SOURCING & MANUFACTURING
Vietnam Sourcing & Manufacturing Profile
Vietnam is quickly becoming a global manufacturing hub and has often been referred to as “the new China”. In fact, companies have been moving their supply chains to Vietnam for decades. For instance, Vietnam has been the primary supplier for Nike shoes since 2010. With the recent US / China trade war, Vietnam has experienced even more economic growth from companies looking to move their supply chain out of China. With lower labor costs and a prime location for shipping, Vietnam is a viable alternative to manufacturing in China. This profile will help you determine if Vietnam is the right fit for you and your product.
Strict environmental regulations and laws in Vietnam make for a promising sustainable future. Maxport (a manufacturer for big name brands like Nike, Patagonia, and Lululemon) has incorporated many sustainable practices into their Vietnam factory. Large producer DBW built an internationally LEED-certified factory in Vietnam, equipped with solar panels and other sustainable features. These factories are setting the bar high for sustainability, and they are just the beginning. The combination of government regulation and a developing industry gives companies and investors the chance to easily incorporate green standards and practices into their factories.
Vietnam is still considered a developing country, but it has one of the fastest-growing economies in south-east Asia. Their manufacturing industry, while still relatively new compared to China, is growing quickly. This is a huge benefit for smaller businesses and startups, because manufacturers are willing to accept smaller order quantities. While Chinese factories often require a minimum order quantity of at least 1000 pcs, the MOQ for Vietnamese factories is closer to 300 pcs.
This fast growth in Vietnam’s manufacturing sector is due in part to significant foreign investment. In fact, most export-oriented Vietnam manufacturers are foreign-owned. Since Chinese foreign investors have been key in bolstering Vietnam’s manufacturing industry, many factory managers are fluent in English and Chinese. This could make transferring relevant manufacturing documents from a supply chain in China to Vietnam easier. The Vietnamese government has also considered opening 3 new special economic zones, offering 99-year factory leases and tax exemptions to spur further investment.
When manufacturing in Vietnam you can count on high workmanship standards for textile, bags and footwear products, however the workforce remains relatively inexperienced with more sophisticated manufacturing, like aerospace parts for example. There is some concern that the growing industry and rising demand for skilled laborers could cause a labor shortage in the future. Vietnam has a factory labor force of about 788 million people, whereas China has 14 times that number. This means that most factories in Vietnam are smaller in size and have fewer workers than those in China, which could limit your ability to scale in the long run. It’s important to think of your long-term production goals when choosing the size of your factory
While Vietnam is one of the top 5 exporters in the world of garments and textiles, they rely heavily on importing raw materials. For example, many Vietnamese textile factories import as much as 90% of their cotton. Other raw materials like injection molded parts and electrical components are also heavily imported, usually from China. Keep in mind that any time a country has to import raw goods to create your product, the overall cost will go up. It is also worth reiterating that moving a supply chain from China to Vietnam would still be highly reliant on raw materials from China.
The country offers a huge shipping advantage compared to other south-east Asian countries, with several international airports and multiple major seaports. Among the 160 countries included in the World Bank’s 2018 Logistics Performance Index, Vietnam (39th) ranked well behind China (26th) overall. But importantly, Vietnam did outrank several countries in the region, including Bangladesh (100th), Cambodia (98th), Indonesia (46th) and India (44th).
There is some concern that the infrastructure is not improving quickly enough to sustain the manufacturing industry, but the Vietnamese government is working hard to make sure that does not happen. There are projects in place to fund railway repairs and expand existing port capacity.
One of the biggest appeals of manufacturing in Vietnam is the low cost of labor. The 2019 minimum wage in Vietnam ranges from US$125-180 per month. In China, the minimum wage ranges from US$145-358. Minimum wage can be a good way to gauge the cost of labor, but it’s important to note that in some regions, laborers are paid much more. Labor will account for less than 20% of your final cost, but you will definitely notice the difference.
Other factors, like the complexity of your product and the availability of materials needed, will play a role in the cost as well. Expensive materials and outsourcing will both raise the overall cost of your product. Shipping costs will vary greatly depending on your location, courier, and method.
The United States has free trade agreements with 20 countries. Unfortunately, Vietnam isn’t one of them. This means that you’ll be paying customs duties on any goods you manufacture in Vietnam. The amount of these duties depends on the goods that you’re importing, as well as the quantity. The Harmonized Tariff Schedule is a code system that classifies goods into specific categories, dictating what you pay. What you pay in customs duties will be determined by the HS code of your product. This search bar can help you find the correct HS code for your product to help you calculate your cost.
It is worth mentioning that while you might have to pay tariffs on some goods made in Vietnam, the tariffs are far less than those in China as a result of the US / China trade war.
Do Your Due Diligence
No matter what country you’re manufacturing in, finding the right supplier is crucial to the success of your product. Don’t just commit to the first supplier you find. Do your due diligence to ensure that the supplier is honest and legitimate. This means investigating the finances, certificates, and creditworthiness of the supplier. Do they have the money and resources to manufacture your product? Will they be able to complete the project within your timeframe? Will they meet your standards of quality? What is their capacity to grow with your business? Asking these questions before making a commitment will help prevent problems in the long run.
Sound like a lot of work? Blacksmith can take care of it for you. We do the research, so you don’t have to. We work with more than 1,500 vetted global factories, so you can rest easy knowing that we can find one that fits your needs perfectly.