shift supply chain to vietnam

Shift the Supply Chain to Vietnam amid the COVID-19 pandemic?

The coronavirus disease has been conducive to the disruption of the global supply chain. No doubt, supply chains in every country across industries are affected. Many countries in Europe and the US have still struggled against the pandemic. Especially, the spread of COVID-19 made China shut down lots of factories and production lines. The COVID-19 crisis and the US-China trade tension encourage multi-national companies to plan for alternative sourcing strategies.

Economic experts have stated that the supply chain of the future no longer focuses on cost management but rather on developing a secure and resilient supply chain. In reality, the global supply chain has recently witnessed the shift of production lines from China to Vietnamese factories. So the reasons why foreign companies have been driving their production to Vietnam. This article will reveal our latest insights on the current situation, how Vietnam is becoming a new manufacturing hub for the global economy.

We highlight some key factors below. Keep reading on it to explore more interesting information.

1. Stable economic growth

In recent years, Vietnam has been one of the most dynamic economies in the Southeast Asia region. PwC’s The World in 2050 report forecasts that Vietnam will be one of the top 20 economies in the world by 2050.

In this time, Vietnam has done well to control the pandemic and reopen the economy. Although the COVID-19 has exerted a deleterious influence on the national economy, the Vietnamese government has also introduced policies to help businesses embrace the “new normal”.

2. Young workforce and competitive labor cost

With over 97 million people in mid the year 2020 (according to UN data), Vietnam ranks the 15th largest population in the world. 52% of the Vietnam population is of working age. According to a Nielsen market research firm, Vietnam’s middle class will grow to 44 million by 2020. This makes Vietnam become a new labor hub in the world.

Besides, compared to China, labor costs in Vietnam are more competitive. Manufacturers have witnessed an increase in wages in China so they are going to seek a market with lower labor costs. Also, Vietnam offers beneficial tax policies to attract foreign companies. Especially, with the recession of the global economy due to the COVID-19 pandemic, manufacturing costs are going to be one of the vital factors that impact the businesses’ decision.

3. Open economies to foreign investment

Vietnam has signed quite a few free trade agreements (FTAs) and been a member of international organizations including:

  • A member of the World Trade Organization (WTO);
  • The Free Trade Agreement with the European Union;
  • Bilateral Trade Agreement (BTA) with the United States;
  • A member of the ASEAN and ASEAN Free Trade Area (AFTA);

All these have shown that Vietnam is willing to integrate into the global economy and boost the country’s economic growth. These FTAs are expected to encourage openness, cooperation, and coordination. This will also create a stable environment for foreign companies to do business in Vietnam. Furthermore, the Vietnamese government offers numerous tax incentives for multinational companies to invest in special economic areas.

4. Convenient Location

As mentioned above, there are various factors to consider when choosing a BIM. Thanks to being situated in the center of ASEAN, Vietnam is considered a strategic area. With a long coastline, Vietnam offers convenient conditions for trading with other countries. Moreover, traveling to major European countries and the US cities are more and more convenient.

There are also flights to these destinations available throughout the day. Sometimes, the time difference is interesting. You might have a team working for you when you’re not at work.

5. Technology Updates

Several foreign companies ask themselves if can Vietnamese firms meet global quality standards for high-tech products? However, multinational companies like Samsung, LG have been relocating factories from China to Vietnam. Some other companies like Foxconn or other Apple suppliers have been planning to set up production facilities in Vietnam for many years.

It seems that the wave of the factory shift from China to Vietnam has started. Although the COVID crisis has been leading to certain difficulties for relocation, many investors still believe in their decisions for a long-term investment.

In conclusion

We hope that you now can understand why foreign companies have been shifting to Vietnam. Environmental, social, and governance factors will be important ones for success. Economists also predict that many businesses are likely to rethink their supply chains to reduce risks from future shocks.

Bonus: Relocate BIM outsourcing partner to Vietnam amid COVID-19. Why?

If you want to find out more about BIM outsourcing in Vietnam, feel free to let us know. Our BIM experts are happy to help you answer any questions. No commitment required.