Updated March 5, 2020

Vietnam is quickly emerging out of China's shadow and becoming a primary destination to manufacture and source products. With the third fastest growing economy in the world and a young yet skilled workforce, it's no wonder that there is a rush to source products in Vietnam.

Vietnam is arguably the second-best country to source products behind China. With recent changes in American trade policy, Vietnam is becoming even more attractive to buyers. Even before the changes, Vietnam was quickly on it’s way to being a great alternative to Chinese manufacturing and already well established in its own right as a manufacturing powerhouse. While Vietnam is still up and coming it helps to think of Vietnam as a scrappy, yet promising startup vs a massive corporate behemoth that is China. So why should you consider manufacturing in Vietnam? Read our guide and find out!

Vietnam is winning the Trade war Against China

Recently, there have been two major changes in international trade policy that benefit Vietnam: new tariffs on Chinese goods imposed by the United States and a huge free trade agreement between Vietnam and the EU. As you probably know, Trump announced that he will slap tariffs on $50 Billion worth of goods imported from China and into the United States and threatened to add tariffs of 25% to an additional $200 Billion of Imports from China. As a result, many large buyers are looking elsewhere to source and manufacture their products and Vietnam is looking to be the #1 destination.

The European Union-Vietnam Free Trade Agreement was ratified in 2015 and will go fully into effect by the end of the year. The Agreement will grant Vietnam manufacturers and EU buyers to trade freely as well as allows European businesses and investors to set up manufacturing operations without many restrictions in Vietnam. Beyond the EU agreement, Vietnam has been aggressively seeking to get into more free trade agreements with several other countries as well. Vietnam is a key Members of the Association of Southeast Asian Nations (ASEAN) and has a free trade agreement with South Korea, As a result, Samsung alone produces $58 Billion worth of goods in Vietnam a year. They’re also in talks to join the revised Trans-Pacific Partnership agreement.

Even though TPP is dead, there is now a renewed push by 11 of the 14 original member countries involved to revive it. The original TPP intended to build a powerful trading block to compete against China's growing influence. The United States, which killed the original TPP deal, is excluded, however, the partnership is giving the US the option to join if they wish. The new partnership includes Australia, Canada, Japan, Mexico and of course Vietnam among others. In the original TPP, Vietnam was expected to be the biggest single beneficiary and looks to come out on top in this new agreement as well.

Of note, Cosmo Sourcing first set up in Ho Chi Minh City, Vietnam in 2014 to get into Vietnam before TPP went into effect. Most of Cosmo Sources first clients in Vietnam were companies that were already doing manufacturing in China, but looking to move to Vietnam. Despite the cancelation of TPP we decided to stick with Vietnam and as a result, Cosmo has over 4 years of experience doing business in Vietnam.

Overview of Vietnam

So now that you know why you should look at sourcing in Vietnam we should discuss what it has to offer. Even though Vietnam is smaller than China, it still punches above its weight when it comes to manufacturing. Vietnam has a population of just 93 Million people vs China’s 1.3 Billion, however, Vietnam has a younger labor force and over 60% of their population is between the ages of 18-60. In 2016 Vietnam exported over $170 Billion worth of goods and had a GDP of $202 Billion. While the GDP seems low, Vietnam is the 3rd fastest growing economy in the world. It’s GDP growth is about 8% a year and holding steady, while China is 6% and declining.

Vietnam is a full member of the WTO and complies with all agreements concerning customs, and health and safety standards. While not a full free trade agreement, the USA, and Vietnam do have a bilateral trade agreement that has been in effect since 2001. Vietnam's Currency is called the Dong and the current exchange rate is 1 USD = 23327 VND. A further benefit for buyers in the US is that the Dollar is very strong against the fairly weak Dong, meaning that goods can be bought for even cheaper.

Vietnam actively encouraging growth and opened 50 new industries to foreign investment as well as getting rid of regulations on hundreds of more industries. Foreign Direct Investments account for 20% of Vietnam's output, which is one of the highest rates in the world. Several major companies have a significant manufacturing presence in Vietnam. In Northern Vietnam, Samsung runs the world's largest smartphone manufacturing plant, which produces about $58 Billion worth of smartphones a year. The factory employs over 100,000 people. Where does Canon Make their cameras? Vietnam! Where does LG make many of their TV’s? You guessed it, Vietnam. Vietnam is also the largest manufacturer of products for Patagonia, North Face, Nike, Adidas, and many other apparel and shoe companies.