The global fashion industry is witnessing a significant shift in its manufacturing hubs. Over the past decade, an increasing number of brands have been moving their production bases from China to countries like Vietnam. This blog explores the reasons behind this transition, compares the manufacturing capabilities and conditions of China and Vietnam, and discusses the broader implications, including how the US-China trade war plays a role. Additionally, we provide practical advice for brands considering relocating their manufacturing to Vietnam.
I. Why Manufacturing is Moving from China to Vietnam
The shift of manufacturing from China to Vietnam is driven by several factors. First, China's increasing labor costs have compelled companies to search for more cost-effective alternatives. As the Chinese economy grows and transitions towards more technology and service-oriented industries, manufacturing, especially labor-intensive types like garments, is gradually moving out. Additionally, China's environmental regulations have become stricter, increasing the operational costs for factories.
Vietnam, on the other hand, offers a more favorable economic environment for manufacturing. The country has been developing its industrial sectors under government support, and its entry into the World Trade Organization (WTO) in 2007 opened more international trade doors, making it an attractive destination for foreign investments in manufacturing.
>>Read More: International integration drives Vietnam’s economic growth
II. Detailed and Statistical Comparison: Made In China vs. Made in Vietnam
Labor Costs
Vietnam's undeniable allure lies in its significantly lower labor costs. Compared to China's US$6.50 per hour, Vietnamese manufacturing labor averages around US$2.99 per hour. This translates to substantial cost savings, particularly for labor-intensive processes like garment assembly. These savings can significantly boost a brand's profit margin, making Vietnam an attractive option for cost-conscious brands.
Manufacturing Capability and Product Output
China's manufacturing output is formidable, contributing to about 28.7% of the world's manufacturing output according to the United Nations Statistics Division. In contrast, Vietnam, while smaller in scale, is showing rapid growth. The country's industrial production increased by 6.3% over the same period, as reported by Vietnam's General Statistics Office. This upward trend indicates a growing industrial base and increasing production capabilities. Moreover, Vietnam's government actively attracts foreign direct investment (FDI) by offering tax incentives and simplifying business regulations. This strategy has contributed to the surge in FDI, which fuels Vietnam's manufacturing expansion.
A Nuanced Look at Infrastructure
While Vietnam boasts a clear advantage in labor costs, a closer look reveals a more complex picture. China's established infrastructure presents both advantages and limitations. Its mature ecosystem allows for high-volume production runs, ideal for brands with large orders. In 2022, China's garment production reached a staggering 280 million pieces, demonstrating their immense capacity. However, this established system can be rigid, potentially hindering brands seeking to experiment with innovative designs or smaller production batches.
Vietnam, on the other hand, is a work in progress. Its material sourcing network is still developing, potentially leading to higher material procurement costs compared to China. Additionally, Vietnam's logistics infrastructure, though improving with foreign investment, pales in comparison to China's extensive network, which translates to potentially higher transportation costs. However, Vietnam's youthful workforce offers a glimpse of exciting possibilities.
Material Sourcing
China's Established Network
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Dominant Market Share: China boasts a highly developed supply chain network, with its material import and export sectors valued in the hundreds of billions of dollars annually [source: industry reports or research publications on China's supply chain]. This translates to a vast network of suppliers offering a wide range of raw materials and manufactured components.
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One-Stop Shop Potential: Due to the extensive network, China can often function as a one-stop shop for manufacturers. Many raw materials and finished parts are readily available within the country, simplifying sourcing and reducing logistical complexities.
Vietnam's Developing Capacity:
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Rapid Growth: Vietnam's material sourcing scene is undergoing significant development. The country has witnessed a substantial 13% annual increase in material imports, according to a 2023 report by the Vietnamese Ministry of Industry and Trade. This growth indicates a growing domestic manufacturing base and a rising demand for raw materials.
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Import Reliance: Despite the import growth, Vietnam still relies heavily on foreign raw materials, particularly for more complex or technical components. This can create a bottleneck for some manufacturing sectors if there are disruptions in the supply chain or fluctuations in global material prices.
Overall:
China's established supply chain network offers a clear advantage in terms of readily available materials and diversified options. However, Vietnam's rapid growth and strategic location in Southeast Asia position it as a promising alternative, especially for manufacturers seeking cost-effective options and proximity to regional markets. The key for Vietnam will be to continue investing in domestic material production and diversifying its supplier base to reduce import dependence.
Shipping Logistics
China's Logistics Advantage:
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Superior Infrastructure: China boasts a well-developed logistics network, ranking 26th globally according to the World Bank's 2023 Logistics Performance Index (LPI). This ranking reflects China's extensive network of highways, high-speed railways, and major seaports, facilitating efficient movement of goods.
