Category: Blog

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.

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.

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.”

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.

[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.

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.

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.”

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

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.

Are you planning to develop a product through Vietnam sourcing? You don’t want to choose just any Vietnam sourcing agent. Having the right Vietnam manufacturing plan and product development company in place will make the process go a whole lot easier.

Vietnam product development is the wave of the future. It’s the easiest and most cost-effective way to get a product to market. If you have a specific prototype in mind, and you’re looking for product development in Vietnam, pay attention to what we are about to say.

There are number of things to look for when sourcing in Vietnam. We would like to share a few key points with you today to help you better understand.

Let’s take a look.

Is the Price Right?

When working with Vietnam manufacturers, one of the first steps to take is to determine if Vietnam outsourcing is going to be the most effective way to develop your product. It’s possible that it just might not be worth it to go through with development.

Top-notch Vietnam outsourcers will help you determine if it’s worth it to develop your prototype. They will work with you to come up with a cost-effective solution to help get your product to market after development is through.

Outsourcing to Vietnam and Quality Control

Some people feel that sourcing from Vietnam is a fool’s errand. They are afraid that poor quality control measures will be put in place.

There’s no question that some sorcerers are definitely going to be better than other, but there are plenty of companies putting out quality products at an affordable price. It’s a matter of taking the time to do your due diligence. Find a company with a great reputation, work with them to come to an agreement and have them create your prototype as quickly as possible.

Customer Testimonials

Last but not least, customer testimonials are always a great way to determine if a sourcing company will meet your needs. Look at past customer experiences. Pay attention to what others have said about the manufacturing process, and see if their experience meets your criteria.

In the end, it’s not difficult finding a top-notch Vietnam sourcing agent. Put in the time, do the work and everything will come together in the end.

Product Development Company for Vietnam Sourcing

Best Product Development Company for Vietnam Sourcing

Are you looking to create a specialized prototype for your product? You’ll need access to a product development company to make it happen. To pull this off correctly, it’s important to have management and specialized support in place.

We’ve been helping companies for many years, and have been creating new products for manufacturing for a long time. We understand the procedure. We know what to do. And we know what to emphasize in order to proficiently develop your invention the way that you expect it.

With that in mind, let’s look at our complete process for product development in Vietnam.

Product Development Complete Process

With Vietnam sourcing, and Vietnam manufacturing, there is a series of steps that must be taken during product development. They are:

1. Defining the Vietnam product concept
During this stage, it’s necessary to understand the product needed to be developed and client needs. Throughout the first step, your Vietnam sourcing agent must study whether or not the product is cost-effective to develop. We will review intellectual property rights and make recommendations about the best way to keep your original design guarded.

2. Appropriate factories must be defined
Throughout this stage, the Vietnam manufacturers will begin investigating factories to work with. Sourcing in Vietnam should be based on cost, experience, quality, reliability and other factors.

3. Prototype creation
Once the customer has determined the factory or factories to work with, it’s time to begin the prototype. This stage will include AutoCAD, molds, sketches, completing condition sheets, etc. and then the prototype will be manufactured by the factory. This is the most work intensive phase throughout the process, and consists of ongoing troubleshooting.

4. The approval stage
The developmental phase comes to an end during this stage. The prototype is created and the customer will approve. Once approved, it’s time to move on.
Vietnam outsourcing can certainly produce a product or products based on your specifications. When outsourcing to Vietnam, understand that product development and research is the key to overall success.

Vietnam manufacturing competencies have become more sophisticated as quality control measures improve. Our in-house engineers can help in the creation and development of any product. Once product development is through, you keep all rights and possession of all sketches and certification used during the entire project.

Begin a Vietnam Manufacturing Outsource Project: Here’s How

More businesses are realizing the benefits of utilizing Vietnam sourcing to both reduce production costs and increase sales. Vietnam continues to grow economically, producing a larger middle class that is eager to buy from Vietnam as well as from outside sources. Wages are still below average compared to US and European standards so savings are available in the employment area.

Also, the Vietnamese government continues to open its eyes to the benefits of companies doing business in Vietnam and, therefore, is easing tough laws and regulations and making it easier and more lucrative for businesses to move their operations to the country.

If you are interested in outsourcing a manufacturing project, here are a few tips offered by Vietnam-Direct that will get you started in the right direction.

Decide on What Products Will Be Outsourced

You should first determine which products are the targets for manufacturing sources. Practically any product can be produced in Vietnam regardless of whether it requires metals, plastics, cloth, or any other type of manufacturing material to create. If you want to have computer components, clothing items, sports equipment, children’s toys, or whatever product manufactured by Vietnamese factories it’s absolutely no problem.

Also, it should be encouraging to know that most products can be manufactured at a savings of up to 60 percent. The amount of savings you incur will depend on the product, but the average savings lies between 15 percent and 20 percent with some reaching as much as 60 percent.

