It’s not China or the US: Here are the trade war’s winners — so far

More than one year since the start of a trade war between Washington and Beijing, economists from Japanese investment bank Nomura found evidence that the U.S. and China — in order to avoid elevated tariffs — have cut down importing certain goods from each other.

Instead, importers in the two countries have been sourcing for the same products from alternative locations not targeted by tariffs, the economists said in a report outlining their findings. Vietnam has so far emerged as the largest beneficiary of that diversion in trade flows, gaining an estimated 7.9% of its gross domestic product from those new business, according to Nomura.

“As tit-for-tat tariff hikes between the US and China increase, so does the cost of importing from each other,” the economists wrote in the report dated June 3.

“Some exporters in the US and China may be willing to absorb part of the additional tariff costs in their profit margins, and some multinationals could opt to re-shore production, but the trade literature shows that, over time, the largest response is likely to be trade diversion, ” they added.

The U.S. has so far slapped a 25% tariff on $250 billion of Chinese goods, and American President Donald Trump has threatened to apply the same elevated levy on the remaining imports from China worth around $300 billion. In retaliation, Beijing also raised tariffs on billions of dollars worth of American products.

That tariff fight has resulted in the U.S. and China importing fewer goods from each other, especially products subject to higher levies, said Nomura. In addition to Vietnam, the other major beneficiaries from the trade war are Taiwan, Chile, Malaysia and Argentina, the bank said.

Vietnam and Taiwan benefited mostly from additional exports to the U.S., while Chile, Malaysia and Argentina gained by selling more to China, according to Nomura.

The full picture

Looking at products subject to higher tariffs, Nomura economists found that levies imposed by Washington on China pushed U.S.-based firms to opt for alternative sources for many sets of products. That includes electric apparatuses for phones, parts of office machines, automatic data process machines, furniture and travel goods.

On the other hand, China’s tariffs on the U.S. resulted in Chinese importers buying soybeans, aircraft, grains and cotton products from other countries, according to the Japanese financial firm.

These are some of the products that Nomura said the top five beneficiaries have been exporting more as a result of the trade war:

  • Vietnam: phone parts, furniture, automatic data process machines
  • Taiwan: typewriter parts, office machines, phone parts
  • Chile: copper ores, soybeans
  • Malaysia: electronic integrated circuits, semiconductor devices
  • Argentina: soybeans

While the study showed that third-party economies can benefit in the U.S.-China tensions by becoming substitute sources for goods subject to elevated tariffs, Nomura economists warned that the findings don’t paint the full picture of the trade war.

“There are many other forces at work and the overall economic impact on most third countries will be negative,” they said.

The detrimental effects may include companies holding back investment plans due to uncertainties on trade, and falling demand in the U.S. and China because companies and consumers in both countries end up facing higher costs due to the tariffs.

IMC FAR EAST CAN BE YOUR TRUSTED PARTNER IN VIETNAM

Choosing a Southeast Asian country like Vietnam in sourcing low cost manufacturing entails extensive market research and due diligence. It is imperative for a company to find a reliable local partner with a long history of operating in Vietnam so that they can help you directly in considering low cost manufacturing in Vietnam.

IMC Far East is a product design, development and sourcing group dedicated to assisting businesses with International Trade. We help our clients and their companies grow, compete and increase margins in today’s competitive Global Market. With over 20 years of experience, we have established an extensive portfolio of reliable and vetted factories in Vietnam. We’ll make manufacturing in Vietnam a simple, profitable, hassle-free experience for you. Visit: www.imcfareast.com

Read more

Why Vietnam is Overtaking China as a Destination for US Export Manufacturing

As has been the case for several emerging Asian countries, Vietnam has followed an export-led growth model, combining trade liberalization and foreign direct investment promotion to spur exports.

Vietnam’s growth has accelerated in recent years in part due to the US-China trade war, which kicked off more than nine months ago, and shows no sign of abating.

As part of the fallout, Vietnam’s exports to the US rose by 28.8 percent year on year in the first quarter of 2019, making the US the largest importer of Vietnamese goods.

A steady stream of manufacturing businesses have also moved operations to Vietnam, including Foxconn, Samsung, and LG.

Here, we examine the five main reasons why Vietnam is emerging as the preferred destination for US exporters.

1. Free Trade Agreements

Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world.

Its membership in the Association of Southeast Asian Nations (ASEAN) also makes it a party to several FTAs that the regional bloc has signed.

In addition, the upcoming Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Vietnam – EU (EVFTA) will propel Vietnam into becoming a competitive business environment.

The standard of product quality, manufacturing, and employee rights guaranteed in these agreements will allow Vietnam to become a manufacturing hub and expand as an exporting base.

2. Vietnam’s proximity to China

Vietnam’s close proximity to China is further helping it to become a manufacturing base, while being viewed as a China plus one destination.

Cities such as Hai Phong in Vietnam are just 865 km away from China’s manufacturing hub of Shenzhen.

By situating manufacturing centers close to traditional hubs in China, manufacturers are able to reduce costs with limited interruption or delays to existing supply chains.

