In recent decades, China has been considered the manufacturing hub of the world, attracting countless businesses seeking cost-effective production and access to a vast consumer market. China accounted for a significant portion of global manufacturing output, producing around 28.7% of the world’s total manufacturing value-added in 2019.
The China +1 strategy boosts manufacturing resilience and efficiency by adding a new production base outside China. Vietnam, a prime choice among options, offers benefits that empower manufacturers to excel in a dynamic global market.
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Understanding the China +1 Strategy
The concept of a China +1 strategy involves extending manufacturing operations beyond China to incorporate an additional location, often in a neighboring country. This strategic approach aims to decrease reliance on China and safeguard business operations amidst uncertainties. The core goal is not to supplant China entirely, but rather to mitigate supply chain vulnerabilities and boost operational flexibility. With an alternate production base established, manufacturing enterprises are better equipped to navigate potential disruptions arising from geopolitics, economics, and logistics, thereby mitigating supply chain disruptions and cost escalations.
Manufacturing Companies and China +1
Manufacturing companies across the globe are the primary beneficiaries of a China +1 strategy. Vietnam businesses in industries such as electronics, textiles, automobile, and consumer goods have long relied on China for their production needs.
However, as China’s competitive edge wanes and businesses become increasingly aware of the importance of supply chain resilience, adopting a China +1 strategy becomes a prudent move. By doing so, manufacturing companies can shield themselves from the repercussions of geopolitical tensions, changes in trade policies, and other unexpected events that may affect their production capabilities and profitability.
The Benefits of Vietnam as a Key Location for the China +1 Strategy
Strategic Geographical Location
Vietnam’s strategic geographical location in Southeast Asia provides a favorable position for companies looking to diversify their manufacturing footprint. Its proximity to China facilitates easy access to raw materials, components, and intermediate goods from the mainland. Additionally, Vietnam’s strategic location allows companies to tap into growing consumer markets in the ASEAN region, which presents ample opportunities for expansion and market penetration.
Read more: Invest in Vietnam for These 6 Compelling Reasons
Favorable Investment Climate
Vietnam has made significant strides in improving its investment climate by attracting foreign direct investment through various reforms and incentives. Furthermore, the Vietnamese government has actively promoted foreign investment, especially in the manufacturing sector. This is achieved by offering a range of benefits, including tax breaks, streamlined bureaucratic procedures, and simplified customs processes. As a result, this business-friendly environment allows companies to establish operations quickly and efficiently, thus minimizing entry barriers.
Abundant and Skilled Labor Force
As reported in a recent article, among the overall population of 99 million individuals, approximately 51.6 million are classified as part of the skilled and available workforce. Within this segment, an average of 58% falls within the age bracket of under 35 years. This demographic advantage translates into a readily available pool of skilled and trainable workers for manufacturing companies. The Vietnamese labor force is known for its dedication, adaptability, and strong work ethic, making it an ideal choice for companies seeking to maintain high-quality production standards.
Competitive Production Costs
While China’s labor costs have been steadily rising over the years, Vietnam continues to offer a competitive edge in terms of production costs. As of 2020, the average monthly manufacturing wage in China was around US$769, while in Vietnam, it was approximately US$278.
Manufacturing companies can benefit from cost savings in labor, utilities, and land, contributing to improved profit margins. This cost advantage, combined with Vietnam’s improving infrastructure and logistics capabilities, makes it an attractive option for businesses looking to optimize their supply chains.
Free Trade Agreements and Market Access
Vietnam’s participation in various free trade agreements (FTAs) significantly enhances its attractiveness as a manufacturing base. The country is a signatory to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), among others. These agreements grant Vietnamese goods preferential access to numerous markets, opening up opportunities for manufacturing companies to export their products with reduced tariffs and trade barriers.
Related Read: The Definitive Guide to Vietnam’s 15 Currently Active Free Trade Agreements
Political Stability and Economic Growth
Vietnam has demonstrated remarkable political stability and consistent economic growth in recent years. The government’s commitment to economic reform and international integration has fostered an environment of confidence and predictability for investors. Therefore, this stability and growth trajectory further strengthen Vietnam’s appeal as a reliable location for long-term manufacturing investments.
Related Read: Moving to Vietnam for Chinese Businesses: What are the Benefits?
Conclusion
In general, China +1 strategy reduces supply chain risks while optimizing production. Vietnam, with its strategic location, investment appeal, skilled workforce, cost competitiveness, trade pacts, and stability, emerges as ideal for diversifying beyond China. Adopting this strategy and choosing Vietnam with InCorp’s expertise unlocks growth in a changing global market.
InCorp Vietnam partners for success, guiding setup, and company type selection. Our insights empower confident China +1 moves, ensuring long-term resilience. With us, navigate expansion complexities, realizing Vietnam’s potential.
Read more: Doing Business in Vietnam as a Foreign Investor
About Us
InCorp Vietnam is a leading provider of global market entry services. We are part of InCorp group, a regional leader in corporate solutions, that encompasses 8 countries in Asia-Pacific, headquartered in Singapore. With over 1,100 legal experts serving over 15,000 Corporate Clients across the region, our expertise speaks for itself. We provide transparent legal consulting, setup, and advice based on local requirements to make your business perfectly fit into the market with healthy growth.
Book a Consultation with Michael Claro at michael.claro@cekindo.com.
