Is Vietnam the next big manufacturing hub?

As the US-China trade war escalates, importers are turning to suppliers in other Asian countries with Vietnam becoming an increasingly popular manufacturing hub as small and medium sized businesses in the USA look to bypass recently imposed tariffs. This increased demand for Vietnamese products has seen a large amount of companies moving operations to Vietnam, while existing manufacturers are increasing their size meaning Vietnam will now become a much more viable option for Australian importers and freight forwarders.

Vietnam was the fastest growing source of American imports in the first half of 2019 with growth up 40.2%. China, in contrast, saw a 13.9% decrease in growth during the same period and this is the first stage in a shift towards moving manufacturing operations from China to alternative Asian markets as a result of tariff increases on Chinese made products.

Vietnam specialise in manufacturing a wide range of products with top ranked exports last year being:

  1. Cotton Apparel
  2. Computer Chips
  3. Plastics
  4. Mobile Phones and related equipment
  5. Civilian aircraft and related parts

 

Why Vietnam?

Vietnam has a relatively stable government that offers cheap, skilled labour and has recently implemented numerous reforms to improve its business environment for foreign investors, including:

  • Incentives involving lower income taxes for a certain period of time throughout project execution
  • Exemption on taxes on raw materials imported to be used for the manufacturing of products
  • Exemptions or reductions of land rents and land levy
  • ┬áNumerous bilateral and multilateral free trade agreements

Vietnam, with the help of outside investors and international brands, has the potential to lead the way in greener practices in Asia as the industry is growing and new facilities and infrastructure will be being built in the near future. Since 2016, factories have been built with solar panels to provide energy for operations during the dry season and other sustainable practices have the potential to take off as infrastructure continues to upgrade. This is likely to see a shift in supply chain management systems towards the Vietnamese market.

It remains to be seen how many global brands will shift their manufacturing to Vietnam but it is evident that Vietnam is becoming a growing force in the global trade market.

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