Vietnam Sourcing: Low Cost Manufacturing Strategy

February 9, 2021 0 Comments

The Vietnam sourcing industry effectively serves as your own boots on the ground inside Vietnam and identifies low quality vendors for your company while simultaneously weed out the low quality manufacturers. Many Vietnamese sourcing companies are extremely affordable. This article will concentrate on the advantages of using a Vietnamese supplier, the prices involved/ Payment methods, and a brief overview of the best Vietnam directory. In Part II of this series we will examine Vietnam’s overall sourcing requirements, some pitfalls, and some possible future developments in Vietnam’s e-commerce sector.

Vietnam sourcing

As a small country with limited resources, Vietnam has few factories of any size, and consequently there is a lack of offshore competition, which often translates into lower prices than Asian counterparts. However, Vietnam’s raw materials and energy sources are quite adequate, especially when compared to China, Japan, or Korea. Vietnam also has extensive rail and road networks that will allow for rapid transportation of raw materials into any factory. However, because of infrastructure constraints and poor relations between the United States and Vietnam, it may take time for HVAC equipment to reach most factories in Vietnam. One of the main challenges associated with Vietnam’s manufacturing sector is increased labor costs, which could affect the sourcing decision.

Vietnam sourcing companies operate under several key conditions. Vietnam is one of few countries in Asia that does not have a free trade agreement (FTA). This means that although Vietnam is able to export and import goods, it must adhere to all global trade agreements. These agreements, such as those with the European Union (EU), United States, and Japan, may limit Vietnam’s ability to export high value items such as pharmaceuticals. Furthermore, because international shipping rates are often significantly higher than rates available through Vietnam’s neighbors, foreign manufacturers may also incur additional costs in this process.

As mentioned earlier, Vietnam is in transition from a communist system to a free market economy. As a result, Vietnam manufacturers face increasing competition from foreign manufacturers. To increase market share, Vietnam manufacturers are increasingly delegating some production responsibilities to Asian manufacturers, while also pursuing a more localized approach to reducing manufacturing costs. In addition, Vietnam is focusing on improving its ties with Europe and the United States, both of which could facilitate greater access to these markets.

Vietnam’s lack of a free trade agreement also increases the need for HVAC components originating from countries that do have such agreements. For example, although China has agreed to open its economy to Vietnam’s manufacturing sector, it continues to restrict access to its ports by other foreign manufacturers. For Vietnam, this poses a substantial risk since the workers in these other countries would be subject to less pay, fewer benefits, and fewer opportunities to move to other regions once they are hired. Similarly, in order to improve HVAC labor costs, which are believed to be a significant drag on factory operations, Vietnam may consider reducing access to foreign labor.

The third area Vietnam must address is its overall infrastructure. While HVAC equipment is readily available in Vietnam due to the country’s proximity to Europe and the United States, improvements in transportation efficiency and infrastructure are still needed. In addition, Vietnam is notorious for poor safety standards, particularly in construction. For example, the Mayanmar dam collapse last year is still haunting residents of the area. Likewise, the earthquake that struck Vientiane in September of last year is still haunting. With poor infrastructure and little security, factory inspections may not be sufficient to ensure your factory products arrive at their destination safely.

To help address these issues, Vietnam will likely need to develop its own industrial policies to ensure compliance with international trade and service policy. In addition, Vietnam should continue to enhance its ability to provide service contracts, which improve its competitive advantage. To accomplish this, Vietnam should enhance its ability to monitor quality and ensure factories comply with safety and service contract provisions. To achieve this, it will likely require the cooperation of international agencies, such as the Organization for Economic Co-corporation and the World Trade Organization, to assure that Vietnam’s industrial policies are consistently followed.

By allowing manufacturers to source components and finished goods directly from Vietnam, foreign companies can enjoy the lower costs offered by this low cost manufacturing strategy. This is beneficial to both buyers and manufacturers, who can both save money and accelerate time to market. Vietnam has the tools and expertise to become an important force in global supply chains, and if it takes advantage of this strategy to expand its market share, it will do so effectively and quickly.

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