Since the late 1980s, Vietnam has enjoyed high economic growth with inclusive benefits. GDP per capita grew 3.5 times between 1991 and 2012 — second only to China. The distribution of growth is also a remarkable achievement: the share of national income for the poorest 40% of the population has remained almost unchanged since the early 1990s. This ensures that economic growth is distributed among all classes and significantly reduces poverty.
The scale of the economy is growing rapidly
During the past 35 years, Vietnam’s economy has achieved impressive growth. In the first “Doi Moi” period (1986-1990), the average annual GDP growth was about 4.4%, while in the 1991-1995 period, it doubled, reaching 8.2% annually. All subsequent periods have a pretty high growth rate. For example, 2016-2019 averaged 6.8%.
Although in 2020, the economy was heavily affected by the COVID-19 epidemic, Vietnam’s GDP growth rate is still among the highest growth countries in the region and the world. The recovery in 2022 and what we are expecting in 2023 in terms of dynamism of the manufacturing sector should be strong and significant.
The scale and level of the economy have increased significantly. If 1989 only reached 6.3 billion USD/year, 2020 was about 268.4 billion USD/year. People’s living standards, both materially and spiritually, improved noticeably. The average income per capita in 1985 was only 159 USD/year. In 2020, it reached about 2,750 USD/year. The economy’s balances in terms of consumption, savings and investment, energy, food, labor, employment, etc. continue to be ensured, contributing to firmly consolidating the macroeconomic foundation.
The innovation efforts over the past 35 years have resulted in a continuously improving investment environment, attracting more investment capital for development.
In 2019 alone, the social development investment capital realized at current prices reached VND 2,046.8 trillion; total foreign direct investment (FDI) reached 38.02 billion USD, the highest in the past 10 years. In 2020, during the COVID-19 pandemic, Vietnam remained a reliable destination for investors with a total FDI capital of 28.5 billion USD.
In addition, major economic zones formed as driving forces for regional and national economic development. Vietnam has developed concentrated economic zones and industrial parks to attract development investment capital, and at the same time, formed areas to specialize in crops and livestock associated with industrial processing… In general, sectors and fields of the economy have developed strongly.
Over 35 years of lack of food, Vietnam has become one of the world’s major exporters of agricultural products. Export turnover of many agricultural products like coffee, cashew nuts, rice, shrimp, vegetables, wood and wood products, etc., have always remained high. Other export items also made impressive progress.
Despite being heavily affected by the COVID-19 epidemic, which caused a decline in world trade and investment activities, the total import-export turnover of Vietnam’s goods in 2020 still reached 543.9 billion USD, up 5.1% compared to 2019; the trade surplus of 19.1 billion USD – the highest in 5 consecutive years of trade surplus since 2016.
With an impressive import-export turnover, Vietnam ranked 22nd in terms of turnover and export capacity and 26th in terms of international trade (Nguyen, 2020). This creates momentum and a breakthrough for import and export activities in the future.
Why should you source products in Vietnam instead of China?
The biggest brands in the world are opening factories in Vietnam. Firms that have switched from China to Vietnamese factories include Samsung, Apple, Nike, Adidas, Foxconn, LG, and others. The largest firms in the world are planning to relocate all of their outsourcing activities to Vietnam. Vietnamese products are still simple to import. However, Chinese goods are subject to high taxes resulting from the US-China trade conflict. Vietnam’s annual exports to the US increased dramatically and are currently expanding at 20–30% annually.
The cost-effectiveness of moving manufacturing from China to Vietnam has been recognized by many small businesses. Small textile businesses up to high-tech electronics industries are choosing to locate in Vietnam. Nike presently makes more than 12% of its products in Vietnam, which is one of the largest footwear producers. Adidas has sizable manufacturing facilities in Vietnam and intends to produce the majority of its footwear there. In Vietnam, the export of footwear alone is worth close to $22 billion annually.
