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Moving Your Manufacturing Company from China to Vietnam: The Pros and Cons

May 21, 2021

 by David Collins III

factory worker making product on a production line

CMC and our parent company, MTG Global, have seen many companies moving out of China into Vietnam. Reasons for the move vary from China becoming too expensive to confusion on what is going to happen with the tariffs on Chinese exports.  

Should you move your manufacturing company to Vietnam? The answer to this question is yes, no, and it depends. To make it easier, we have developed a list of pros and cons you need to consider.

Pros

1. Vietnam Is Cheaper

It is a fact that Vietnam is cheaper than China. On average, Vietnamese labor costs half as much as Chinese labor ($2.99 per hour compared to $6.50 per hour). Furthermore, gas, electrical, and lease prices per square meter are lower. Considering all this, a factory with the same level of productivity will be more profitable in Vietnam than in China. If your product is labor-intensive, then the lower land and labor costs are a significant draw.

2. Your China Supply Chain Will Still Be Useful

Many companies collect all the components and materials they need and send them to their assembly factory by truck from China to Vietnam. For example, the assembly centres that Samsung and Foxconn have recently set up are just a few hours away from the border. This location is ideal since the supply in Vietnam is still in its infancy compared to China.

 

3. Better Environmental and Intellectual Property Protection

Vietnam is not the China of 25 years ago. From our experiences, we see the Vietnamese government consciously trying not to repeat the same mistakes of the Chinese regarding environmental and intellectual property protection.

4. Exporting to the USA

America and Vietnam enjoy mostly good relations due to a shared concern over China and the desire of Vietnam to find a good export market. Vietnamese exports to the USA have risen by 41% from 2018 to 2019.

Cons

1. Finding Local Suppliers Is Difficult

Finding local suppliers in Vietnam is much more complicated than in China. And, since there are fewer options, their costs will generally be higher. If the supplier is far away from your factory, receiving incorrect or damaged components has a much higher impact as sending them back can be difficult. 

 

2. You Might Have to Set Up Your Own Factory

If you are a start-up or small producer, you will likely have to build your own factory. Big conglomerates are only interested in large-scale projects. Selling your products to them might be difficult.

3. Lack of Skilled Labor

Vietnam has a relatively large shortage of skilled technical labor compared to China. This is especially evident outside of Ho Chi Minh City, where electricians, pipefitters, robotics engineers and plumbers are difficult to come by. As a result, tooling often has to be made in the Shenzhen/Dongguan area and then sent to Vietnam for testing and approval. Generally, higher-end manufacturing in Vietnam is more complex than in China.

4. Manufacturing Capacity and Infrastructure

Vietnam is not nearly as large as China (only about a tenth of China's population). So the ability to absorb manufacturing capacity is not as great as China's. Therefore, there may be a rapid rise in wages as companies rush to Vietnam. Additionally, Vietnamese infrastructure is still significantly behind compared to China, especially as you go further from the coast.

Bottom Line

Whether your company should move to Vietnam depends on if the pros of the relocation are more significant than the cons. A move to any new location carries substantial risks and should be considered in-depth (not just from a cost perspective). 

Any move to a new manufacturing location should only occur after planning and considering all the relevant factors. If you would like to know more, please contact us, and we can help you understand what your options are and how to proceed. 


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Topics: Manufacturing Consulting, Manufacturing In China, Plant Relocation

David Collins III

David Collins III

David was a Senior Strategy Consultant for Deloitte, served in Iraq as a Special Operations Civil Affairs soldier, and as a Governance Advisor to the Afghan Government with the Department of State. At CMC, David advises clients on strategy and investments.

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