As production in China contracts due to high labor cost, US-China trade war, and Covid -19 pandemic, Vietnam is undergoing continued and unparalleled economic growth relative to other low-cost countries. Foreign investors are progressively doing business in Vietnam as a China plus one destination to tackle rising costs of production in China and different volatile scenarios such as trade shocks. These challenges have both affected manufacturers in China and their supplies to international markets, and it makes sense that investors diversify to manage their risks better.
In this context, foreign investors are looking for a new market-entry solution to help to supplement Chinese operations in alternate markets, such as Vietnam. Vietnam is one of the top-performing countries that witnessed a 2.9% economic growth in 2020, better than China’s 2.3% growth. Much of that growth resulted from foreign investment and the need for companies to diversify their supply chains and relocate their operations away from China to Vietnam. More so, due to Vietnam’s geographic proximity to China, it offers numerous benefits for companies planning to move outside China.
Chinese Manufacturers Are Relocating to Vietnam
Need confirmation Vietnam is the next big thing in Asia? Take a closer look at what homegrown producers in the area are doing. Chinese producers are looking for lower labor costs, and they’re ready to save as much as 2/3rds by moving production to Vietnam. In the event that you’ve dealt with a Chinese producer over the past ten years, there’s a possibility they’ve begun manufacturing in Vietnam, relocating their operations there.
For people with experience dealing with Chinese suppliers – this experience and knowledge will be most valuable in Vietnam as both countries have similar cultural nuances. Chinese are likewise influencing Vietnamese suppliers and passing down their skills and knowledge to the workers.
Planning a Supply Chain Shift
Manufacturers planning a supply chain shift into the Vietnam market may find the production shift a bit daunting initially as supply chains have to realign. Enterprises often find it hard to decide which supply chain to relocate, how they plan to enter the Vietnamese market and the geographic location where operations will be established within the country.
For manufacturers that comprehend these problems will have the upper hand over others who don’t – they will be able to quickly make more informed decisions that are critical for their operations to stabilize and expand if required. We have outlined three steps to help you plan a supply chain efficiently.
Choose Vietnam’s Production Features to Relocate
You need to approach the Vietnamese market with a clear understanding of the production line you intend to carry out. For most businesses, Vietnam is chosen because of its lower labor costs and economic growth, which are well suited for basic manufacturing and assembly.
Suppose your company is targeting more complex manufacturing operations. In that case, you need to conduct a thorough feasibility study of Vietnam’s available human resources, sourcing networks, and infrastructure to ensure that this production shift will be successful.
Choose Your Entry Strategy
There are three main options for choosing your entry strategy into Vietnam’s market. These include engaging homegrown contractors to fulfill production factors, beginning a new manufacturing facility, or conducting a Mergers and Acquisitions (M&A) contract with an existing factory.
Identify the Best Location for Investment
There are three Key Economic Regions (KERS) that host most of the foreign investment and industrial activity in Vietnam. Each zone has its own special production conditions that lend themselves to different investment strategies. Businesses planning to relocate should carry out a feasibility study to develop a clear understanding of each region.
Relocate Your Business Smoothly With Cekindo
Are you looking to relocate your operations from China to Vietnam? Contact us today at Cekindo to get started on how to navigate the Vietnam business terrain. Our consultants are equipped with the latest knowledge and in-depth understanding of what it takes to relocate your business to Vietnam ensuring a smooth, timely, and cost-effective process. Schedule a call today to get started.