In addition, many factories in Vietnam are foreign-owned with investments from China, Taiwan, and South Korea. This makes transitioning out of China into Vietnam smoother, making it easier to transfer existing checklists, specifications, or other product information.

3. Transport networks

Vietnam’s location close to regional shipping routes and position in Asia allows manufacturers entering Vietnam to focus on exports.

It has an approximately 3,200 km long coastline with around 114 seaports. The three largest seaports in Vietnam are in Hai Phong (north), Da Nang (central), and Saigon (south).

In addition, Vietnam has an extensive railway network: the Kunming (China) – Hai Phong (Vietnam) is 855 km long and remains important for cargo transportation.

While Vietnam’s infrastructure is still unmatched to China’s, the government has prioritized infrastructure development to facilitate economic growth.

4. Low labor costs

Vietnam’s monthly minimum wages in 2019 vary by region – from US$125 to US$180 – with the highest being in cities like Hanoi and Ho Chi Minh City.

These wages are around half of what China’s are in various provinces, which range from US$143 to US$348.

China is known to dominate the manufacturing industry but with wages rising, many businesses have already moved operations to maintain margins in low cost manufacturing.

In addition, China’s ageing population has produced labor shortages in the manufacturing industry. While Vietnam still needs to develop a skilled labor force, it has a young, dynamic workforce that is ready to fill the gap.

5. Governance

Vietnam has a relatively stable government that provides strategic direction and decides on all major policy issues.

The government has worked to improve business policies and labor laws, including Vietnam’s ranking in the World Bank’s Doing Business report.

It continues to prioritize infrastructure investment, and does not shy away from looking at countries outside ASEAN to fuel its growth.

The government has also invested in industrial zones, and this investment is expected to increase as foreign investment pours in.

Moving your manufacturing business to Vietnam

Vietnam’s greatest challenge is how to manage its growth responsibly.

Thankfully for Vietnam, the trade war has created enough push factors to encourage manufacturing businesses to relocate. This has already caused a shift in global supply chain networks with countries such as Vietnam reaping benefits.

Before sizing up Vietnam as a potential destination for relocation, foreign investors must do their due diligence and consider several factors, such as identifying a location, raw materials, sourcing partners, and supply chain logistics.

It is further advisable to use a professional service with knowledge in the region to assist firms to plan out their manufacturing strategy.

IMC FAR EAST CAN BE YOUR TRUSTED PARTNER IN VIETNAM

Choosing a Southeast Asian country like Vietnam in sourcing low cost manufacturing entails extensive market research and due diligence. It is imperative for a company to find a reliable local partner with a long history of operating in Vietnam so that they can help you directly in considering low cost manufacturing in Vietnam.

IMC Far East is a product design, development and sourcing group dedicated to assisting businesses with International Trade. We help our clients and their companies grow, compete and increase margins in today’s competitive Global Market. With over 20 years of experience, we have established an extensive portfolio of reliable and vetted factories in Vietnam. We’ll make manufacturing in Vietnam a simple, profitable, hassle-free experience for you. Visit: www.imcfareast.com

Read more

Why US-China trade war’s latest escalation could be good news for Brazil, Mexico and Vietnam

With US tariff hikes on Chinese goods kicking in on Friday, other countries are watching with interest. But their gains may not offset an overall negative impact on Asian economies

Brazil, Mexico and Vietnam are among the countries that could make marginal gains in areas such as manufacturing and agriculture should US-China tensions continue after they flared up again this week, analysts have said.

The trade war between Washington and Beijing has already caused shifts in global trade, and will continue to create winners and losers as businesses try to cope with increased uncertainty.

The United States officially raised tariffs on US$200 billion of Chinese goods from 10 to 25 per cent on Friday, in a new escalation of tensions even as China’s Vice-Premier Liu He visited Washington for talks.

Donald Trump had said last month that the two sides were “very close” to a deal that would end nearly a year of mutual tariff levies, but the introduction of new tariffs on Friday – as threatened by Trump last Sunday – may change the landscape.

Global trade networks have been rocked by the US-China tariff exchanges that began last July, but uncertainty for some has opened doors for others.

“So far, US-initiated tariffs have mainly hit lower-end and labour-intensive sectors,” said Rob Koepp, Hong Kong director of The Economist Corporate Network. “Economies that are well positioned on the sidelines, like Vietnam and Brazil, then have an opportunity to jump in and offer goods that avoid the increasing tariffs.”

The latest official monthly figures from Vietnam for April showed a 29 per cent increase in US-bound exports year-on-year, while capital contributions from foreign investors were up 215 per cent, largely in manufacturing.

A study by The Economist Intelligence Unit late last year suggested that many countries around Asia could reap the benefits of filling China’s shoes in exports to the US. Malaysia and Vietnam were projected to be the biggest winners in IT equipment manufacturing, while Bangladesh, India and Vietnam were potentially able to enjoy a boost in exports of ready-made garments.

Tommy Wu, a senior economist at Oxford Economics, said: “Malaysia and Thailand could also be winners because they have relatively good infrastructure already in place and have a more business-friendly environment than places like the Philippines or Indonesia that have the advantage of lower wages but also poorer infrastructure.”

Wu warned, however, that renewed escalation of US-China trade tensions may generally have a negative effect on trade in Asia.