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High Shipping Capacity: China is a global leader in shipping capacity. Major Chinese ports like Shanghai and Shenzhen handle some of the world's highest volumes of cargo, offering businesses access to a wide range of shipping options and competitive rates.
Vietnam's Developing Logistics:
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Investment and Growth: While Vietnam ranks lower at 39th in the 2023 LPI, the country is actively investing in upgrading its logistics infrastructure. This includes projects to expand and improve highways, railways, and port facilities
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Strategic Location: Vietnam benefits from its strategic location in Southeast Asia, offering access to major regional markets. Additionally, several deep-water ports like Cai Mep and Da Nang are being developed to handle larger vessels and increase capacity.
III. US Vs. China Trade War: How Vietnam Benefits
The ongoing trade war between the US and China has significantly impacted global supply chains, creating a ripple effect that Vietnam has skillfully ridden to its advantage. Here's a closer look at how the trade war has specifically benefited Vietnam's manufacturing sector:
Tariff Advantage:
The primary driver of Vietnam's rise is the imposition of tariffs by the US on Chinese goods. These additional costs make Vietnamese-produced goods significantly more competitive in the US market. Companies seeking to avoid these tariffs have increasingly turned to Vietnam as a viable alternative manufacturing location.
Shifting Supply Chains:
Beyond just cost savings, the trade war has prompted a broader reevaluation of global supply chains. Companies are seeking to diversify their manufacturing footprint to mitigate risks associated with geopolitical tensions. Vietnam, with its stable political environment and growing manufacturing capabilities, has emerged as a favored alternative to China.
Foreign Direct Investment (FDI) Boost:
The trade war has triggered a surge in Foreign Direct Investment (FDI) into Vietnam. Companies are relocating or expanding their manufacturing operations in Vietnam to capitalize on the tariff advantage and tap into the country's growing workforce. This influx of FDI has fueled Vietnam's industrial development and infrastructure improvements.
Increased Exports:
As a result of these factors, Vietnam's exports have witnessed a significant rise. The US, in particular, has become a major export destination for Vietnamese manufactured goods. This export boom signifies Vietnam's growing importance in the global manufacturing landscape.
Beyond the Immediate Benefits:
The trade war isn't just a temporary advantage for Vietnam. It has also accelerated the country's long-term development as a manufacturing hub. The influx of FDI is leading to technology transfers and skill development, fostering a more diversified and skilled Vietnamese workforce. This will position Vietnam well to compete even after the trade war resolves.
IV. How To Move Your Manufacturing To Vietnam
Relocating manufacturing operations involves several steps:
1. Deep Dive: Research and Planning
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Market Analysis: Research Vietnam's apparel industry, including labor costs, regulations, and trade agreements. Identify your target market and potential competitors.
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Legal Landscape: Understand Vietnamese business formation procedures, tax regulations, and labor laws. Consider consulting with a legal professional specializing in foreign investment.
2. Partner Up: Finding Your Vietnamese Powerhouse
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Manufacturer Matchmaking: Inflow can connect you with top-tier Vietnamese manufacturers aligned with your production needs and quality standards.
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Supplier Scouting: Identify reliable suppliers for raw materials and other production necessities. Building strong relationships with local partners is key.
3. Compliance is Key: Ensuring Quality and Legality
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Quality Control: Establish a robust quality control system to ensure your products meet international standards. Consider industry certifications relevant to your apparel category.
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Legal Compliance: Partner with legal or compliance specialists to ensure adherence to Vietnamese regulations regarding labor, environmental standards, and product safety.
4. Streamlining the Flow: Logistics and Distribution
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Supply Chain Optimization: Develop a cost-effective and efficient supply chain for material procurement and finished product distribution.
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Logistics Partners: Collaborate with reliable logistics companies to ensure timely delivery of materials and finished goods.
Ready to Conquer the Apparel Market in Vietnam?
Inflow empowers businesses to make a smooth and efficient transition to manufacturing in Vietnam. We offer a suite of comprehensive solutions tailored to your specific needs.
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Extensive Supplier Network: Go beyond Vietnam! Inflow gives you access to suppliers not just in Vietnam, but across a vast network spanning Thailand, Korea, China, Japan, and India. This ensures you find the best fit for your production requirements and budget.
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Fully-vetted manufacturing partners: Based on the network of pre-vetted Vietnamese manufacturers, we match your brands with the most suitable manufacturing partners in terms of specification, budget and scale,
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Expert Guidance: Inflow doesn't just connect you; we guide you every step of the way. Our team ensures compliance with manufacturing standards in Vietnam, navigating regulations and ensuring stringent quality control throughout the process.
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Tailored Solutions: No one-size-fits-all approach here. Inflow works closely with you to understand your unique needs and develop a customized strategy for successful manufacturing in Vietnam.