The grass in Vietnam is not greener

It is not uncommon nowadays tohear of companies that are leaving China and moving their production to Vietnam. Some very big companies have left China moving at least part, if not all, of their production to Vietnam. One of these companies is Coach who will move about 50% of their handbag production to Vietnam and other countries in SE Asia over the next several years. The oft-cited reason is, as I stated above, that costs in China are rising and these rising costs are cutting into profit margins.

Let’s say your China project is turning out to be more expensive than you thought and someone has told you that you can do your product for half the cost in Vietnam. For small companies does it even make sense to consider a country like Vietnam as a manufacturing base ? I asked this question to several individuals or companies I have known over the years and who have experience with both China and Vietnam. Here are some of the responses I got.

From a maker of popular kitchenware who has production in China and Vietnam.

“It really depends on what you’re manufacturing however I think there are more similarities than differences. Generally speaking China is more developed and tends to be better equipped (infrastructure and economy). If your clients have concerns about labor or corruption or environment, Vietnam is not the answer, they have the same issues. Either way, relationships need to be developed and training provided. The grass is definitely not greener on the other side.”

From a Beijing based China consultant:

“Some clients of mine went to Vietnam, some to India. Most of them came back to China. They said the problem was not productivity, They said in the end it wasn’t as cheap as they thought it would be”

From another consultant/friend who deals with both Vietnam and China:

“For sourcing, Vietnam is cheaper, particularly for low-end labor-intensive production (e.g. garments, shoes, some furniture, etc.), but the problem is capacity. They don’t have the capacity to handle all the overseas manufacturers who are looking for cheap sourcing, so inevitably a lot of companies end up going back to Chinese manufacturers (and for all the reasons you’ve listed). In some cases (e.g. for garments) I know people have tried to source in Vietnam to avoid the quota system that applied in China. But Vietnam has its own challenges. ”

In fact from everyone I talked to the consensus was that Vietnam really cannot compete with China because of size. It might be OK to do some small orders there that are design driven, not deadline driven. Still any savings by doing production in Vietnam, or other countries in SE Asia, will more than likely be offset by costs that accrue from other aspects of production there. The point is this, don’t just jump at the idea of doing something in Vietnam. Research it carefully, know your needs, and then decide if that is really the best option for you.



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