Vietnam is the primary manufacturing country for large brands such as Adidas and Nike, and many other fashion companies are packing their bags. Vietnam will soon become the premier location for fashion, shoes, furniture, garments, and electronics manufacturing. The main benefits of investing in Vietnam are the vast labor force, low labor costs, convenient location, and political stability. This guide will compare China and Vietnam and help you decide between the two countries.
The world's largest brands are opening factories in Vietnam: Apple, Samsung, Nike, Adidas, LG, Foxconn, and others are examples of companies that have shut down Chinese factories in favor of Vietnamese factories. Many of the world's biggest corporations plan to outsource operations to Vietnam. In addition, the US-China trade war put significant tariffs on Chinese goods, while Vietnamese products are still easy to import. As a result, annual exports from Vietnam to the US surged, growing at 20-30% per year.
Many small companies realize the cost-effectiveness of shifting manufacturing to Vietnam and leaving China. Vietnam attracts companies, from small textile companies to big tech electronics manufacturers. Vietnam is one of the biggest footwear manufacturers, and Nike manufactures more than 12% of its products annually. Adidas has enormous production facilities in Vietnam and plans to manufacture most of its footwear. The footwear export industry in Vietnam is worth nearly $22B/year.
Big tech is moving into Vietnam and balancing its production with China. For example, apple recently started producing AirPods in Vietnam to cut down on import costs from China. Samsung has also moved into the country by shutting down one of its Chinese factories and opening up a Vietnam factory. The last few years have seen an increase of over 300% in electronics, which results from decades of fostering a friendly business environment by the Vietnamese government and rising labor/export costs in China.
As a result of multinationals opening factories in the country, Vietnam sees record economic growth even with the pandemic's slowdown. Vietnam's economy grows at an average rate of 7-10% per year, and the economy is manufacturing/export-based, making it the #5th largest economy in terms of trade surplus with the US.
The World Bank estimates that Vietnamese exports will continue growing, and the total GDP will increase by 10% in the next few years. Vietnam even exports historically Chinese-dominated products, such as promotional products and fashion. In addition, Vietnam can manufacture high-tech products, and recent investments by Apple and Samsung are a testament to that.
Vietnam is a business-friendly nation with an open economy that seeks to attract international companies. Vietnam is more business-friendly than China, and investors find it easy to set up their factories and shipping logistics from the country + company registration. Vietnam is a member of many international trade organizations and has signed hundreds of trade agreements with countries worldwide to make exports easy.
Vietnam is a core member of ASEAN, a market association for Southeast Asia, and the country was supposed to benefit the most from the Trans-Pacific Partnership project. Vietnamese factories follow international standards, guaranteeing manufacturing/production capability and employee rights.
Vietnam's main advantage over China is the low cost of the labor force. While wages in major Chinese cities have surged, and manufacturers are struggling to stay profitable, Vietnam's labor cost can be as little as 1/3 of China's. For instance, the minimum wage in Vietnam can be as low as $125 in certain regions. With that in mind, wages in Vietnam are increasing faster than in China and, in some cases, are reaching parity.
In many Chinese cities, the minimum wage is over $350; in some, hiring workers for less than $500/month is impossible. While both countries have an abundant young workforce, Vietnam is still the more cost-effective choice for manufacturers looking to lower their labor spending. China's rising labor costs, combined with an increase in tariffs, make Vietnam a desirable option comparison.
Vietnam is politically stable without involvement in international or domestic conflicts. As a result, Vietnam is a major tourist destination and annually attracts millions of visitors to its beaches and mountains. In addition, the country has one of the best governments in the region that emphasizes development and business-friendliness, making it easy for foreign investors to set up shop in the country and conduct business.
The Vietnamese government cuts down on red tape and creates industrial zones where foreign investors get tax cuts and other benefits if they set up a factory. As a result, factory investments are safe in Vietnam, unlike other countries in the region that experience internal conflict.