To balance the production with China, big tech is expanding into Vietnam. Moreover, to reduce the cost of importing AirPods from China, Apple just began manufacturing them in Vietnam. Samsung has also established itself in the nation by closing one of its Chinese operations and constructing a factory in Vietnam. Electronics have grown by more than 300 percent over the past few years as a result of the Vietnamese government’s decades-long efforts to establish a welcoming business environment and the growing labor and export prices in China.
Here are the top 5 advantages that prove Vietnam is a better sourcing location
Vietnam is a friendly country for foreign businesses
With an open economy and business-friendly policies, Vietnam aims to draw in foreign businesses. Compared to China, Vietnam is friendlier to foreign businesses, making it simple for investors to set up their factories and shipping logistics from the company’s registered country. To facilitate exports, Vietnam is a signatory to hundreds of trade agreements with nations across the world and a member of numerous international trade organizations.
A young and skilled workforce
Despite having one of the world’s youngest labor forces, Vietnam is quite adept at handling challenging manufacturing tasks. This covers complex technological assembly processes like smartphone and chip manufacturing. The cost of labor is often half that of China.
Cheap labor cost
Between China and Vietnam, the cost of labor varies significantly. In 2020, factory employees in Vietnam earned around $2.99 per hour, compared to $6.50 in China. Since 2016, China has experienced a greater average annual increase in hourly wages than Vietnam.
Employee pay can significantly affect the cost per unit depending on the product. The cost of supplies must be taken into account. Although wages only make up about 20% of the final unit price, which does not seem like much, labor costs can be reduced for products that require more expensive materials while maintaining higher unit prices. These savings eventually pile up, making a long-term collaboration with a Vietnamese manufacturer the preferable financial decision.
The bureaucracy is smaller, and there are fewer limitations on FDI in Vietnam than in China. Vietnam has lifted all prohibitions on foreign ownership of production and manufacturing facilities for several industries. Additionally, Vietnam has loosened regulations on foreign ownership and investment in many sectors. The country is significantly more appealing than China if you consider building and owning your manufacturing facilities.
Vietnam is a peaceful nation having zero active engagement in external or internal disputes. Vietnam is a popular destination, drawing millions of tourists annually to its beaches and mountains. Foreign investors can easily establish businesses in the nation and conduct business since it has one of the best regimes in the region that prioritizes development and business friendliness.
The Vietnamese government reduces bureaucracy and establishes industrial zones where international investors can establish factories and receive tax breaks and other perks. Vietnam is a safe place to invest in factories compared to other nations in the region that have civil wars.
Despite having tons of benefits, Vietnam is still a bit behind China in the industry.
Firstly, China, the world’s top producer, will have a wider range of raw materials available, and occasionally businesses in Vietnam will import raw goods like textiles. However, the cost of transport between Vietnam and China is insignificant, and your materials can travel between the two nations in as little as a day. Although Vietnam should have access to the majority of supplies, China has the advantage when it comes to obtaining materials.
Secondly, because you may go to another factory in the same city to have your product created if the first factory doesn’t suit your specifications, Chinese factories have almost limitless manufacturing capacity. Tens of thousands of factories can be found in one location thanks to China’s incredible industrial capacity. Due to this accessibility, Chinese producers can satisfy all customers.
If you produce a specialized product in Vietnam, scaling a facility will be much more difficult, and production delays may occur if demand exceeds supply. If you’re investing in Vietnam, you’ll need to anticipate the size you’ll require and locate the factory where you can find the labor force you’ll need to supply that scale. Because numerous factories are producing the same item in each location in China, the process is completed much more quickly.
However, as Vietnam is constantly developing, it has become a more foreigner-friendly environment for international businesses, as well as being an ideal place for small and medium-sized businesses to source products, and even big players like Nike and Adidas are moving their manufacturing facilities to Vietnam.
Firstly, Vietnam is extremely cost-effective compared to China. Secondly, its labor workforce is a reasonable deal compared to the price due to its early stage in attracting foreign funds. Finally, Vietnam has zero political problems so you don’t have to worry about any disturbance of the internal market.
Therefore, if the benefits above are what you are looking for when sourcing products overseas, Vietnam is a better option than China.