Is Vietnam the new “Factory to the World”?
For decades now, China has been the “Factory to the World.” Yet, as this colossal manufacturing titan faces its challenges, another contender is emerging on the horizon. With its unique blend of youthful vigour and strategic initiatives, Vietnam is positioning itself as a formidable player in the global manufacturing arena.
The rise and reckoning of China
China’s journey to a manufacturing powerhouse has been a testament to relentless industrialisation.
Decades of unwavering investment and sacrifice catapulted the nation into a position of unmatched manufacturing prowess. From clothing to electronics, China’s factories churned out a substantial portion of the world’s goods, with the apparel industry witnessing China’s indomitable rise.
However, success has its complexities.
China’s rapid development exposed vulnerabilities, resulting in environmental concerns and supply chain disruptions. Once shrouded in smog, its cities faced the consequences of unchecked industrial growth. The world’s eyes turned toward China, scrutinising its environmental record and labour practices. This exposed the country to criticism and pressure for reform.
China’s success paradoxically led to its challenges.
Being the factory to the world meant that any disruption in its production would have global consequences. This realisation became evident during the COVID-19 pandemic, which disrupted global supply chains, highlighting the risks of overreliance on a single manufacturing giant.
The shift in sourcing dynamics
The COVID-19 pandemic served as a stark reminder of the risks associated with overreliance on a single manufacturing giant. Supply chain disruptions, escalating operating costs and labour concerns forced fashion brands and businesses to rethink their dependence on Chinese factories.
It is unlikely that China will be toppled from its position of global manufacturing dominance in the short to medium term.
Nevertheless, a distinct shift in sourcing attitudes towards China has accelerated in the post-COVID environment. Brands and investors in not just the apparel industry have rapidly formed a drive to diversify risk, seek lower-cost alternatives and develop a more stable platform to insulate themselves against future localised or globalised disruptions.
Risk diversification and sustainability
While risk diversification is a significant theme in this developing landscape, sustainability is also a strong undercurrent. The post-COVID world has ushered in heightened attention to the planet and its environmental challenges. Organisations worldwide strive to protect business continuity and are significantly more focused on the sustainability story they can promote as they diversify.
What does this mean?
It means the reliance on China is lessening if the path these organisations want to take cannot be met. Brands, not just in the apparel sector, have been bolstering their supply chains to allow easy switching between supply lines. A shift occurs if traditional supply lines cannot innovate or provide what is required.
To provide an example of brands deliberately reducing their China reliance, it has been reported that Dr Martens’ shoes actively ensure their supply chain risk is spread. The bootmaker has recently shifted some 55% of its total production away from China. For its 2022 autumn/winter season, 12% of its output was facilitated in China, and indications are being communicated that this may drop to as low as 5% this year.
China’s response and pivoting
Is China being left behind in this trend?
Has the factory to the world become complacent in its position and arrogant enough to think it will always be on top?
China realised that complacency would be dangerous. It can and is pivoting to adapt, making it as hard as possible for supply lines to be changed without a fight. However, a significant trend has been playing out in many locations for countries that have been able to pivot faster than China and see the opportunity.
One such country is Vietnam, which has used China as a guide to learn from its successes and mistakes during its rapid industrialisation. Vietnam is positioning itself as an attractive alternative for brand owners and supply chains looking to diversify away from China, particularly in the apparel and footwear sector.
Vietnam’s comparative advantage lies in its youthful population. While it is only about 7% of China’s population, the fact that it is younger bodes well for its future development. In 2021, half of all Vietnamese were under 35 years old. In contrast, by 2040, it is estimated that 28% of China’s population will be 60 years or older, highlighting an ageing crisis that could impact its economic productivity.
Vietnam’s young and intensely ambitious workforce is an undeniably powerful point of difference. Foreign businesses recognise that attitudes are changing, and the population is very aware of the international community they are part of, extending to an understanding of Vietnam’s strengths. They ask questions about the hierarchy, imposing thoughts that may have been buried in the past; ‘What can your company offer me for my personal development?’