Vietnam has a convenient geographic location and a 3,200-kilometre-long Pacific coast. Its Pacific coastline makes exporting goods quickly to international locations such as the US, EU, and Oceania. Most products arriving from Vietnam take as little time as those from China. The shorter shipping times are a significant advantage over other low-cost countries such as India and Bangladesh, where products might take double the time. In addition, Vietnam has a large population with hundreds of shipping companies that offer abundant shipping options by sea or air.
Vietnam's proximity to China means that if your company experiences material shortages, it will be easy to source raw materials in China. In addition, cities in the north of Vietnam are only 800km from the most significant Chinese manufacturing city - Shenzhen, while the operating costs are nearly 1/3 less. Combined with the international shipping routes, Vietnam is one of the most geographically convenient locations to invest in.
Vietnam is rapidly modernizing its infrastructure with billion-dollar investments in highways and seaports. The Vietnamese government focuses on improving its ports to facilitate international shipping and make it easier for multinationals to ship heavy cargo between Vietnam and international destinations. Vietnam's main advantage is the long 3200km coastline on the Pacific Ocean, with dozens of large seaports scattered all over the coast. The long coastline gives easy access to factories located all over the country.
What's more, Vietnam has developed an extensive railway network spanning 2,600 kilometers, designed for cargo transport and transporting goods swiftly from north to south. As the country gets wealthier, Vietnam should catch up with China regarding shipping infrastructure, which will decrease the time necessary to get your goods from the factory to your warehouse in the US.
To compare China vs. Vietnam directly, we're going to analyze different aspects of critical importance to investors, such as:
Labor costs.
Manufacturing capability/product output.
Material sourcing.
Workforce availability.
Shipping logistics.
Red tape.
Production limits.
Beyond these, there are still a few more issues with sourcing from Vietnam. If you want to dive deep into this topic, view our post on the Challenges of Sourcing in Vietnam.
Vietnam offers significant advantages over China in terms of labor costs. For example, the average cost of hiring a factory employee in Vietnam is 1/3 of that in China - especially in factories near major cities where the average salary is approaching $30/day in China.
Vietnam's main advantage over China is that the labor cost is lower, but the output/quality is identical. Chinese wages keep increasing; however, this also keeps happening in Vietnam, with young talent changing jobs often to boost their earning potential. Overall, Vietnam is cheaper than China in terms of labor costs.
China has the largest manufacturing capacity in terms of product choice. Virtually any product can be manufactured in China. Vietnam is a bit more limited in this regard, but the manufacturing capacity exists in Vietnam for most general products.
While China remains the world's largest manufacturing economy and has more experience, Vietnam is quickly catching up. For example, Vietnam is becoming the biggest footwear exporter; it can manufacture furniture, fashion, packaging, plastics, electronics, and more. However, due to its size, China has an edge over Vietnam in producing custom products for companies.
Vietnam has a lot less red tape and regulation for start-ups than China. The Chinese communist government implements strict regulations on factories, and its legal system is hard to navigate for non-natives. In the past, manufacturers struggled to work in China because most factory owners didn't speak English, but now this is better because companies hire English-speaking representatives.
Investors will find it easier to set up their factories in Vietnam because the Vietnamese government is more investor-friendly and has zones where investors can get perks.
China and Vietnam have large populations: China has 1.4B residents, and Vietnam has 95M residents. The smaller population means that an employer could find millions of factory workers near every city to work at their factory. As a result, millions of workers and factory managers are available in both countries.
China and Vietnam have workers with strong work ethics who work long hours and are willing to work hard. While both countries have an educated workforce, China is better due to superior educational institutions and a higher population.
China is a better option for businesses relying on educated workers such as tech/machinery, while Vietnam can also provide a skilled workforce near major cities. Unskilled factory workers are equally available in both countries, and it will be easy to find hundreds or thousands of employees for every significant investment. The labor productivity in Vietnam is lower than in China, but this is due to China's larger population.
Since the beginning of Innolux Footwear, our factories have been located in Vietnam. Some might wonder why we are based in Vietnam? Well, to us, the question should actually be, why would we not be?
