Shifting production to a new country to diversify your company’s supply chain is challenging, but can offer bottom-line benefits for both ecommerce startups and large retailers.
The process of realigning your supply chain could involve:
Standing up a legal entity in the new country
Securing approval from regulatory agencies
Handling tax and accounting requirements
Setting up facilities, human resources, and production, and
Organizing the supply chain from suppliers to production to consumers
With uncertainty in the market due to trade tariff policy and the global pandemic, as well as the business advantages Vietnam offers, companies are increasingly considering Vietnam as an alternative or as an additional link in their supply chains.
Here are five reasons why companies are relocating or adding production in Vietnam:
1. Ease of business
The World Bank’s ease of doing business score is represented on a scale from 0 to 100, where 0 represents the lowest and 100 represents the best performance of a particular country.
Employees who have passed vocational training courses typically have wage rates that are at least seven percent higher than the minimum wage. Even accounting for that difference, companies are saving on labor costs by sourcing in Vietnam in comparison with China.
The government is also investing in training to introduce more skilled labor into the workforce.
According to “Labor Market Trends in Vietnam” by Koushan Das with Dezan, Shira & Associates, Vietnam is looking to provide vocational training to more than 2 million people per year. “As of February 2018, there are more than 1,900 vocational training centers across Vietnam, including 395 colleges and 545 vocational schools, which offer programs in tourism, beauty services, IT, construction, fashion, garment and textiles, pharmaceuticals, precision mechanics and hotel management,” Das said.
Vietnam’s trade with the United States is on the rise.
According to an analysis by WorldCity U.S. Census Bureau data, the value of trade between the two countries rose to $46.43 billion through the first seven months of 2020, an increase of 11 percent over the same period in 2019.
This year, top imports by tonnage from Vietnam through U.S. seaports have included furniture, electronics, tires, footwear and coffee.
JAXPORT’s growth in trade with Vietnam has paralleled the nation’s trend.
Over the past five years, total TEUs (twenty-foot equivalent units) shipped between Vietnam and Jacksonville, Florida have increased by 63 percent. In terms of trade balance, most of this trade has been imported cargo to the U.S.
The country’s inland infrastructure has been accommodating the increase in freight volumes over the past decade, but improvements are needed to increase efficiency, lower costs and maintain the pace of growth.
5. Big brands are already doing it (and have for years)
In 2010, Vietnam became the primary supplier of Nike-branded footwear, accounting for 37 percent of production, while China remained a close second at 34 percent. Fast forward to 2018, and Vietnam had grown to 47 percent while China dropped to only 26 percent for the company.
More businesses are looking to establish operations in Vietnam, as a part of a China Plus One policy or as a long term shift in their supply chains.