Employers do not see this as challenging authority but as having a different attitude. They recognise that this kind of questioning is what Vietnam needs as part of an investment in cultivating a world-renowned workforce and the subsequent infrastructure and innovation necessary to achieve global goals.
The role of innovation and education
Innovation is the key to long-term success, starting with education. The future demands individuals with technical minds to drive creativity and progress. This must be supported by programs that incentivise productivity development and digital solutions.
In 2022, China’s birth rate fell to a record low, and its population declined for the first time in over 60 years.
India overtook China as the world’s most populous nation in 2023.
Further estimates indicate that around 2080, China’s working-age population will be overtaken by its elderly population, potentially disrupting growth paths, economic positions and societal burdens.
These trends are not lost on China, and initiatives to counter them are underway. Recognising the population trends, experiencing rapid declines in demand, and witnessing the government’s incentivisation programs, those who have benefited from China’s industrialisation are working hard to stay on the path by reducing their reliance on the machine that has given them success.
Vietnam’s unique approach
Vietnam and its close neighbours like Bangladesh, Cambodia and Indonesia are not sitting back to wait and see what happens. Country-wide initiatives and education processes are well in place to focus on improving workplace productivity and driving economic growth through innovative, hi-tech and eco-friendly offerings to the world.
These initiatives extend to Vietnam actively seeking out and signing free trade agreements with many countries, centred on offering an extremely competitive and attractive option for manufacturing and trading.
While there are apparent differences in how Vietnam is achieving success, there are also many similarities to how China built its path, especially concerning development strategies focused on using preferential tax systems and establishing industrial zones to attract investors. These features are somewhat skewed to traditional socialist/communist development and business philosophies but have proven instrumental in fostering growth.
The success of China’s model was significantly bolstered by industrial zones featuring heavily in its rapid path to success, especially in the early days. Today, the country has over 15,000 industrial zones, contributing more than half of the country’s industrial output by value.
Vietnam has recognised the power of industrial zones and rolled them into its roadmap for success. Like its larger neighbour, Vietnam has established industrial zones to lure investment, especially in the apparel/footwear and hi-tech sectors. There are currently around 400 industrial estates concentrated in the country’s north, central and southern precincts.
A sustainable future
Vietnam’s approach goes beyond mere mimicry. It aspires to build a greener, more balanced approach to growth and sustainability than China. Developing an eco-friendly mindset is vital for Vietnam, as the world demands sustainability. Along with other developing countries, Vietnam must maintain its focus on this topic to ensure the country and its offerings remain attractive to investment.
A sustained focus on this development is critical to long-term success, not only because it is good for the environment but because meeting ESG standards is now vital, even legislated in some markets, to global firms.
The Vietnamese government has led the development charge, recognising the importance of a sustainable story. This has been evidenced by further incentivisation – such as exemptions on import duties and tax breaks on corporate income tax and land use – to investors that satisfy environmental protection regulations.
This approach is already proving fruitful for the country and positioning Vietnam ahead of its neighbouring countries.
The global manufacturing arena
Vietnam’s emergence as a global manufacturing hub isn’t going uncontested. Countries like Bangladesh, Cambodia and Indonesia are vying for a share of the pie, recognising the opportunities. While Vietnam may not be the sole “Factory to the World,” it undoubtedly emerges as a potent contender and a rising star in the global apparel and footwear markets.
We already have a presence in Vietnam
We have always adapted to global trends and client needs.
In 2015, we established a presence in Vietnam to align with the changing dynamics of the global apparel market. Our HCMC team is ready to assist you with your local apparel trim and retail packaging requirements.
Whether it’s eco-friendly products or sustainable solutions, our experienced team can cater to your needs in Vietnam and worldwide. As we navigate this new manufacturing landscape, let us contribute to your specific requirements.
Together, we can shape the future of global manufacturing.
Contact us today to explore the possibilities and discover how we can be your partner in this exciting transformation journey. As the world evolves, so do we, and together, we can build a sustainable, diversified and prosperous future for all.