By Martina Kao    Photo：CANVA

1. Background: The rise of Vietnam’s manufacturing industry

With global supply chains in turmoil and the U.S.-China trade friction intensifying, Vietnam is quickly becoming a key alternative hub for manufacturing. Its strategic geographical location, stable political environment, and foreign investment-friendly policies have attracted the attention of global traders. In terms of economic policy, Vietnam adopts an open market policy and has signed free trade agreements (FTAs) with many countries, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Among cheap labor, Vietnam’s labor costs are much lower than those in China, making it particularly attractive to labor-intensive industries. In terms of infrastructure development, the rapid construction of ports and industrial parks in Vietnam has improved transportation efficiency.

2. Industry focus: Which manufacturing industries are turning to Vietnam?

1. Electronic products: Vietnam’s semiconductor industry has strong development momentum and has become an important node in the global supply chain. Semiconductor giants such as Samsung, Qualcomm, Infineon and Amkor have chosen Vietnam as their core production and assembly base, with investments reaching billions of dollars. It is expected that by the end of 2024, the valuation of Vietnam's semiconductor industry will exceed US$6.16 billion, demonstrating its status and development potential as a global semiconductor manufacturing center. .

2. Clothing and textiles: Due to the tariff war between China and the United States, manufacturers have moved production lines to Vietnam to reduce their dependence on the Chinese market. Vietnam is the world's second largest apparel exporter after China, with textiles and apparel accounting for 9% of exports and surpassing India.

3. Furniture and wood products: In 2020 and early 2021, Vietnam's furniture and wood products exports performed outstandingly, becoming the world's second largest exporter of wood products, and surpassing China to become the largest furniture exporter in the U.S. market. In 2020, Vietnam's furniture exports to the United States reached US$7.4 billion, a year-on-year increase of 31%, while China's furniture exports fell by 25% to US$7.33 billion. Benefiting from China's high tariff policy, U.S. dealers have gradually shifted their supply chains to Vietnam, making it the preferred supplier.

3. Advantages and challenges of Vietnam as a substitute for China

Advantages: As the relationship between the United States and Vietnam continues to heat up, the trade volume between the two sides has surged. First, the rapid development of US-Vietnam trade relations shows Vietnam’s important position in the supply chain. In 2022, the United States' imports from Vietnam will be close to US$127.5 billion, and the trade volume between the two countries is increasing year by year. Secondly, Vietnam’s low labor costs and prime demographic structure provide strong competitiveness. About 70% of the population is of working age, attracting long-term investment in the manufacturing industry. In addition, Vietnam has established complete supply chain capabilities in multiple industries, and with the support of the United States' "friendly shore outsourcing" policy, Vietnam has become an important choice for attracting international companies. In high-tech fields such as semiconductors, the promotion of the US-Vietnam cooperation plan will further consolidate Vietnam's role in the global supply chain.

Challenges: Vietnam faces many challenges as an alternative to China, especially in terms of supply chain and infrastructure. First of all, with the influx of a large number of companies into Vietnam, the demand for the country's manufacturing industry has exceeded its supply capacity, resulting in an "overheating" phenomenon. Production capacity in some industries cannot meet rapidly growing demand, leading to delivery delays and supply chain bottlenecks. Secondly, Vietnam faces a talent shortage in high-tech fields, especially the semiconductor industry. Due to the insufficient supply of engineers and high-end technical personnel, companies need to invest more resources in employee training, which may affect production efficiency. Although the United States and Vietnam have cooperated to launch a semiconductor talent cultivation program, it is still difficult to fill the demand gap in the short term.

In addition, Vietnam's infrastructure still lags behind China's, especially in areas such as transportation, logistics, and industrial parks, which limits its ability to support multinational companies' large-scale production and exports. At the same time, imperfect technical regulations and policy instability have caused some companies to remain cautious, affecting their long-term investment confidence in Vietnam. Although Vietnam has demographic advantages and cost attractiveness, if these shortcomings cannot be improved quickly, it may not be able to completely replace China's core role in the global supply chain.

4. Enlightenment to traders

For traders, the current changes in the global trade environment provide important revelations. First of all, product quality is the basis for improving competitiveness. Traders can pay attention to the decentralization of the supply chain. Traders should diversify the supply chain and not only rely on Vietnam, but also consider emerging markets such as India and Indonesia, especially in fields such as electric vehicles and artificial intelligence. Traders will also focus on quality management. Although Vietnam's manufacturing industry has cost advantages, quality control and scale production still need to be improved. At the same time, building a brand with international influence and transforming from an OEM model to a standard leader will help To break through trade barriers in Western markets. Secondly, market diversification is an important strategy to ensure export stability. Strengthening technology transfer and management with local partners. Market diversification is an important strategy to ensure export stability. In addition to mature markets such as the United States, Europe, and Japan, we will actively explore markets in developing countries, help their economic growth, cultivate middle-income groups, and transform them into long-term stable sources of demand. In terms of long-term strategy, invest in local facilities and human resources in Vietnam to establish a more stable supply chain, seize the zero-tariff opportunity brought by Vietnam's FTA, expand the EU and Japanese markets, stimulate the market, and feed back export competitiveness to realize a trade model. Continuous optimization ensures the steady growth of enterprises amid uncertainty.

5. Conclusion: Vietnam’s future prospects

Vietnam is rapidly emerging with its unique geographical, economic and policy advantages, becoming a new center of global manufacturing outside of China. Although challenges remain, Vietnam's potential cannot be ignored. For international traders, integrating Vietnam into the global supply chain layout is a key strategy to cope with the current uncertainty.

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