With visionary participation in global value chains, Vietnam factories have steadily developed into principal manufacturers and exporters for high-demand products such as electronics, textiles, and in our case, planter solutions.

In fact, Vietnam ranked 12th in the world and third in ASEAN as an exporter for electronics in 2019. Even greater development has been estimated for 2022 and beyond.

The transformation of Vietnam manufacturing has squarely positioned Vietnam as a global manufacturing hub. Subsequently, this has spurned a revolution of factories relocating from China to Vietnam.

What value is waiting for you and your business in Vietnam? This article will reveal the exciting new frontier of global manufacturing in Vietnam.

Vietnam manufacturers are growing production

The benefits of Vietnam’s multilateral free trade agreements with most nations, as well as competitive labor costs, are major factors driving industry growth.

Alongside economic growth, Vietnam’s manufacturing sector is constantly improving its human resources and leveraging its capabilities to boost competitiveness. As global businesses focus on expansion, increasing supply chains tenacity, connectivity, and minimizing the risk of relying on a single country, Vietnam has entered the spotlight as being a safe and reliable country for international exports.

Among other industrial nations in Southeast Asia, Vietnam has surfaced as a prime destination for manufacturing expertise due to its production capabilities and benefits in shipping, lower labor costs, and production costs.

Manufacturing in Vietnam is a growing trend

According to an IHS Markit report, Vietnam’s manufacturing purchasing managers’ index (PMI) grew to 52.2 in November from 52.1 in October, owing largely to government incentives. A score of 50 or higher indicates that manufacturing is expanding.

Foreign investment is also driving Vietnam’s industrial economy with a consistent 9.2% increase in investment value year on year.

The manufacturing and processing sectors received the majority of this cash influx with 18.1 billion USD in investment capital, or 58.2 percent of the total. It was followed by electricity production and distribution, real estate, wholesale and retail, according to the Foreign Investment Agency of Vietnam.

The manufacturing industry is driven by a number of key factors. Running corporations in Vietnam offers increased advantages for foreign investors in a wide range of industries, particularly in light of the significant impact of the US-China trade war. Here are a few reasons why Vietnam is developing their manufacturing capabilities into a more sophisticated industry.

1.Vietnam has a skillful and diverse workforce with competitive costs

The structure of Vietnam’s workforce has changed rapidly since Vietnam entered WTO in 2007. Almost 95% of the labour force is literate, and more than 88% attended secondary school, with 5% proficient in English and more than 10% considered highly skilled.

Another appealing bonus – the government has funded numerous specialized education and training programs in order to better equip the workforce. Workers and employers are increasingly able to offer superior service in their production capabilities.

Vietnam also promotes itself as a low-cost producer. Vietnam’s labour costs are currently half that of China’s, at US$2.99 (VND 68.000) per hour compared to US$6.50 (VND 148.000) per hour. This contributes to Vietnam’s position as a more cost-effective option to its surrounding neighbours.

2.Tax exemptions to encourage manufacturing

The government recently issued Decree No. 57/2021/ND-CP (Decree 57), which assists Vietnamese factories in supplying raw materials, spare parts, and components to manufacturing industries such as electronics and mechanical engineering, garments and textiles, leather, and footwear, hi-tech industries, and the automotive industry.

The tax savings resulting from the implementation of the Decree will provide financial assistance to firms whose economic activities have been harmed by the epidemic. It will also strengthen the government’s credibility in modifying tax systems and laws, resulting in a more competitive economy in general in Vietnam.

According to Resolution No.115/NQ-CP issued in 2020, the government set a goal of enabling Vietnamese enterprises to manufacture items in supporting sectors with a high degree of competitiveness.

By 2025, the Vietnamese Government plans to have a manufacturing environment that will meet 45% of domestic production and consumption demands.

Furthermore, Vietnam has approved a number of tax incentives and exemptions for key sectors in the form of corporate income tax (CIT) for large investment initiatives with a capital of more than VND 6 trillion (US$264 million).

Incentives in high-tech zones, certain industrial zones, industrial parks and difficult socio-economic areas have been introduced to level-up productivity for export-oriented Vietnam manufacturers.

3.Ease of doing business in Vietnam

On the World Bank’s metrics, Vietnam actually ranks higher than China in terms of ease of doing business, ranking 69th to China’s 46th. Vietnam was also one of 34 countries that improved the most on such metrics from 2018 to 2019, most notably in:

  • Starting a business: By reducing the cost of starting a business and publishing incorporation notices online.
  • Taxes: Eliminating the requirement to submit hard copies of value-added tax returns, as well as lowering employers’ contributions to the labour fund.
  • Contract enforcement: Judgements given at all levels in commercial cases are published online.

4.Investment opportunities from Vietnam’s free trade agreements

Vietnam has been proactive in forging bilateral trade agreements with a variety of countries in recent years. Furthermore, as a member of the Association of Southeast Asian Nations (ASEAN), Vietnam has signed a number of free trade agreements (FTAs) with the regional trading bloc.

Vietnam’s economy is expected to shift away from low-tech manufactured goods and primary goods and toward more complex high-tech goods such as electrical components, necessary components, automobiles, and medical devices. These trade agreements will also ensure compliance with national standards ranging from employee rights to environmental protection.

Conclusion

Finally, you should consider the following points when evaluating Vietnam as a potential location for relocating production and further investment:

  • Lower labor costs may obscure equally important concerns, such as potentially lower quality and increased supplier risk. So it is advised to thoroughly research and communicate your expectations with your potential supplier.
  • Will low costs compensate for any other potential relocation costs? What kind of financial investment will be needed to ensure a stable supply chain? Our advice is to partner with a well-established manufacturer (like ourselves) that has experience in global trade.
  • Speak with your potential partners — manufacturers, quality control, or logistics providers regularly. They are experts in providing supply chain solutions and can help you with a number of different problems that arise from trans-national sourcing. Or, engage with Veritas Sourcing to have a smooth transaction throughout.