Does Vietnam Have What It Takes to Replace China?

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Hai Phong Port
Cargo ships in a port. Hai Phong port is one of the two biggest ports in Vietnam.
Hai Phong Port
Cargo ships in a port. Hai Phong port is one of the two biggest ports in Vietnam.

American countries that outsource their manufacturing needs to China are increasingly becoming worried. They see labor trends in China, and they are worried about their profit margins. Chinese manufacturing is no longer as cheap as it used to be. Increasingly, more and more of these factories are actually relocating to the interior western portion of the country. It is only a matter of time until the wages in that section of China increase so high that manufacturing is eventually pushed out of China entirely.

The question then becomes, “Where will manufacturing go to?” After all, if you are only willing to pay half a dollar for a shirt, there are really only a few places on the planet that can give you the labor costs and infrastructure needed to meet your low-cost needs. One of the most common answers supplied, when people ask for a working alternative to China, is Vietnam. It may seem logical on its face because Vietnam does have lower wage scales. However, the real answer is more complicated than what first impressions give.

More Chaotic Infrastructure

One of the best things about China is you can rest assured that when you have your products built at a factory, it can easily be put on a truck, sent to a port, and the port will ship the materials directly to your target market. It is like clicking a button and drawing one line from point A to point B. Things aren’t that simple with Vietnam. It has a more chaotic infrastructure. In many cases, key parts of their infrastructure are still being built right now. Moreover, the total transport and manufacturing infrastructure of Vietnam fails in comparison to China.

You have to understand that, to make money in manufacturing, you have to scale. You have to produce a huge amount of goods so that the per-unit price of goods is so low so you can make a profit. This is the secret to why Chinese-manufactured goods are so cheap. Since Vietnam has a more limited and restricted infrastructure, this is not always possible. This is possible with cheap sneakers, like the ones manufactured by Nike in Northern Vietnam. But this is not possible across all types of manufactured products.

Vietnam Will Remain a Boutique Manufacturing Alternative

Thanks to its difficulty with scale issues, Vietnam will probably just remain a boutique manufacturing alternative. This doesn’t mean that you should completely forget about investing in Vietnamese manufacturing. What this does mean is that you have to look at Vietnam as a specialist in certain types of manufacturing. If you are looking for a huge amount of scale, a huge amount of complexity, and a high amount of speed, Vietnam is probably not going to be at the top of your shortlist. Still, depending on the product that you need to get manufactured, Vietnam can still be a serious competitor.

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