Why consider Vietnam as final sourcing destination?

Rising costs throughout the Asian region and in China particularly, are driving businesses to look elsewhere for sourcing partners. Vietnam has emerged as a prime area for the relocation of foreign companies’ sourcing operations.

The country stands out as a prime location for sourcing for a number of reasons. Key among these are Vietnam’s plentiful supply of cheap labor, low business expenses, political stability, and growing domestic consumer market.  The country also has substantial tariff, tax, and quota advantages for a number of products due to its inclusion in numerous free trade agreements.

The government is currently pouring money into strengthening the country’s infrastructure and is well on its way to creating an efficient national network of roads, railways, ports, and airports coupled with an integrated logistics system. Vietnam also has a number of strategically located industrial parks that investors can take advantage.

In fact, the economy of Vietnam has been described as a “sourcing economy” since so many companies are now choosing to source their products within the country. A prime example can be seen with regards to the textiles market – 70 percent of the garment industry in Vietnam is dedicated to sourcing.

Overall, Vietnam posted a $13.6 billion trade surplus during 2017, up by 750.8% from the $1.6 billion in black ink for 2016. The following types of Vietnamese product shipments represent positive net exports or a trade balance surplus.

1. Electrical machinery, equipment: US$33.2 billion (Up by 251.1% since 2016)

2. Footwear: $18.3 billion (Up by 43.4%)

3. Knit or crochet clothing, accessories: $11.8 billion (Up by 12.2%)

4. Clothing, accessories (not knit or crochet): $11.6 billion (Up by 2.3%)

5. Furniture, bedding, lighting, signs, prefab buildings: $7.6 billion (Up by 44.9%)

6. Coffee, tea, spices: $3.9 billion (Down by -15.7%)

7. Leather/animal gut articles: $3.5 billion (Up by 21.7%)

8. Rubber, rubber articles: $2 billion (Up by 84.1%)

9. Meat/seafood preparations: $1.8 billion (Down by -0.8%)

10. Wood: $1.5 billion (Up by 191.6%)

There are a number of key advantages that make Vietnam stand out from the rest of Asia. Unlike many other countries in the region, Vietnam’s government is very stable and committed to seeing the country grow.  Consumer confidence is strong and improving.  Additionally, domestic consumption is predicted to increase 20 percent per year, thus creating a strong local market for foreign products.

Labor costs are currently 50 percent those of China and around 40 percent of those reported in Thailand and the Philippines. The country’s workforce is seeing an annual increase of 1.5 million people, and its workers are young and, increasingly, highly skilled.

The country also has improving infrastructure and remains a low cost manufacturing hub that provides good financial incentives to foreign companies. An abundance of natural resources is also helping to fuel the manufacturing boom in the country.  Additionally, general costs of doing business, such as rent and utilities, are among the lowest in Southeast Asia.

According to the Grant Thornton survey (Report 04/2018), Vietnam is the most attractive country in ASEAN in terms of investment.

Importantly, Vietnam is a member of ASEAN, the Association of Southeast Asian Nations, which is an incredibly significant market with a combined population of over 600 million people and a combined GDP of about US$2.1 trillion. According to the survey, Vietnam is the most attractive country in ASEAN in terms of investment

Finally, with its strong connections both in the Asia region and in the West, Vietnam is well positioned for any company pursuing a China +1 strategy.