With businesses ready to move manufacturing out of China, manufacturers are looking for the next location of their manufacturing operations. The most popular of these alternate destinations is Vietnam, which manufacturers are seeing as a sound alternative to China. However, those looking at Manufacturing in Vietnam should be careful; Vietnam has many of the same problems as China when it comes to manufacturing (with the exception of trade tariffs).
“With the U.S. and China tangled in a nasty trade fight, this should be Vietnam’s time to shine. Instead, it is becoming increasingly clear that it will be years, if ever, before this Southeast Asian nation and other aspiring manufacturing destinations are ready to replace China as the world’s factory floor. “
Wall Street Journal
Here are just a few examples why manufacturing in Mexico is a more attractive option than Manufacturing in Vietnam.
Manufacturing in Vietnam Has The Same Logistics Problems As China
Vietnam, viewed as an attractive option as China, carries with it the problem of distance: Vietnam is located in the Far East and this distance is a logistical problem for manufacturing companies looking to manage lean supply chains.
Haiphong Harbor, the largest port in Vietnam (located in the northern area of the country outside of the capital of Hanoi) is roughly 7,641 miles across the Pacific ocean from the port of Long Beach, California.
Add another 1,000+ miles in freight shipping if you want your products to reach another major city like Houston, Boston or New York; if you want to have your freight shipped directly to any Gulf Coast or Eastern seaboard states your cargo will have to go through the Panama Canal and then to their destination city, nearly doubling the time it takes to reach its destination….just as it does for shipping coming from Chinese ports.
Manufacturing in Vietnam: The Communication Factor
Being able to communicate in English is better in Vietnam than it is in China (despite English being taught in the Chinese school system for many years, few Chinese could be considered fluent in English) with 53% of Vietnam’s population fluent in conversational English. However, despite Vietnamese fluency in English, communication problems still exist.
According to Vietnam Briefing: “Although there is a segment of Vietnam that can speak English, their fluency is sparse; having a good understanding of Vietnamese will be important. Vietnamese have a ‘sing-song’ tone to their language, often done in a strong accent, and it may be difficult to understand their version of English.” They also emphasize: “When possible, business meetings should be done in the presence of someone who can translate.”
Vietnam Has a Poor Transportation Infrastructure
Vietnam has shifted toward a more market-oriented economy, but the growth of the Vietnamese transportation infrastructure has not been able to keep pace with their current economic growth; companies looking to relocate to Manufacturing in Vietnam may find that getting their goods out of the country will prove to be a challenge.
Vietnam only has 4 major ports: Hai Phong, Da Nang, Qui Nhon, and Ho Chi Minh City. Vietnam ranks 80 among 139 countries on the quality of port infrastructure, with an average score of 3.80 on a scale of 1 (lowest) to 7 (highest) between 2006 and 2018. This means Vietnam ranks lower than countries such as China, India, Thailand, and Sri Lanka. According to Vietnam briefing:
“Vietnam has 44 seaports with a total capacity of 470-500 million tons per year. The Vietnam Port Association (VPA) states that 80 percent of container exports and imports go through smaller ports and ships, a process known as transshipment. The VPA also noted that goods owners have losses of approximately US$2.4 billion each year due not using deep-water ports.”
The rail and road network around the ports also remains underdeveloped: Due to the lack of a rail network connecting the various ports, freight currently must be transported by road adding to shipping rates.
The Sourcing Of Goods And Facilities Is Not As Good As Mexico
In manufacturing, getting materials in which to produce your goods is extremely important. Unfortunately, sources for materials aren’t very plentiful in Vietnam, especially compared to Mexico or China.
“Importers experienced in sourcing from China know it’s easy to find a manufacturer for just about any product type in China. And not just one manufacturer—you can easily find tens or even hundreds of manufacturers with a similar skill set and product Consider that online search engines for sourcing, like Alibaba or Made in China, are overwhelmingly dominated by Chinese suppliers.
Vietnam simply can’t offer the level of diversity China can at this stage. But Vietnam’s manufacturing industry does boast a higher level of industry diversity than some other alternative sourcing destinations, such as Bangladesh and Cambodia.” said Intouch Quality.
Inexperienced Workers And Uneducated Workforce
Vietnam is not a small nation; it is about half the size of Texas and has a population of about 95.54 million people. Regrettably for manufacturers looking to Manufacturing in Vietnam, many of these 95.54 million people are not involved in manufacturing (Vietnam is primarily an agrarian nation.)
Because of the dominance of the agriculture industry, many of the workers in Vietnam are uneducated and unskilled compared to those in Mexico or China.
A report by the Healy Consulting Group found that only 22 percent of the Vietnamese workforce has any certification from university, professional college, professional secondary school or vocational training. The number of untrained workers in China is similar (China’s 76 percent to Vietnam’s 78 percent) according to state-run China Daily, but they make up for deficiencies with their sheer numbers of workers.
Manufacturing in Mexico is a Better Option
Just as in manufacturing in Mexico vs China, reshoring your manufacturing operations from Vietnam to a facility in Mexico is better, cost-effective and strategically sound. The problems you experience with an Asian operation are not problems for manufacturers using Mexico:
- Sourcing is easy and can be brought from the US thanks to the USMCA
- The Mexican workforce is educated and very skilled & plentiful
- Shipping from Mexico, by air, land, sea or rail is cheaper than coming across the Pacific ocean.
According to CIO Magazine:
“The close proximity reduces shipment costs, product losses and improved customer satisfaction. Mexico is beginning to look much more attractive already having a successful infrastructure, reduced labor costs, less unrest and above all free tariffs. Protection of a manufacturer’s Intellectual Property (IP) is guaranteed under the recent United States-Canada-Mexico Agreement (USCMA) which is a major point of contention between the US and China. China’s ZTE accused of IP theft paid $1 billion in fines and another $500 million in escrow as a safeguard to possible future bad behavior for US IP theft.”
Conclusion: Manufacturing in Mexico is a Better Solution Than Manufacturing in Vietnam
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