In the early 2010s, manufacturers started broadening their views beyond China as labour costs were rising. Relocation to Asian state Bangladesh was preferred at first. However, Vietnam gained popularity thanks to the more convenient shipping logistics, superior infrastructure, eye for sustainability and craftmanship and the availability of good quality raw materials and leathers.
Nowadays, Vietnam is the third-largest footwear manufacturer in the world. On average around 920 million pairs of sneakers, sandals, heels and boots combined are produced every year. Annually, more than 800 million pairs are exported to a multitude of countries.
Vietnam more attractive than China
Despite being much smaller than neighbouring state China, Vietnam has proved to be a more attractive country to produce footwear. In fact, some of the biggest shoe brands have located their factories in Vietnam. Think of sneaker multinationals such as Nike, Adidas and Puma!
One of the main reasons Vietnam is such an attractive to produce footwear, is based on the fact that there are little to no duty restrictions when exporting from Vietnam. As of the first of August 2020, the EVFTA (European Vietnam Free Trade Agreement) has been implemented, allowing for 99% of exporting produce to be shipped into Europe without import duties.
Logically, the already large production increased even further, allowing for more diverse and even better-quality shoemaking as money shifted from duties to quality investments. The EVFTA has given an impulse to the already existing European clientele of Innolux. Partners can now easily start their shoe production in our factories and afterwards sell their products in European stores without having to keep up with high duties!
Besides of this, during and since Covid-19, lots of companies want to spread risks and other known facts, and move a big part of production from China to Vietnam and other Asian countries.
Sustainability in Vietnam
Another reason Vietnam has been very on trend is thanks to the growing sustainability movement. Manufacturers, designers and tanners based in Vietnam are picking up on the recycled and ecofriendly materials, moving from original leather to light products or vegan alternatives. Good to know that Vietnamese don’t like to fake or greenwash business, you can be sure they follow instructions and supply genuine, 100% correct required certifications.
Concepts such as ‘biodegradable’ as well as the idea of eco-consciousness are gaining popularity among shoe producers. Although, the price point is rather high for these materials and products, consumers are increasingly willing to pay more for a better quality, better service and a sustainable pair of shoes.
For most manufacturers these developments are stressing the importance of quality of materials, craftmanship, certifications (GRS, GOTS, FSC, Fair Trade etc.) and good design. As the bar is set higher, Vietnam is truly set apart from other Asian countries where low wages and synthetic materials are still the standard.
We are constantly evolving and looking for more sustainable production initiatives and usage of materials. Increasing knowledge about environmental pollution and decreasing emissions are at the top of the list for Innolux. Therefore, we offer a great variety of vegan alternatives, but also works with Lite leather from tannery Isa Tantec (Low Impact To the Environment), which saves gallons of water in the production of the material.
During Linea Pelle and Simac in Milano in september 2021 new materials and innovative machinery has been sourced to make sure to supply latest updates and innovations to our partnering brands.
Supply Chain in Vietnam
Similarly, thanks to the growing view on sustainable and high-quality production, tanners located in Vietnam are evolving their materials too.
At Innolux, we prefer to work with amazing tanneries located in Vietnam, Leather Working Group gold members, which ensures the quality of the leather is great and tanned in a sustainable way. Our productions meet the standards our partners are looking for. At least 60% of the materials used in Innolux come from Vietnam.
Workforce in Vietnam
Lastly, and probably most importantly, one of the main reasons we are located in Vietnam is simply because we love Vietnam! The Vietnamese culture with its beautiful architecture and nature, delicious food and incredibly friendly people make that we do not want to work elsewhere. Our employees hold a variety of nationalities reaching from Vietnamese, Filipino, Indians to Scottish, English, South African, Israeli and Dutch. Though, the Vietnamese culture is very welcoming and all or our staff are part of a big Vietnamese community!
We are happy to mention that since mid september, the moment it’s possible to work again in the green zones, lots of new colleagues joined in our MU-1 (Dongnai)) and MU-2 (Binh Tuan) factory. Innolux is based on the green country side 2 hours west of Ho Chi Minh. A lot of people left Ho Chi Minh City and returned to their homedowns on the countryside, looking for jobs near their homes.
We hope to welome you in Vietnam!
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