High-Tech Manufacturing in Vietnam: China Plus One

By Viet Ho

June 02, 2015 at 1:01 PM

Vietnam is a communist country, but this Southeast Asian country is very entrepreneurial and business focused. Vietnam is taking over China's role as Asia's hot spot for foreign investment in manufacturing.

Over the past 15 years, Vietnam has become known for low-end manufacturing in the garment, footwear and furniture industries. An illustrative example is the growth of Nike’s manufacturing capabilities in Vietnam. In 2010, Vietnam surpassed China as the largest producer of Nike footwear and now Nike employs more than 333,000 in manufacturing jobs in Vietnam (30% more than China), producing shoes, apparel and equipment. 

In the past five years, Vietnam has attracted more technologically advanced and higher value-added manufacturers in the power generation, automotive and consumer electronics industries. Vietnam is becoming the go-to place for manufacturers such as Ford and Toyota and for high-tech giants such as Microsoft, Nokia, Intel and Samsung. In addition to lower costs (labor, land and electricity) the government is providing a lower corporate tax rate for selected industries. For example: Samsung only pays 10% corporate income tax versus a standard 25% rate. 

Two Illustrative Examples of Electronic Manufacturers in Vietnam

  • Microsoft’s smart phone production. In 2014, Microsoft restructured Nokia’s global manufacturing capability. It halted and reduced Nokia production in Hungary, China and Mexico and switched the majority production to Bac Ninh factory in Vietnam. Microsoft’s main production center for its cell phone is now at the Bac Ninh factory. The Bac Ninh factory was constructed in 2013 and started full production at the begin of 2014. The factory was upgraded to 39 assembly lines by the end of 2014 from six lines in 2013. Most of the production volume was moved from Chinese factories in Beijing and Dongguan. Volume is expected to increase threefold with more complicated products, guaranteeing an annual export of 76.4 million products worth US$1.86 billion.
  • Samsung Electronics. Samsung is currently manufacturing 50% of its mobile phones in Vietnam. The two plants in Vietnam have a combined annual production capacity of 240 million units. Samsung Electronics is planning to expand the plants with an additional investment of US$3 billion, and their capacity is expected to reach 270 million units at the end of this year. In comparison, the two factories in China have a maximum capacity of 150 million phones and Samsung is looking to cut their production by approximately 40 million because of the high labor costs in China. Samsung is also manufacturing other consumer electronic products such as cameras, appliances and flat screen televisions in Vietnam.

The Future for Vietnam Manufacturing

Vietnam’s lower labor cost received headlines and CEOs attentions. It is generally accepted that Vietnam is a serious alternative to China. The recent increase in territorial disputes and tensions between China and its major trading partners such as Japan and the U.S. will make Vietnam more attractive to companies with significant manufacturing capacity in China looking to diversify their risk as well as companies looking to start manufacturing operations in Asia.

It is my belief that Vietnam will need to work on its own “business case” to attract investors beyond the headlines and the “not China crowd.” Vietnam will need to make long-term investment in key areas such as infrastructures (port, road, utilities and reduce red-tape) to ensure total cost of operations is still low and education and training of young people to increase the skills and productivity of Vietnamese worker.

Vietnam is attracting both companies with a history in China and those fresh to Asia. It’s often part of a “China plus one” strategy in which firms maintain production in China but add operations in Vietnam to spread out such risks as supply chain disruption.



Tags: purchasing Global Sourcing Outsourcing Supply chain management Procurement manufacturing sourcing
Category: Blog Post

Viet Ho

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Viet Ho is the Chief Procurement Officer at Russell Investments, a global financial services firm. His team manages approximately $1 billion in spend. Viet has over 16 years of experience in Procurement and Supply Chain at major corporations such as JPMorgan Chase, Procurian/ICG Commerce, A.T. Kearney and PwC. He has built multiple procurement organizations at Fortune 500 companies with addressable spend between $900M - $1.5B. In addition to his CPO role, Viet is also the Head of Corporate Transformation at Russell. 

Viet has BA and MA in Mathematics with Honors from Oxford University and an MBA with Distinction from Indiana University’s Kelly School of Business. Viet is a Certified Management Accountant (CMA) and a Certified Professional in Supply Management (CPSM) He is a subject matter expert and thought leader in outsourcing best practices in Vietnam. He managed offshore programs at Russell Investment and JPMorgan Chase. Viet received the ProcureCon and My Purchasing Center 2015 Excellence in Purchasing Indirect Categories (EPIC) Individual Award. 

Viet is the author of the blog Offshore Vietnam, discussions and resources on outsourcing to Vietnam. 


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