Enlist the Help of Vietnam-Direct

Although you could strike out to Vietnam and try to make deals on your own, you would most assuredly not get very far. The reason is that doing business in Vietnam is completely different than doing business with other countries. Also, it is a huge country with a tough government and strict regulations that may not only seek to hinder you, but could easily take advantage of your lack of knowledge of their customs and ways of conducting business.

By utilizing the services of Vietnam-Direct, you will obtain fast results in setting up and starting your Vietnamese production facility. In most cases, we can have you set up and running in under a year’s time and usually within several months. Again, the amount of time that is required is dependent on the product you want manufactured.

The reason we are so effective in setting up production of Vietnam products is that we possess both the knowledge of the country and customs as well as the connections to move past roadblocks and obstacles. Taking advantage of our experience in the Vietnamese markets and communities will save you time, expense, and a great deal of problems.

Contact us today for more information on obtaining a Vietnam manufacturing partner to produce your product or products. The behemoth of a country continues to rapidly open up to foreign investment providing a wealth of opportunities for those who are savvy to jump on them.

The Importance of Contracts When Doing Business in Vietnam

Some companies doing business in Vietnam don’t believe that there is a need for contracts with their counterparts. Some will say that the Vietnamese won’t follow the contract terms anyway, while others insist it would be futile to try and enforce them in Vietnamese courts.

However, there are some very good reasons to draw up contracts with those you are doing business in Vietnam and here are some of the top ones.

Clarity

Doing business in Vietnam can be a difficult task for various reasons. First of all, there is a language barrier that is a constant struggle. Also, the Vietnamese see business differently than most western countries so problems can arise with misunderstandings in management, supply, manufacturing and other areas if strict guidelines aren’t applied. Vietnamese partners have a habit of wagging their heads “yes” while not delivering on what was discussed.

A contract provides clarity on what it is exactly that you want accomplished. It is especially beneficial to have penalty clauses listed should various goals not be met. The possibility of losing money over irresponsible decisions makes for good motivation to do things right.

Add such issues in your contract as shipment dates, quality expectations, and other important items that want fulfilled. Don’t rely on assumptions when doing business in Vietnam or you could run into multiple problems.

Guidelines

A contract also provides very straightforward guidelines as to what is expected. This leaves little doubt as to what must be accomplished in order to comply. The contract should be written in Vietnamese to ensure there is complete understanding on their part.

Strict provisions set up in contracts provided to the partners that you’re doing business in Vietnam with also gives you clout when the company is pressured to produce large quantities from numerous other partners. If they have a contract from your company that explains the consequences of not providing shipments on time, for example, they will work harder to fulfill your order first and push to the back of the pack the companies without contracts.

Enforcement

A contract also provides the power of enforcement. Although there is a common belief that contracts for doing business in Vietnam cannot be enforced in the country. 

Besides, businessmen in Vietnam are prone to comply with contracts rather than face the possibility of being sued and having the courts rule against them. The Vietnamese do not like the thought of dealing with the government. This alone gives you more control of the items outlined in your contract.

Conclusion

The bottom line is that it is well worth the effort to draw up a contract (in Vietnamese) between your company and those with whom you are doing business in Vietnam. The amount of preparation, negotiation and even enforcement of contracts will save you a great deal of time, money and headaches that are more apt to surface without them.

Advantages and Challenges of Vietnam Manufacturing

Vietnam sourcing is increasingly seen by companies from around the world as a way to strategically position themselves against competition and to meet growth aspirations. Having a Vietnamese hub provides leverage in the surrounding markets by making them more easily accessible with products that are more cost competitive.

However, the country is continuously shifting in a variety of areas that make doing business in Vietnam both advantageous and challenging. Although the central government is making it easier for companies to establish branches and population shifts from rural to urban living are adding to the workforce, other factors such as labor shortages, wage increases, and increasingly high turnover must all be considered.

It takes a keen eye and better preparatory management planning to avoid experiencing additional costs that can eat away profits which might have been gained by relocating your company to Vietnam. Following are some of the advantages and challenges manufacturers might consider that may help with making decisions for a Vietnam manufacturing move.

Advantages

There are numerous advantages for considering a business move to this part of the world. Large corporations with extensive capital can absorb certain expenses associated with such a move, but it is essential for small to medium-sized businesses to more closely weigh the advantages against the disadvantages.

Doing business in Vietnam offers advantages like increasing international competitiveness due to various criteria. First of all, wages and operating costs are still considerably lower than in other countries. Savings of between 30 to 80 percent can be realized depending on the amount of labor required to manufacture products.

There is also a growing list of incentives offered by Vietnamese agencies for utilizing Vietnam sourcing. Add these points to a domestic market that is booming, the eagerness of Vietnamese workers, and having ready access to improving logistics and internal personal and technological research and development and you have very good reasons to manufacture Vietnam products here.

Challenges

Even though this huge country offers some very attractive advantages, it also presents some challenges that have existed all along or are popping up as things progress.