“There is some trade diversion where Asian economies have seen exports to the US rising, but that was not enough to offset the overall trade weakness.”

The Asian Development Bank downgraded its growth forecast for the Asian economy this year from 5.7 per cent to 5.6 per cent, citing US-China trade tensions as a factor along with other uncertainties such as Brexit.US soybean growers expressed displeasure with Trump’s new tariffs, fearing that retaliatory tariffs placed by China on their beans last year may continue to cut sales to China.Brazil stepped in to deliver record amounts of soybeans to China last year, along with an increase in other agricultural products.

US neighbour Mexico may also benefit from less US reliance on China and make a comeback in furniture, toys and textile manufacturing, in which it has lost out to China since China joined the World Trade Organisation, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“Even with the new Nafta [North American Free Trade Agreement] not signed, Mexico is moving up the rankings as a trading partner for the US,” he said. “The Mexican peso might be a beneficiary of the trade war.”

IMC FAR EAST CAN BE YOUR TRUSTED PARTNER IN VIETNAM

Choosing a Southeast Asian country like Vietnam in sourcing low cost manufacturing entails extensive market research and due diligence. It is imperative for a company to find a reliable local partner with a long history of operating in Vietnam so that they can help you directly in considering low cost manufacturing in Vietnam.

IMC Far East is a product design, development and sourcing group dedicated to assisting businesses with International Trade. We help our clients and their companies grow, compete and increase margins in today’s competitive Global Market. With over 20 years of experience, we have established an extensive portfolio of reliable and vetted factories in Vietnam. We’ll make manufacturing in Vietnam a simple, profitable, hassle-free experience for you. Visit: www.imcfareast.com

Read more

Vietnam’s Free Trade Agreements – Opportunities for Your Business

Free trade agreements (FTAs) are when two or more countries agree on the terms of trade between them. They determine the value of tariffs and duties that countries impose on imports and exports. In 2007, with Vietnam’s ascension into the World Trade Organization (WTO) – it took a significant step integrating with world trade and subsequently entering into several free trade agreements.

Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world. Additionally, due to its membership in the Association of Southeast Asian Nations (ASEAN), Vietnam has become a party to several FTAs that the regional trade bloc has signed.

FTAs – The benefits

The benefits of the free trade agreements will enable Vietnam’s economic development to continue to shift away from exporting low-tech manufacturing products and primary goods to more complex high-tech goods like electronics, machinery, vehicles and medical devices.

This can be done in two ways – first, through more diversified sourcing partners through larger trade networks and cheaper imports of intermediate goods from partner countries, which should boost the competitiveness of Vietnam’s exports.

Second – through partnership with foreign firms that can transfer the knowledge and technology needed to make the jump into higher valued-added production. An example of this is the recently launched VSmart phone manufactured by Vietnamese conglomerate Vingroup.

Vietnam is touted as a low-cost manufacturer with several companies such as Samsung and Nokia setting up shop to manufacture and then export electronics, but the latest example shows how Vietnam can develop its own products from the transfer of know-how technology.

Such sophisticated business practices and technology will help boost Vietnamese labor productivity and expand the country’s export capacity.

With upcoming trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Vietnam – EU (EVFTA) – Vietnam seems to prioritize international trade integration trade partners outside ASEAN.

Once in effect, such trade agreements will allow Vietnam to take advantage of the reduced tariffs, both within the ASEAN Economic Community (AEC) and with the EU and US to attract exporting companies to produce in Vietnam and export to partners outside ASEAN.

The EVFTA Report 2018 by the European Chamber of Commerce (EuroCham) in Vietnam revealed that 72 percent of EuroCham members believed that the EVFTA will make Vietnam more competitive and turn it into a hub for European businesses.

Vietnam’s entry into these trade deals will also ensure alignment with national standards ranging from employee rights to environmental protection. Both the CPTPP and EVFTA require Vietnam to conform to the International Labor Organization’s (ILO) standards. Chan Lee from the ILO noted that this is an opportunity of Vietnam to modernize its labor laws and industrial relations systems.

Challenges posed by FTAs

The FTAs may also come with some added downsides. Such agreements are likely to trigger aggressive competition from foreign rivals on local businesses – particularly in the agriculture sector including meat and dairy products from the EU, Australia and Canada.

If local firms do not adapt, make use of new market opportunities and potential partnerships with foreign firms – they could find competing in the market challenging.

The Vietnamese government would also need to continue on its path of reforms – strengthening the banking sector, removing corruption, refining legal and tax structures, and improving trade facilitation.

Future growth from FTAs

Vietnam’s Ministry of Planning and Investment forecast that the CPTPP could increase Vietnam’s GDP by 1.3 percentage points by 2035, while the EVFTA could boost GDP by 15 percent. These trade deals along with already signed and upcoming FTAs are likely to ensure that Vietnam remains competitive in the short-to-medium term.

Choosing a professional service to evaluate FTAs for your business

Finding one’s way through the legalese that many of these FTAs use to spell out their rules and regulations can often be cumbersome. This often is one of the most cited reasons why businesses fail to take advantage of the benefits available to them. Therefore, it is strongly suggested that businesses and investors consult with a professional service with strong experience in the region. This will allow a business to have a reliable, and clear source of information before making an investment.

