“With the U.S. and China tangled in a trade fight, this should be Vietnam’s time to shine,” writes The Wall Street Journal (Aug. 22, 2019). Instead, it is becoming increasingly clear that it will be years, if ever, before this Southeast Asian nation and other aspiring manufacturing destinations are ready to replace China as the world’s factory floor. The specialized supply chains that made China a production powerhouse for smartphones and aluminum ladders and vacuum cleaners and dining tables are nowhere near as developed in Vietnam. Factories with U.S.-focused safety certifications and capital-intensive machinery aren’t as easy to find.
And Vietnam, with less than 1/10 China’s population, is already running into labor shortages as global manufacturers rush to set up shop here to avoid U.S. tariffs. Some companies are relocating parts of their production lines to Southeast Asian countries or elsewhere, while continuing to manufacture in China for the Chinese and non-U.S. markets, a strategy they call “China+1.”
As a result, a new global manufacturing landscape is starting to take shape. Production leaving China is getting divvied up among developing countries, with a small portion going to the U.S. on the back of automation. The reordering of supply chains is likely to leave China with a diminished but still significant share of the pie. The Chinese model of the past 20 years thrived on suppliers being close to each other, making production quicker, less expensive and more efficient. Now, as operations become more fragmented, they are threatening to raise costs, stretch delivery times and expose companies to multiple tax and labor regimes.
The manufacturing shift toward Vietnam has been a long time in the making. Early movers such as Nike began buying shoes from Vietnamese factories in the mid-1990s. As minimum wages in China grew, more orders for clothes, toys and shoes shifted to less expensive destinations in Bangladesh, Myanmar and Vietnam.
Classroom discussion questions:
- Why is Vietnam chosen by some manufacturers over the U.S?
- Discuss the supply chain issues manufacturers face in relocating.
And more–from Businessweek (Aug. 19. 2019): “Thai officials glimpse a silver lining in the U.S.-China trade war as companies such as Sony Corp. move production to Southeast Asia’s second-largest economy.
At least 10 firms are in the process of relocating some production to Thailand from China, according to the National Economic & Social Development Council. More than a dozen others could potentially choose Thailand.”