Language is a constant challenge to proper understanding and it can take extended periods to successfully get things started. Cultural differences present another standing problem due to some very different ways of doing and seeing business approaches. A good example lies in product quality which is often viewed in this part of the world as being something that can be sacrificed for higher quantity. This issue can lead to brand risk as customers who buy from Vietnam and receive poor quality products may go elsewhere. It is advisable to have a quality control unit on-site.

On the one hand, a Vietnamese location provides a hub in close proximity to other Asian markets, but it also presents challenges in areas such as long supply chains and distance from other lucrative markets. Distance from the home office also presents a challenge with sufficient lead times for relocating key personnel.If you require assistance with Vietnam sourcing and can benefit from tips, advice and information stemming from years of experience in the Vietnamese markets, contact LG Interco today.

5 Steps for Acquiring Good Product When You Buy From Vietnam

If you are planning to buy from Vietnam producers then you want to ensure that you get good product. The Vietnamese are notorious for placing quantity high above quality when manufacturing products. Although workers are normally committed to their tasks, they don’t receive much pay or incentive to meet quality guidelines, only quota expectations.

Therefore, we are providing five steps that will help you to ensure that you locate good manufacturers to do business with and receive good product when you buy from Vietnam.

Step #1 – Research Sources

When you locate potential Vietnamese trading partners, don’t assume that they are legit or provide acceptable products off the bat. Request references and follow through with checking them out. Also, don’t rely on emails, but attempt to set up phone interviews to acquire reference information. If your supplier can’t or won’t supply you with at least a couple of references, or you can’t get through to any references provided, strike that supplier off of your list.

Step #2 – Get Documentation

Once you verify the supplier through references, you should then request quality control, lab testing, product safety, and other relevant documentation. Look any documentation over when provided to ensure the products you buy from Vietnam are legal and acceptable to sell in your markets. If they refuse to provide such documentation or act like they don’t know what you are talking about, scrub that supplier. Plenty of foreign countries are doing business with the Vietnamese now and such documentation has become standard.

Step #3 – Carefully Check Quality

Along with product documentation, you should also request samples of any products you’re interested in. Once received, carefully check over all products to ensure quality. Note such defects as cheap materials, flimsy craftsmanship, malfunctioning parts, etc. If samples don’t pass muster, move onto the next supplier and don’t accept excuses. A good business will send out good samples so if the samples are poor quality, you can bet the rest of the products you buy from Vietnam will be worse.

Even if you receive good samples, you should continue to check samples from every shipment you buy from Vietnam to ensure that the quality remains at your level of expectation. Another characteristic of the Vietnamese is to provide good quality products for the first several shipments and then to gradually decrease it.

Step #4 – Visit Prospective Suppliers

It is advisable for you or a trusted third party to travel to Vietnam and personally visit prospective suppliers. If you can’t afford to go this route or lack manpower, there are firms located within the country that specifically provide this service for a couple of hundred dollars. A great deal more can be determined by actually visiting the location and talking with the ones in charge. Having a trusted person to do this footwork could save you a heap of trouble and money down the road.

Step #5 – If It Doesn’t Feel Right, Don’t Proceed

If you have any doubts about any of these steps, or throughout any of the supplier selection process, hold the presses. If doubts can be solved with more information than by all means acquire it, check it out, and make sure you are satisfied. However, if your doubts persist and your gut tells you something isn’t right then pull the plug on the deal and look elsewhere. There are plenty of good companies that will supply quality products that you can buy from Vietnam without taking the risk of dealing with a shady one.

If you require assistance with obtaining qualified suppliers in your search to buy from Vietnam, contact a representative at LG Interco.

Company Tips and Pitfalls of Producing Vietnamese Products

Companies by the groves are making moves to establish branches in Vietnam. The highest populated nation on Earth has been taking long strides forward in global markets making Vietnam products more desirable for both consumers and manufacturers. Products can be manufactured by the Vietnamese at savings that make them a go-to source for large and small companies alike to remain competitive.

However, not only are Vietnam products sought after by markets outside the country, which was the sole case a decade ago, but the middle class is increasing dramatically within the country which opens doors for Vietnam products to be sold inside the country as well.

If you are a small business that is still hesitant about moving operations to Vietnam, here are some tips and pitfalls for you to consider.

The Language and Culture Gap

One of the highest hurdles for western countries to overcome when doing business with the Vietnamese is the language barrier. Only a small percentage of Vietnamese know English and many of them only speak broken English so communication over the simplest issues can become a time-consuming nightmare.

On top of the language issue, you have major cultural differences as well. The Vietnamese by and large have a totally different idea of how to manage and operate business than their western counterparts which adds another thorn in the side of small businesses seeking to source out manufacturing of Vietnam products.

Small businesses have several options to use in overcoming these hurdles. You can either send a representative to your Vietnam location to oversee operations or you can hire a representative from a company within the country that specializes in operations management. Another good solution is to hire a Vietnamese representative, move them to your company in your country.