IMC FAR EAST CAN BE YOUR TRUSTED PARTNER IN VIETNAM

Choosing a Southeast Asian country like Vietnam in sourcing low cost manufacturing entails extensive market research and due diligence. It is imperative for a company to find a reliable local partner with a long history of operating in Vietnam so that they can help you directly in considering low cost manufacturing in Vietnam.

IMC Far East is a product design, development and sourcing group dedicated to assisting businesses with International Trade. We help our clients and their companies grow, compete and increase margins in today’s competitive Global Market. With over 20 years of experience, we have established an extensive portfolio of reliable and vetted factories in Vietnam. We’ll make manufacturing in Vietnam a simple, profitable, hassle-free experience for you. Visit: www.imcfareast.com

Read more

Trade war boogeyman hangs over giant US toy show

[NEW YORK] The US-China trade war has dealt a glancing blow to American toys, hitting putty and arts and crafts items, while sparing superhero action figures, toy cars and most best-selling offerings.

Yet, uncertainty about the trading relationship between Beijing and Washington hangs over this weekend’s Toy Fair, dampening the festive mood amid giant balloon cartoon figures and karaoke cars as some 30,000 industry representatives survey the latest and greatest in play.

China manufactures around 85 per cent of the toys and games sold in the United States and is also home to a growing consumer market estimated to overtake the US play market in 2022.

Aaron Muderick, founder of “Crazy Aaron’s Puttyworld”, a Pennsylvania company, has seen profits hit by US tariffs on raw materials to make his colourful putty and on steel cans, which bear the “made in the USA” mark.

But Mr Muderick is most worried about losing momentum in the booming Chinese market where he has worked to establish distribution channels and build brand identity.

“We’ve invested a lot of time and dollars,” he told AFP. “If it creates a market where the product is not welcome, where there are retaliatory tariffs that make it impossible for me to reach that consumer, then I lose.”

About 40 Chinese booths are displaying with China Toy & Juvenile Products Association, including companies selling stuffed bears, trampolines, magnetic building blocks and flashing beads.

“Some members feel uncertain, but the business is so far going okay,” said the group’s president, May Liang in an interview.

Company representatives have reported no drop in interest among their US buyers, said Ms Liang, who expressed scepticism that the US would impose broad tariffs on toys.

“We believe toys are really consumer-focused especially at holiday season, so we think toys should not be on the tariff list because it will harm consumers.

“But we feel we should closely watch it,” she added.

A trip to a US toy store shows the near-ubiquity of “Made in China” on any number of gadgets, games and super hero dolls, but the country’s playworld dominance sometimes surfaces in unexpected ways.

For example, youth-oriented books on display by the Quarto Group at Toy Fair about black role models like Nelson Mandela and gay and lesbian icons such as Freddie Mercury were printed in China – another testament to the country’s competitiveness.

The toy industry dodged a bullet last September, when finished toys were left off the list of expanded US tariffs.

Toy Association chief executive Steve Pasierb said such broad tariffs look unlikely at this point US President Donald Trump has spoken more optimistically of a trade deal with Beijing.

But “this is a tweet-driven scenario we’re in here… so you could see that come back,” added Mr Pasierb, whose association, the hosts of Toy Fair, has aggressively lobbied on trade.

Toy industry consultant Richard Gottlieb considers US tariffs on finished toys “highly unlikely” and doesn’t expect the current trade conflict to fundamentally change China’s position in US toys.

“People think we make it in China to make more money,” he said. “The reason is because if we made it America, it would be five times more expensive and people wouldn’t buy it.”

But the US industry is still worried about Trump administration plans to lift tariffs from 10 per cent to 25 per cent on raw materials. That increase was scheduled to take effect March 1, but Mr Trump on Friday reiterated that he could delay the increase if a deal is close.

Companies have mostly eaten the hit from a 10 per cent hike, but a 25 per cent tariff would be much more painful.

Putty maker Muderick, for example, saw 2018 profits hit by the tariff on steel but suffered no real hit last year from tariffs on rubber silicone because he bought supply ahead in anticipation of the levy. But he expects more of a profit hit in 2019.

Some toymakers may be in long-term contracts with retailers that lock in price.

“If it goes to 25 per cent, companies will go out of business, or they will cut back jobs,” said Neil Helfand, a lawyer specialising in trade whose clients include toy companies.

The trade conflict has given impetus to major toy companies to shift more manufacturing to other markets, a trend that was already underway due to rising costs in China.

By 2020, Hasbro plans to source 60 per cent of its toys from China, compared with 69 per cent in 2018 and 86 per cent in 2012, with the company shifting more production to the US, Mexico, Vietnam and India, Hasbro executives said on Friday.

Indonesia, Malaysia and Vietnam have all enjoyed double-digit annual toy manufacturing growth between 2012 and 2017, according to data from Euromonitor International, a market research provider.

Still, those three countries plus Thailand accounted for just 9 per cent of China’s toy output as of 2017, said Euromonitor senior industry analyst Justinas Lasinskas.

