With lots of common grounds as its northern neighbor China, i.e., communist ideology, export-led economy, the entrepreneurial and business oriented Southeast Asian country Vietnam is gradually taking over China’s role as Asia’s hottest and emerging spot for manufacturing.
For the past 15 years, Vietnam is known more for labor incentive industries like clothes, footwear and furniture industry. A solid example is Nike’s manufacturing presence in Vietnam. In 2010, Vietnam started to outperform China as the biggest manufacturer of Nike’s footwear lines. Nowadays Nike has created 333,000 manufacturing jobs in Vietnam producing shoes, garment and other product lines for Nike, 30% more than what Nike has left in China.
In the last five years, Vietnam is shifting its focus to attract more higher valued added and technology oriented manufacturing industries like electronic manufacturing in Vietnam. With the local government’s incentives for selected industry, like 10% corporate income tax than standard 25% tax as well as other stimulation, Vietnam has become the go to destination for leading automotive manufacturers like Ford, Toyota and hi-tech giants like Microsoft, Samsung and Intel.
Let’s take a look at examples of two brands who have relocated electronic manufacturing in China to Vietnam.
1. Microsoft
Microsoft’s main production center in Vietnam is dedicated to smart phone production. In 2014, Microsoft decided to revolutionize the global manufacturing capability of Nokia. It gradually reduced and stopped Nokia production in China, Hungary and Mexico, then relocated almost all of the production to Bac Ninh factory in Vietnam.
First established in 2013, the Bac Ninh factory started full production at the beginning of 2014. By the end of 2014, 33 extra assembly lines were added to the factory while while compared to the 6 assembly lines in 2013 when it just started, with most of the production relocated from factories in China. The manufacturing capacity is expected to increase threefold with more complicated products pouring in, so as to guarantee an annual export of 76.4 million products worth US$1.86 billion.
2. Samsung
The country’s largest exporter of smart phones, Samsung’s export value accounts for 28% Vietnam’s GDP. Now the brand’s two manufacturing plants in Vietnam produce 50% of Samsung’s mobile phones, with a combined manufacturing capacity of 240 million units per year. The electronic giant is also planning to expand its production with an additional investment of US$3 billion, and the production capacity is estimated to reach 270 million units at the end of this year. However, the brand’s other two factories in China produce maximum 150 million phones, and Samsung is still looking to relocate about 40 million to Vietnam due to the high rising of wages in China. Besides smart phones, Samsung is also producing other consumer electronics in Vietnam, including flat screen TV, camera, etc.
The future for electronic manufacturing in Vietnam
Lower labor cost has been a great attraction for businesses shifting to Vietnam or businesses that are considering to make the move. It’s widely accepted that Vietnam is a second to none alternative to manufacturing in China. The intensify of Sino-US trade wars and a series of incentives provided by Vietnamese government to attract foreign investment are making Vietnam more appealing to companies with existing manufacturing presences in China but looking to diversify their manufacturing operations so as to minimize the risks.
An emerging manufacturing base, there’s still a long way to go before the country makes long term investments in key areas like infrastructure, improving of ecosystem for manufacturing, education/training of young workforce to guarantee smooth operations.
As often relate to as part of a China plus one strategy, Vietnam is attractive not only to those fresh to Asia, but also companies with a long presence in China looking to spread out risks with added operations in Vietnam.
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