By Hoang Thu Huyen, Establishment Post
It has been remarkable to witness the rapid transformation of Vietnam into Asia-Pacific’s next manufacturing powerhouse over the past decade. While some analysts have been quick to point out several striking similarities between Vietnam and China’s economic rise, it must be appreciated that Vietnam is following its own unique roadmap for growth.
A view of Saigon. Photographer: Justin Mott/Bloomberg via Getty Images
In the past three years alone, a growing number of manufacturers have relocated their operations from China to Vietnam in an attempt to escape rising costs and an increasingly complex regulatory environment. In Dezan Shira’s Vietnam offices, we have witnessed this trend first-hand as a number of our clients have sought our assistance in transferring their manufacturing and sourcing operations to Vietnam in search of lower operational and labor costs in addition to a more investor friendly regulatory environment.
Located in a strategic position for foreign companies with operations throughout Southeast Asia, Vietnam is also the ideal export hub for pursuing a China + 1 strategy to reach other Asean markets.
Compared with other developing markets in the region, Vietnam is emerging as the clear leader in low cost manufacturing and sourcing, with the country’s manufacturing sector now accounting for 25 per cent of Vietnam’s total gross domestic product (GDP). Currently, labour costs in Vietnam are 50 per cent of those in China and around 40 per cent of those reported in Thailand and the Philippines.
With the country’s workforce growing annually by around 1.5 million, Vietnamese workers are inexpensive, young, and, increasingly, highly skilled. Partly the result of Vietnamese government investment in education and training programs — often in conjunction with foreign multinationals— over the next decade the country’s workforce is set to compete fiercely with India and Singapore’s reputation for providing highly-skilled workers.
Another driving force behind Vietnam’s growing popularity is the country’s collection of free trade agreements (FTAs)—most notably, the soon-to-be-signed Trans-Pacific Partnership (TPP) and EU-Vietnam FTA. When these two agreements come into force, Vietnamese exports will be freely accessible to many of the world’s largest markets with few tariffs or restrictions.
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