Significant additional production is “unlikely” in the United States, “where production would be still more expensive even with the introduced tariffs,” Ms Lasinskas added.

If you are looking to manufacture vinyl toys / figurines in Vietnam, let IMC Far East find the right manufacturing company to handle your product. Vietnam has increasingly becomed the toy manufacturing hub of the world due to its low labor cost and favorable investment conditions. Every toy company has its area of specialization, and we have the connections to know which company will be a perfect fit for your needs. We’ll make manufacturing in Vietnam a simple, profitable and hassle-free experience for you. Visit: www.imcfareast.com

Read more

Opportunities for toy manufacturing in Southeast Asia

During last month’s Hong Kong Toy and Games Fair, the Southeast Asia Toy Association (SEATA) hosted its Annual Summit. The event brought together experts from key emerging manufacturing countries in the region including Vietnam, Indonesia, India, Malaysia and the Philippines.

SEATA was founded three years ago by a group of leading toy brands and retailers including Mattel and LEGO.

Asia Pacific is the world’s most rapidly developing market for toy sales, and Southeast Asia plays a crucial role in its growth. Southeast Asia’s population is over 625 million and set to grow to 717 million by 2030. In addition, their economies are growing fast, with aggregated GDP growth of 4.7% per annum.

At the event, established factories in Vietnam and Indonesia shared insights on the benefits their companies have seen after expanding in the region and diversifying their base. For Vietnamese manufacturing this including the logistical benefits of the close proximity to Mainland China and a reduced language barrier as most Vietnamese people learn Mandarin at school. Benefits of Indonesian manufacturing included a large supply of workers and lower labor costs.

Our President and CEO, Carmel Giblin also presented at the SEATA event sharing insights on some of the top 5 most common social compliance risk areas we encounter in our work to raise standards at toy factories in Southeast Asia. These include a lack of Personal Protective Equipment, insufficient emergency evacuation processes, wages & compensation not meeting legal requirements, issues around clear emergency exits, and challenges around llegally required benefits not being provided.

Southeast Asia is a region of opportunity for toy manufacturing, countries such as Indonesia and Vietnam typically have a high volume of workers with the necessary skills to support toy manufacturing. Labor costs can also be lower than other toy manufacturing regions, and benefit from our dedicated support in the region.

After China, Indonesia and Vietnam are the countries where the Ethical Toy Program has the most Certified factories and so we are increasing the level of support we are offering to toy factories based in these countries.

Last year, Ethical Toy Program opened an office in Ho Chi Minh City, Vietnam and hired a new team member in our South East Asia team dedicated to increasing our on-the-ground support to Vietnamese factories and supporting delivery of our Progress Visits which complement our audit program by providing increased capability building training and support for our factories. We are also developing more resources in Vietnamese such special guidance for our Audit Checklist which will soon be available in Vietnamese.

If you are looking to manufacture vinyl toys / figurines in Vietnam, let IMC Far East find the right manufacturing company to handle your product. Vietnam has increasingly becomed the toy manufacturing hub of the world due to its low labor cost and favorable investment conditions. Every toy company has its area of specialization, and we have the connections to know which company will be a perfect fit for your needs. We’ll make manufacturing in Vietnam a simple, profitable and hassle-free experience for you. Visit: www.imcfareast.com

Read more

The US-China trade war hasn’t benefited Vietnam in a ‘big way’ yet, investor says

As the ongoing U.S.-China trade war threatens to dent exports from the world’s two largest economies, analysts have projected that other countries may see Chinese and American demand diverted their way.

Vietnam — and Southeast Asia as a whole — is one of the places most expected to benefit from trade war-inspired buying. According to one investor, however, the profit so far has been slight.

“It’s a bit early for Vietnam to be benefiting in a big way from trade wars,” Bill Stoops, the chief investment officer of asset management company Dragon Capital, told CNBC on Wednesday.

The Southeast Asian nation has been touted as a possible winner in the U.S.-China trade war because of its low cost of manufacturing. Reports indicate that some companies have begun shifting production out of China to avoid tariffs imposed by America.

Vietnam will likely benefit from those adjusted supply chains for a long time, according to Rob Koepp, network director of the Economist Corporate Network.

“It is now set to be kind of a China 2.0, for various reasons, and yeah, it’s going to be benefiting and that’s going to be long term,” he told CNBC on Thursday.

While firms have likely been limited by the logistical constraints of relocating and building new facilities in Vietnam, the country has begun to see new orders “flooding” into its existing industries that have some capacity for increased production, Stoops said.

“We are already starting to see big orders, big export orders flowing, out of nowhere, into the seafood, and the furniture and the garment industry,” Stoops told CNBC’s Street Signs. “I think this is a harbinger of things to come, as people start to divert business away from China.”

“It hasn’t happened yet, but it’s definitely in the works, and we’re starting to see straws in the wind with all these new export orders,” he added.

Investors cannot directly buy into the trade substitution theme because few exporters in the benefiting sectors are listed on Vietnam’s stock exchange, but there is still a “very strong” case for Vietnamese shares, Stoop said.

“For Dragon Capital, it’s still all about playing the domestic economy,” he said.

