll increase of at least 50%. When you add the new tariffs by the Trump administration, China is not the most cost-effective country in which to do business.
In Vietnam, most factories pay employees the minimum wage set forth by each province. The minimum wage range in Vietnam varies from $125 to $180. The highest wages are paid in provinces with the best infrastructure, such as Hanoi Province (next to China) and Ho Chi Minh City (the largest city). The wages are lower outside these areas, but the infrastructure is less developed.
The minimum wage in Vietnam grows at an average rate of 5% per year, making it easy for employers to handle the increases. Example: In 2019, the minimum wage rose by 5.3%, while the year before, it rose by 6.5%. The low labor costs, proximity to China, and abundant workforce make Vietnam one of the most favorable destinations for foreign investors looking to manufacture products.
Ultimately, do savings in labor costs justify the move away from China? The answer is yes. With nearly 60% in savings for labor costs, companies can easily double their production output for the same price they’re currently paying in China. Effectively, their expenses remain the same while their profits double.
China has only a few advantages regarding the labor force, such as the sheer scale of the workforce (number 788,000,000 adults), which means it’s easier to find academically qualified personnel in China than in Vietnam. China is undoubtedly more straightforward to do business with regarding bureaucracy and infrastructure, but Vietnam’s operational costs make it a far more attractive destination.
Step_03 // Prepare For Relocation (Facilities & Resources)
Do you have your factory in China? If so, you must prepare to move the facilities and equipment to your new Vietnamese factory. If you don’t have your factory, the move will be more comfortable as you only have to move the capital and find a new Vietnamese supplier (we can help you with that!). However, you must consider a few things if running a large-capacity factory in China and trying to shift to Vietnam.
Warning: The cost of moving your factory from China to Vietnam may exceed the savings you get in labor costs, especially for factories with advanced machinery. Moving your entire supply chain to Vietnam may cost over $1M to convert and transfer the machinery, production lines, and training/employee transfers. Consider the long-term savings before you decide to move your factory to Vietnam.
Regarding real estate, you have two options in Vietnam: 1) Buy the land, 2) Lease the land. As a foreign investor, it’s in your best interest to lease land in one of the “Industrial Parks” invented by the Vietnamese Government due to better infrastructure for the factory and tax incentives. The average lease cost is around $90 per m2 - that is, if you plan to put your factory on the ground.
“Vietnam has 325 industrial parks with a total area of 94,900 hectares. HCM City, Bac Ninh, and Thanh Hoa are leading in attracting investment to these parks. Hanoi has also attracted foreign businesses, especially to many industrial parks in suburban regions.” Source: NationThailand
If you lease space in one of the existing factories in Industrial Parks, such as in parks near the capital HCMC, the price is significantly lower. It’s possible to get a lease for as little as $3-4/m2. The land is the first thing you should purchase when you move the factory because land in Industrial Parks is scarce, and the sooner you sign a contract, the better. In addition, Chinese investors are buying up factories in Industrial Parks as an investment, increasing the land yearly.
Pro Tip: Consider signing a long-term lease in the Industrial Parks to save money and preserve the space.
Aside from land/space, consider the resources and machinery at your disposal. Moving machinery is the highest expense, especially if you have assembly lines in China. Essential production items such as molding and electrical components are imported directly from China, and existing Vietnamese suppliers rely heavily on China for different industries. Example: Nearly 80% of all electronic components used for electronic manufacturing in Vietnam are imported from China. Vietnam imports 70% of the textiles it uses in the fashion industry from China.
Prepare to spend tens of thousands of dollars moving your equipment from your existing Chinese facilities to the new Vietnamese facilities. If you only have to move capital, this will be easier as Vietnam has a relatively modern banking sector. In addition, despite relying on China for materials, Vietnam has a significant advantage - geographic proximity to China. The country borders China and has few restrictions on goods coming in from China, making it easy to transfer the raw materials you need by land.
Step_04 // Find A Sourcing Agent
If you’re trying to move from China to Vietnam and don’t have a factory - you need a sourcing agent. The sourcing agent will put you in touch with qualified suppliers who can manufacture your product in Vietnam. Usually, sourcing agents have experience with thousands of factory owners and know which ones can manufacture your product cost-effectively. They charge a one-time fee and help you sign a contract with the supplier while preserving your Intellectual Property (read more on IP in Vietnam).
Sourcing agencies are critical in Vietnam because the factory owners don’t have listings on Alibaba/Global Sources, and they’re hard to contact unless you have boots on the ground.
Example: If you look up “phone case” on Alibaba, over 95% of all manufacturers will be located in China, while barely 0.5-1% will be located in Vietnam. In this case, the sourcing agent could help you get your phone cases made in Vietnam at a lower cost than in China. Sourcing companies will also put you in touch with the top shipping companies and ensure your product arrives on time. At Cosmo Sourcing, we help clients in all the most popular industries in Vietnam, and lately, we’re helping clients in complex industries such as medical manufacturing and electronics.
Step_05 // Start Production & Ship
You’ve signed a contract, paid the supplier, and got the “Made In Vietnam” seal on your products. So what is the final step? Getting it to your doorstep, of course! China has a significant advantage over Vietnam because the Chinese Government invested trillions of dollars in the shipping infrastructure, with Asia’s largest rail network and the most sophisticated seaports.
In China, you have hundreds of competing forwarders and shipping companies offering every shipping option under the sun. Vietnam is slightly less developed regarding logistics, but all the popular shipping companies are present (FedEx, DHL, etc.). It also takes 3-4 weeks for goods to reach US ports from Vietnam—nearly the same as in China.
The World Bank released a “Logistics Performance Index,” which showcases how developed a country’s shipping infrastructure is. The index analyzes 160 countries, and Vietnam ranks highly at the #39th spot while China takes the #26th spot. Vietnam is conveniently located on the Pacific Coast and boasts a much higher ranking than neighboring countries such as Cambodia (#98th) and Bangladesh (#100th).
Vietnam is nearly in the ranks of China in terms of shipping infrastructure. The Vietnamese Government is making a $5 billion investment in a new expressway connecting the north to the south, accelerating Vietnam’s shipping infrastructure growth. We at Cosmo Sourcing can arrange the most convenient shipping terms from your Vietnamese factory to any seaport of choice. We’ll even help you arrange shipping from the factory to an Amazon warehouse in the US.
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 and 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.