Reasons for the Shift from “Made in China” to “Made in Vietnam

 

Keywords: Made in China, Made in Vietnam, cost advantages, trade policies, supply chain, labor force, challenges and risks

 

In the manufacturing sector, labor costs are always one of the core concerns for enterprises. In recent years, with the continuous rapid development of China’s economy and the improvement of people’s living standards, labor costs have been on the rise. Take the developed coastal areas as an example. The minimum wage standard has been gradually increasing in the past few years. In contrast, Vietnam has a remarkable advantage in labor costs. According to authoritative statistics, the average wage in Vietnam is only one – third to one – half of that in China’s coastal areas. For labor – intensive enterprises, such as the textile and garment industry and the footwear industry, labor costs account for a large proportion of the total cost. This huge wage gap makes Vietnam an ideal place for these enterprises to reduce costs and increase profit margins. For instance, a large – scale footwear enterprise with factories in Guangdong saw its profits gradually squeezed due to rising labor costs. When it transferred part of its production capacity to Vietnam, it saved millions of dollars in labor costs alone each year.

With the acceleration of China’s industrialization and urbanization, industrial land resources have become increasingly scarce, which has directly led to a significant increase in industrial land prices and factory rents in recent years. In some first – tier cities and their surrounding areas, the high cost of land and factory rentals has burdened many enterprises. In contrast, numerous industrial parks have emerged in Vietnam like mushrooms after rain, offering highly attractive rental prices. These industrial parks are often well – equipped with facilities and have convenient transportation, allowing enterprises to obtain production bases at a lower cost. For example, in an industrial park around Ho Chi Minh City, the factory rent is approximately 40% – 50% lower than that of similar parks in China, saving enterprises a large amount of upfront investment funds. This enables enterprises to allocate more funds to key areas such as research and development and market expansion.

The Vietnamese government has introduced a series of highly attractive tax incentive policies to actively attract foreign – invested enterprises and vigorously promote the development of the domestic manufacturing industry. In terms of corporate income tax, eligible foreign – invested enterprises can enjoy a certain period of exemption or reduction. Some high – tech enterprises can even enjoy a tax – free period of several years, followed by a lower tax rate. In terms of value – added tax, there are also corresponding preferential measures, such as VAT exemption or refund policies for specific industries or products. These tax incentive policies have greatly reduced the operating costs of enterprises. For example, an enterprise investing in electronic manufacturing in Vietnam saved tens of millions of yuan in tax expenditures each year by enjoying tax incentives, which significantly enhanced the enterprise’s profitability and market competitiveness.

Vietnam has been actively involved in the international trade arena and has successfully joined several important free trade agreements. Among them, the Comprehensive and Progressive Agreement for Trans – Pacific Partnership (CPTPP) covers many important economies in the Asia – Pacific region. The Regional Comprehensive Economic Partnership (RCEP) is the free trade area agreement with the largest number of participating populations, the most diverse member structure, and the greatest development potential in the world. And the Free Trade Agreement with the European Union (EVFTA). These trade agreements have brought great competitive advantages to Vietnamese – made products. With these agreements, Vietnamese – made products can enjoy significant tariff reductions or even zero – tariff treatment when exported to member countries of the agreements. This makes Vietnamese products more price – competitive in the international market and enables them to quickly seize market share. For example, when Vietnamese textiles are exported to the EU market, under the framework of the EVFTA, tariffs have been significantly reduced. Many European purchasers have increased their orders from Vietnam, and the share of Vietnamese textiles in the European market has been continuously expanding.

In recent years, the outbreak of the China – US trade war has had a huge impact on the global trade pattern. As a major global manufacturing country, many Chinese products exported to the United States have been unjustly imposed with high tariffs, which has put many multinational enterprises with factories in China in a difficult situation of significantly increased costs and severely damaged profits. Vietnam has become an ideal choice for enterprises to evade this tariff barrier. Industry giants such as Samsung and Apple have long – sightedly established production bases in Vietnam. Samsung’s investment scale in Vietnam has been continuously expanding, and its electronic products produced in Vietnam can avoid the tariff impact of the China – US trade war and smoothly enter the US market. Through this layout adjustment, enterprises have effectively reduced trade risks and safeguarded their global market share and profitability.

The Vietnamese government is well aware of the important driving role of foreign investment in the development of the domestic manufacturing industry. Therefore, it has introduced a series of policies to encourage foreign – invested enterprises to invest in the manufacturing industry. In addition to the tax incentive policies mentioned above, significant reforms have also been carried out in the administrative approval process. The Vietnamese government has simplified the factory – setting – up process for foreign – invested enterprises and established a special one – stop service window to provide foreign – invested enterprises with comprehensive and convenient services ranging from project approval, business registration to land leasing. The time from application submission to final approval for factory construction has been greatly shortened. Compared with the cumbersome and lengthy approval procedures in some parts of China, the efficiency of the approval process in Vietnam has been greatly improved, allowing enterprises to start production more quickly and seize market opportunities.

 

Although Vietnam’s manufacturing supply chain still lags behind China’s in terms of maturity and integrity, it cannot be ignored that remarkable progress has been made in the construction of supply chains in multiple key industries in Vietnam in recent years. In the electronics industry, more and more international well – known electronic component suppliers have chosen to set up factories in Vietnam. For example, Korean companies such as Samsung and LG have established complete mobile phone and home appliance production chains in Vietnam, driving the entry of a large number of upstream and downstream supporting enterprises. In the textile industry, Vietnam not only has a large number of textile raw material production enterprises but also has complete links such as printing and dyeing, processing, and garment manufacturing, forming a relatively complete industrial chain. In the furniture industry, local wood – processing enterprises in Vietnam have been growing continuously, and at the same time, they have attracted many OEM enterprises of international furniture brands to settle in, enhancing the status of Vietnam’s furniture manufacturing industry in the world. With the continuous improvement of the supply chain, enterprises can achieve a higher local procurement rate in Vietnam, reducing procurement costs and improving production efficiency.