Vietnam’s companies have good earnings growth and are trading at a price-to-earnings ratio of around 12 times, according to Stoop, who said that’s lower than in neighboring countries.

Corporate governance is improving and the country has political stability, cheap wages and “perfect demographics,” he said.

The “turbulent state” of markets meant that the privatization of state-owned enterprises and the listing of companies came to “a bit of a halt” last year, Stoop said. Still, he projected that investors can look forward to more corporate reform in the second and third quarters of 2019.

Vietnam unseated Singapore as Southeast Asia’s top grossing market for initial public offerings in 2018.

“Remember, the government has a continuous need for money to help fund its budget deficit,” he said. “It has philosophically realized that it is good for the economy to get (state-owned enterprises) off the economy’s back.”

IMC FAR EAST CAN BE YOUR TRUSTED PARTNER IN VIETNAM

Choosing a Southeast Asian country like Vietnam in sourcing low cost manufacturing entails extensive market research and due diligence. It is imperative for a company to find a reliable local partner with a long history of operating in Vietnam so that they can help you directly in considering low cost manufacturing in Vietnam.

IMC Far East is a product design, development and sourcing group dedicated to assisting businesses with International Trade. We help our clients and their companies grow, compete and increase margins in today’s competitive Global Market. With over 20 years of experience, we have established an extensive portfolio of reliable and vetted factories in Vietnam. We’ll make manufacturing in Vietnam a simple, profitable, hassle-free experience for you. Visit: www.imcfareast.com

Read more

Supply Chain Shifts from China to Vietnam

Supply chain shifts to Vietnam are gathering momentum, helped by China’s rising labor costs and other factors such as the ongoing US-China trade war.

Businesses with production facilities in China are looking at Vietnam when searching for an alternate manufacturing destination.

Navigating Asia’s geopolitical landscape is difficult for most foreign firms. This is more so when they have to consider moving business activity out of China.

China’s business ecosystem has been unparalleled in Asia due to its mature manufacturing ecosystem, infrastructure capabilities, and an increasingly predictable bureaucratic system.

The reason why Vietnam then features high on the radar for foreign businesses scaling up or choosing alternate sites outside China is its success in creating an adaptable production base – one that is also geared towards higher valued manufacturing.

Every country in Asia has a different set of strengths in so far as the manufacturing process goes, and many factors will be taken into account when rebuilding supply chains outside of China.

In this article, we discuss why Vietnam features prominently as firms worldwide reconsider their overreliance on a single production and sourcing base in China.

Vietnam’s appeal to multinational manufacturing firms

A study conducted by Natixis SA evaluated seven emerging Asian economies as manufacturing alternatives to China, and Vietnam was ranked number one. The study examined demographics, low wages, the World Bank’s Doing Business rankings, and logistics to determine manufacturing options.

The Vietnamese government has strategically transformed the nation into a ‘China plus one’ alternative by engaging in numerous free trade deals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and EU Vietnam FTA (EVFTA), while developing its infrastructure to become a source for global export.

Vietnam has received some of China’s labor-intensive manufacturing, and this trend is most likely to continue given the government’s willingness to make progressive economic changes. Over the course of the last few decades, the implementation of market features, such as openness and trade, have become pillars for its economic restructuring. For example, Vietnam joined the World Trade Organization (WTO) in 2007 in a significant step towards merging with the global economy. Since then, several international trade arrangements to create favorable tax and investment terms have followed.

Supply chains shift to Vietnam: Textile and garment

The textile and garment sector are two of Vietnam’s major areas of export. For example, Vietnam is the second largest textile and garment supplier to South Korea after China. Industry observers also anticipate that Vietnam will soon take the top spot.

In recent years, multinational retail giants, such as Nike and Adidas, have broadened their manufacturing bases to Vietnam because of cheaper labor costs. Nike began to manufacture more of its product line in Vietnam than China starting 2009, and Adidas soon followed in 2012.

Both shoe manufacturers shifted their production to Vietnam when wages in China rose to approximately US$400 per month. The current average wage a production worker earns in Vietnam is US$216 per month. However, with wages increasing at a current rate of 7.9 percent, manufacturers will most likely have to shift production again in the foreseeable future.

Maxfield Brown, Business Intelligence Manager at Dezan Shira & Associates said,
“At this current rate, and with the implementation of the CPTPP to lift tariffs on textile and garment items, the textiles industry in Vietnam has a production window of six years before it becomes commercially unviable.”

Supply chains shift to Vietnam: Electronic equipment

Vietnam’s high-tech boom in recent years has paved the way for the country to begin producing more higher-end goods. This is seen in the recent trend of electronics goods factories making the shift to Vietnam.

Most notably, China’s Goertek – the assembler for AirPods, Apple’s wireless headphones – has confirmed plans to shift production into Vietnam. Amid global tensions due to the uncertain outcome of the US-China trade war, in addition to the hefty tariffs placed on high technology, Vietnam has become a leading alternate manufacturing choice.

Major electronics firms – such as Cheng Uei, a Taiwanese firm that specializes in manufacturing equipment for iPhones and Petragon, an assembler of iPhone equipment – are also scaling their options outside of China, with Vietnam as one of the leading alternate countries.

