Foreign manufacturers rush to relocate production from China to Vietnam

29.10.2018

Many foreign manufacturers in China are speeding up plans to move their factories from China to Vietnam in a move to take advantages here and avoid impacts of the US-China trade conflict.

 

According to Frederick Burke, general director of law firm Baker McKenzie Vietnam, in recent months, his firm has received many Chinese business delegations, who want to promote the opening of factories in Vietnam to shift their production from China to the Southeast Asian nation as soon as possible in a move to avoid a 25 percent tax rate imposed by the US on Chinese goods.

Explaining why the manufacturers choose Vietnam, Burke said that Vietnam is not only a garment outsourcing address for the world but is stepping up its position in the global supply chain now.

In fact, the outsourcing cost in Vietnam has increased, so investors here are looking for more value-added forms, such as supply chain development, cooperation with Vietnamese enterprises, especially small and medium enterprises, Burke explained.

Besides, Burke said, Vietnam is actively preparing for the Fourth Industrial Revolution in a move to increase the competitiveness of the market. The Vietnamese government has so far expressed its determination through the organization of the World Economic Forum on ASEAN Fourth Industrial Revolution in Hanoi and discussion on the training of human resources for the 4.0 Revolution period so that the nation’s workforce can know how to effectively use robots and machines in the country’s production and service sectors.

Echoing Burke, Tharabodee Serng Adichaiwit, senior vice president and general manager of Bangkok Bank Vietnam, said that the trade war between the US and China will inevitably bring opportunities to Vietnam. He also forecast a strong influx of FDI in the country in the coming years.

Reports from American consulting firm Jones Lang Lasalle (JLL) also said that China continues its move away from labor-intensive industries and move up the value chain which has led to companies relocating to other Southeast Asian countries. Due to its close proximity and geographical location, Vietnam stands to be one of the largest beneficiaries of this migration.

Besides, JLL said, the US-China trade war could also expedite the movement of companies from China to Vietnam.

„Vietnam is establishing itself as the industrial powerhouse within Southeast Asia and as we have witnessed in other countries around the region, we expect the industrial market will enter a new phase and move up the value chain in the future, moving away from labor intensive to capital intensive,“ Stephen Wyatt, Country Head of JLL Vietnam said.

Policy improvement urged

Despite the advantages, experts suggested that the country must continue improving investment environment, promoting administrative reforms and changing ways of FDI attraction to maintain the competitiveness.

Shim Won Hwan, president of Samsung Vietnam, told the local media that due to the fast-changing nature of the global market, the company’s decisions must also be quick so that local officials should further simplify and improve administrative procedures in order to help enterprises make quick yet vital decisions in their production activities.

Although foreseeing FDI inflows to stay strong in 2018 and 2019-2020 in Vietnam with registered capital close to US$17 billion each year, Nirukt Sapru, CEO of Standard Chartered Bank Vietnam, noted the country could face a number of issues that might affect the business and investment climate, including macro-economic challenges, the continued health of the banking system, and the need to further develop the legal framework.

However, Sapru expected these are gradually addressed by the government and this work will further accelerated in the coming years.

Meanwhile, Adichaiwit from Bangkok Bank Vietnam suggested in the long run, Vietnam will need to fine-tune its FDI strategy to counterbalance rising wages and the workforce’s shift from manufacturing towards the service industry.

Source: Vietnam.net

Photo: VAM