Is China's manufacturing sector under threat from Vietnam's raising manufacturing industry? - Study24x7
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20 Jul 2022 11:11 AM study24x7 study24x7

Is China's manufacturing sector under threat from Vietnam's raising manufacturing industry?

MBA/Management
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  • Dev kumar

    • Any country that produces low end manufacturing is always facing threats from other low-cost countries. With that said I have done work in Vietnam and China. This also means partnering with China and Vietnam for 1 project.
    Here are my observations.
    Vietnam already dominates the clothing industries. The primary cause is the extremely low level of competence needed. One of the simplest businesses to transfer from one nation to another is apparel, provided there is a sufficient labor pool in which to teach cut-and-sew skills.
    (Clarification) Electronics in Vietnam are strong because of those well-known, large corporations that collaborate with knowledgeable suppliers that bring in the expertise to train the local labor force. For instance, Apple and Foxconn (Taiwan) (USA). Apple wouldn't consider starting from scratch without Foxconn. But there is no production of consumer-grade devices (poor). Similar to third-party Bluetooth speakers, equipment, etc. Vietnam is unable to fulfill this demand since it actually requires partners with larger businesses that have their own support staff; as a result, Amazon is essentially stocked with 3rd party consumer grade devices.
    Vietnam's manufacturing sector for consumer goods, such as drink ware, housewares, and daily use items, is not very strong.
    Vietnam has a furniture sector since it is one of the few nations with access to sustainable wood that is legal and available. Many regulations apply to the wood sector, particularly when it comes to exporting timber (insects, etc.)
    Of course, Vietnam has an Agriculture industry, all countries have this.
    But the question is, does it threaten China’s manufacturing?
    Actually, Vietnam manufacturing goes hand in hand with China. I can explain why for simple reasons.
    1. Owners of factories in China are constantly looking to expand and modernize their facilities. As a result, numerous Chinese manufacturers have already established joint ventures in Vietnam. That is why in the past, in 2014, you may have seen news reports about Vietnamese workers who were upset with Chinese firms there. Therefore, as you are aware, China has always had a keen interest in Vietnam.
    2. Vietnam imports lots of raw resources from China. Take the apparel business as an example. From the Zhejiang region, many factories in Vietnam purchase or source yarn and accessories (buttons, zippers, etc.). When visiting industries in Vietnam, it's not uncommon to encounter boxes from China (materials).
    3. A country's land mass is crucial if it wants to challenge China's claim to be "the world's manufacturing." Vietnam is 2,798 present less in size than China. Vietnam's manufacturing capacity is thus constrained by its geography. A significant portion of Vietnam's land needs to be maintained since I seriously doubt many locals would prefer to live close to industry. But if you want to surpass "China'' as the world leader in manufacturing, land mass is crucial. China's vast landmass enables its manufacturers to sustain an entire ecosystem.
    The clothing factory in Vietnam must get in touch with the fabric producer in China, where they also do business with the dye manufacturer (in China). China still makes up two thirds of the supply chain. There are dye factories in Vietnam, no doubt, but as far as I'm aware there aren't many of them. This means that if a Vietnam dye factory is full, you'll need to look elsewhere, and not all dye factories use the most up-to-date technology. As a result, factories in Vietnam will likely continue to purchase from or get their technologies from China.
    Normally, when things are smooth (world economics), there is a cost savings at Garment Manufacture (If it’s in Vietnam) due to labor wages.
    But when you throw in world economics…. things start to look cloudy. For example (transportation/logistics events)
    1. You will comprehend why some suppliers believe that the savings they gain from Vietnam's less expensive labor are actually no longer savings because their logistics costs have increased if you are aware of the current gas/oil prices and logistical problems. So the current dilemma is: Do I return to China, which provides a comprehensive eco-system that keeps my prices stable? I could also wait and hope that the global economy improves.
    You must be wondering why Vietnam can't simply expand its infrastructure to have all of the full systems like China. The first reason is that you need a lot of money to invest, and the second is that you are hoping to have enough clients to make back your initial investment. Many nations are reluctant to invest for these two reasons.
    Consider the current Intel desire to establish a chip manufacturing facility in the USA, but their refusal to do so in the absence of the $52 billion US chip act. Because without this Chip Act, Intel runs a significant danger of investing all of this money on their own and not being able to recoup it from customers.
    This is Intel with Billions in cash; just imagine the smaller manufacturers who don’t have this cash flow.
    Therefore, when someone suggests moving production back. It's not really that simple. China made an investment in the future; they turned this ecosystem, which initially lost money, into a fully functional eco-system capable of supporting itself. The big boys are now afraid of China's entry into high-end manufacturing because the big boys are still following the conventional strategy (use the cheapest), whereas China is determined to "Invest with Risk" in order to build an ecosystem that is independent of other nations' systems.
    Simply put, what China did to become a world manufacturer of low-end goods, they are trying to repeat it with high-end manufacturing.
    Is Vietnam a threat then? Sure, if they can match China's thinking (creating an ecosystem), however given Vietnam's current course, they still depend on China for many supply-chain components, and they appear content with this situation. As a result, both nations benefit from the relationship, which is mutually beneficial.

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    Reply 26 Jul 2022 01:28 PM
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