Future supply chain shifts to Vietnam

As technology evolves, automation is most likely to replace low-cost factory production. This will create a greater demand for workers in the field of component manufacturing and assembly of electronics – like electronic components on printed circuit boards.

Vietnam’s proximity to China, its growing skilled workforce, competitive labor costs, and political stability make it an ideal manufacturing destination. Especially as component manufacturing is a complex process – one that needs to allow room for trial and error.

Why relocate to Vietnam?

The current US-China trade war truce offers temporary relief to manufacturers who were looking at a 25 percent hike on tariffs. Regardless of the outcome, business leaders will continue to assess the positives amid the trade war heat or seriously consider relocation. Companies that are over-reliant on China as a primary source of manufacturing will continuously battle unstable regulations on trade, rising labor costs, and stricter operational oversight.

Relocation is, however, a highly expensive process. It includes converting and transferring industrial plants into appropriate regions, transferring production lines, and sending qualified workers into a new country, such as Vietnam.

Multinational firms that want to shift production need to resolve new logistics in a new country, which can be expensive and take years to complete. For foreign firms that want to relocate to Vietnam, it would be advisable to partner with experienced contractors that have the right connections and local knowledge to facilitate an efficient integration.

The desirability of Vietnam as a China plus one destination is generating competition from international firms. Production costs to rent industrial land and source materials are increasing in competitive areas – this shows Vietnam’s resources are in-demand

IMC FAR EAST CAN BE YOUR TRUSTED PARTNER IN VIETNAM

Choosing a Southeast Asian country like Vietnam in sourcing low cost manufacturing entails extensive market research and due diligence. It is imperative for a company to find a reliable local partner with a long history of operating in Vietnam so that they can help you directly in considering low cost manufacturing in Vietnam.

IMC Far East is a product design, development and sourcing group dedicated to assisting businesses with International Trade. We help our clients and their companies grow, compete and increase margins in today’s competitive Global Market. With over 20 years of experience, we have established an extensive portfolio of reliable and vetted factories in Vietnam. We’ll make manufacturing in Vietnam a simple, profitable, hassle-free experience for you. Visit: www.imcfareast.com

Read more

Vietnam is coming out on top in the US-China trade war

Vietnam’s PM is taking advantage of trade tensions to boost the nation’s profile as a manufacturing and export powerhouse.

In the race to lure companies looking for alternative sites amid the US-China trade war, Vietnam wields a slew of advantages over its rivals.

Vietnam was ranked No. 1 among seven emerging Asian countries as manufacturing destinations by Natixis SA, which looked at demographics, wages and electricity costs, rankings in doing business and logistics, and manufacturing as a share of total foreign direct investment.

“Vietnam is poised to capture some of China’s global market share in labor-intensive manufacturing,” said  Trinh Nguyen, a senior economist at Natixis in Hong Kong. “It’s the clear winner from the trade war.”

Here’s a look at what makes Vietnam attractive to foreign investors:

Cheap

Production workers in Vietnam are paid an average of $216 a month, less than half what their peers get in China. Thanks to government subsidies, electricity is also cheaper at 7 US cents per kilowatt hour compared with 10 cents for Indonesia and 19 cents for the Philippines, according to GlobalPetrolPrices.com’s June data.

Vietnam also has one of the largest labor forces in Southeast Asia, at 57.5 million. That compared with 15.4 million for Malaysia and 44.6 million for the Philippines, according to the World Bank.

Deals, investment

Vietnam’s communist leaders have pursued free trade deals with South Korea and Europe and joined 10 other nations in March in signing a Trans-Pacific trade pact.

Officials completed a trade deal with the EU in June that will eliminate almost all tariffs. In Southeast Asia, only Singapore has a similar agreement with the EU.

The government is also making it easier for foreign investors to do business with a proposed securities law that would allow 100% foreign ownership of public companies, except those in restricted sectors like banking and telecommunication.

Foreign direct investment is surging, with the government expecting disbursed FDI to rise to a record $18 billion this year.

Geography

Vietnam’s proximity to China also adds to its appeal. The two share a land border, compared with countries like Indonesia, Philippines and Malaysia which are all much farther away.

Chinese companies that need raw materials or product components from the US will find it easier to source these goods via Vietnam. Vietnam is China’s largest trading partner in Southeast Asia as the two nations become more central in each other’s production chains.

Stability

Vietnam boasts one of the world’s fastest-growing economies, forecast to expand at about 7% this year. The dong has been relatively stable in 2018, compared with other currencies in Asia like the rupee and rupiah which suffered large declines.

“Strong economic growth and political stability are very important to investors,” said Tony Foster, the Hanoi-based managing partner in Vietnam for law firm Freshfields Bruckhaus Deringer.

The dong will remain fairly stable in the near-term, Fitch Solutions Macro Research, a unit of Fitch Group, said in October, citing support from strong FDI inflows and manufacturing.

IMC FAR EAST CAN BE YOUR TRUSTED PARTNER IN VIETNAM

Choosing a Southeast Asian country like Vietnam in sourcing low cost manufacturing entails extensive market research and due diligence. It is imperative for a company to find a reliable local partner with a long history of operating in Vietnam so that they can help you directly in considering low cost manufacturing in Vietnam.

