Investment Climate
Costs: Average manufacturing compensation in Vietnam as of 2017 stood at US$3,673 or 36% of a comparable cost position in China.
Taxation and Incentives: Vietnam’s corporate income tax rate stands at 20%, a marginal discount to the 25% applied in China and in line with regional competitors such as Cambodia (20%) and Indonesia (25%).
Industrial Zones: With over 400 industrial zones located across the county and a clear incentive policy to seal the deal, Investors in Vietnam have no problem gaining access to production facilities in line with their expectations.
Trade Agreements: Vietnam’s network of trade agreements is unprecedented for a country at its stage of development and a significant leg up compared to most China-based operations.
Key Considerations
Vietnam offers a cost competitive alternative for manufactures in China that are increasingly pressured by wage inflation, regulatory compliance, and competition for industrial land. Companies that once enjoyed a competitive position by manufacturing in China are now losing ground to local companies in a battle for skilled labor, which’s cost and social insurance obligations are fast rising. However, China’s size and well-integrated supply chains still leave significant incentives for companies to keep at least part of their manufacturing base within the mainland.
While Vietnam may not be viable for more complex operations, Chinese manufacturing operations can usually benefit from relocating some low cost production and assembly to Vietnam.
Our Take
In short, Vietnam is a low cost manufacturing destination with a government that is supportive of foreign investment and proactive in promoting the country as a destination for foreign companies. Wages and headline taxes in particular make the country a competitive alternative to the China, the region’s traditional manufacturing hub.
So how do companies move their manufacturing to Vietnam?
Step 1 – Understand your objectives
Companies considering relocation need to have a clear understanding of their objectives for the move. If the motivation for relocating operations is cost, for example, then how much do costs need to be reduced to ensure competitiveness.
Step 2 – Assess your operations
Leaders take their stated objectives and conduct a review of existing production chains to assess which elements can be removed to meet these objectives. Should step 3 uncover unexpected results, it man be necessary to come back to step 2 to reassess.
Step 3 – Analyze relocation options
Relocating operations presents an opportunity for companies to completely reset the costs of their manufacturing process. Choosing the correct market and the correct location within a market can have a significant impact on the long term competitiveness of a company’s production line.
Step 4 – Market Entry
Once a market or new location for production is selected, Companies go through the process of setting up new legal entities, purchasing land, building up factory space, and hiring staff. This is often the longest part of the process as licensing and construction can be time consuming in emerging markets.
Step 5 – Integrating new markets into existing supply chains
Company’s often bring over staff from foreign operations to speed up the integration of a new market into an existing supply chain. This can involve both upper level management, which can help to train new country management, as well as factory staff, that can help to train up new workers on corporate best practice.