IMC Far East is a product design, development and sourcing group dedicated to assisting businesses with International Trade. We help our clients and their companies grow, compete and increase margins in today’s competitive Global Market. With over 20 years of experience, we have established an extensive portfolio of reliable and vetted factories in Vietnam. We’ll make manufacturing in Vietnam a simple, profitable, hassle-free experience for you. Visit: www.imcfareast.com

Read more

Vietnam makes pitch as an investor safe haven in trade war

HANOI (BLOOMBERG) – A red-hot economy, business-friendly policies and a Communist party led by free-traders: that’s the elevator pitch Vietnamese Prime Minister Nguyen Xuan Phuc is delivering to global investors amid the United States-China trade war.

“We are ready to grab the opportunity,” Mr Phuc said in an interview with Bloomberg TV’s Haslinda Amin, a few days before departing this week to the World Economic Forum in Davos, Switzerland.

Vietnam is quietly positioning itself as a safe haven for manufacturers wary of getting caught in the crossfire of the tariff war between the US and China. With a raft of free trade agreements, relatively cheap labour and close proximity to China, Mr Phuc has a good story to tell global executives he’ll meet in Davos.

“We are trying to increase exports in both quantity and quality of our products, especially in which we have advantages, such as seafood, commodities, footwear and electronics,” Mr Phuc said.

“We aim to become an export economy that can grow fast and provide more jobs with higher income for our people.”

Nonetheless, the South-east Asian nation has yet to see a flood of companies moving in from China, he said. And the economy has some serious challenges to overcome: inadequate infrastructure and lack of skilled workers make it difficult to attract manufacturing beyond assembly-line work such as garment stitching.

Global economic conditions are also worsening. The US-China trade war and more subdued world growth is weighing on export demand, a threat to an economy like Vietnam, where trade accounts for about twice the nation’s gross domestic product – more than any country in Asia apart from Singapore. About a quarter of Vietnam’s total trade is with China.

Vietnam’s economy seems to be sheltered for now. Growth quickened to 7.1 per cent in 2018, among the fastest in the world. Mr Phuc said he is confident growth will reach the higher end of the government’s forecast range of 6.6 per cent to 6.8 per cent this year. He also vowed to keep the Vietnamese dong stable in 2019.

“We see growth momentum in different areas and have good foundations to achieve our goals,” he said.

Vietnam, which has completed about 16 free-trade agreements, began tethering itself to global trade after introducing market-oriented “doi moi” reforms in the 1980s. Exports surged to a record US$244 billion (S$332 billion) last year, with US customers accounting for about US$48 billion of that – more than double compared with five years ago. 

SAMSUNG BOOM

Several large manufacturers already operate in Vietnam, the biggest of which is Samsung Electronics, which accounted for about a fifth of the country’s exports last year.

Mr Phuc, concerned about anti-trade sentiments from the Trump administration, is vowing that the country will step up imports from the US, from Boeing aircraft to products from oil companies.

Vietnam faces a possible US$3 billion trade deficit in 2019 amid growing global protectionism, VnExpress news website reported on Sunday, citing Deputy Minister of Industry and Trade Hoang Quoc Vuong. Volatile trade policies in the US and European Union could hurt Vietnam’s exports this year, Mr Vuong was cited as saying.

The South-east Asian country ended 2018 with a US$6.8 billion trade surplus, according to the General Department of Vietnam Customs.

Other factors that could contribute to a trade deficit include any decline in Vietnam’s agricultural exports as other countries ratchet up domestic production to reduce external reliance, and as its growing manufacturing sector imports more materials and machinery, VnExpress reported.

“The challenges this year will include global trade tensions, climate change and insufficient infrastructure,” he said.

As a developing economy, he added, “we have to keep growing to bring more jobs to our people and eliminate poverty. We have to grow at more than 6 per cent annually to boost per capita income and to escape the middle income trap.”

Still, Mr Phuc has a good story to sell to global investors. Vietnam was ranked No. 1 among seven emerging Asian countries as manufacturing destinations by Natixis SA, which looked at demographics, wages and electricity costs, rankings in doing business and logistics, and manufacturing as a share of total foreign direct investment.

“The government has been doing a lot to help foreign investors to grow businesses long-term in Vietnam,” Mr Phuc said.

IMC FAR EAST CAN BE YOUR TRUSTED PARTNER IN VIETNAM

Choosing a Southeast Asian country like Vietnam in sourcing low cost manufacturing entails extensive market research and due diligence. It is imperative for a company to find a reliable local partner with a long history of operating in Vietnam so that they can help you directly in considering low cost manufacturing in Vietnam.

IMC Far East is a product design, development and sourcing group dedicated to assisting businesses with International Trade. We help our clients and their companies grow, compete and increase margins in today’s competitive Global Market. With over 20 years of experience, we have established an extensive portfolio of reliable and vetted factories in Vietnam. We’ll make manufacturing in Vietnam a simple, profitable, hassle-free experience for you. Visit: www.imcfareast.com

Read more