The manufacturing sector in Vietnam has been rapidly growing in recent years, making it a popular destination for foreign investors looking to rent a factory. With the rise of Sourcing Services in Vietnam and the growth of the country’s supply chain, there is a high demand for industrial spaces. However, there are important factors to consider when renting a factory in Vietnam.
This article provides a comprehensive overview of the growth of the manufacturing sector in Vietnam, as well as the top factors that foreign investors need to know when considering renting a factory in the country.
1/ The growing manufacturing sector in Vietnam: An overview
Vietnam’s economy has remained resilient throughout the global pandemic, in large part due to the success and expansion of its manufacturing sector. The domestic manufacturing sector actually made up about 25% of Vietnam’s total GDP in 2021.
Here are the 2 main reasons that have helped the manufacturing sector in Vietnam become stronger than ever:
Workforce as a major driver
Vietnam has affordable and competitive labor costs. The average hourly wage expense in Vietnam is 2.99 USD, almost half of what it is in China. Vietnam also benefits from having a large workforce. As of Q1/2021, the total labor force in Vietnam aged 15 and over was estimated to be around 51 million people, making it one of the largest labor forces in Southeast Asia. The country has a relatively young population, with a median age of around 32 years, which provides a large pool of potential workers for the manufacturing sector.
Foreign investment
The government’s proactive measures to attract foreign business (such as the use of free trade agreements, simplifying the business registration process, tax incentives, improving the legal framework for foreign investment, encouraging the development of export-oriented industries, etc.) are one of the primary reasons why Vietnam’s manufacturing sector has seen an increase in foreign investment (FTAs). These FTAs not only make it easier for foreign companies to do business in Vietnam and vice versa but also permit Vietnam to enjoy lower tariffs with partner nations, which ultimately boosts the manufacturing sector’s competitiveness.
2/ Top factors that foreign investors need to know when renting a factory in Vietnam
Now that we know about the big picture of Vietnam’s growing manufacturing sector, it is time to dig deeper!
A. Unveiling Vietnam’s Potential Industry Zones
First of all, where is a thriving location to set up your next manufacturing venture? Here are the top 3 most potential industry areas of Vietnam: Hai Phong, Binh Duong, and Dong Nai. Each of these regions boasts its own unique characteristics that make it perfect for a variety of industries.
- Hai Phong: has a complete logistics network and is a major trading hub, with the manufacturing industry and construction being its two most profitable sectors.
- Binh Duong: is the second province in terms of foreign direct investment and is focused on investments in automobile mechanics, electronic technology, high-tech agriculture, and their supporting industries.
- Dong Nai: is known for its young, dynamic, and competent human capital and has been a pioneer in the construction of industrial parks, making it an attractive location for production facilities.
B. Top factors to notice when renting a factory in Vietnam. And why do they matter?
There are significant factors that need to be considered when leasing warehouse space in Vietnam
- Procedures and Legal paperwork
In order to rent a warehouse, there are a few obligatory requirements regarding the paperwork and contracts. Investors or companies need to go through procedures, including the application for a land lease, and investment registration certificate, sign the minutes of the land lease agreement and pay the deposit as per regulations. Additionally, companies must acknowledge the timeframe for leasing terms of land for lease in Vietnam for commercial purposes, services, implementation of domestic investment projects, or foreign capital projects, which must not exceed 50 years.
- Accessibility
It can be a challenging process when it comes to renting a proper location for product and industrial equipment storing. The geographical location of the industrial companies is the key determining factor for warehouse placement in Vietnam. With the aim to accelerate product delivery, companies have a tendency to place warehouses near large cities. This location decision manages to save time and transportation costs. Investors and companies must consider the location of the warehouse as the top priority when renting new storage. Different locations serve different business purposes, some of the location options are placed on busy streets, suburban or rural areas, or near industrial parks.
- Operating and Maintenance Costs
Costs for operation and maintenance can affect the economic success of logistical decisions since the expenses take up to 50% of logistics costs in the industrial industry. It is vital for companies to see whether these costs are stated in the agreement before proceeding with the signing of the rental lease. Besides, the two parties should make clear who is paying for other costs, which include taxes, insurance, etc. Be aware of your responsibilities to ensure the company’s rights and benefits, as well as better cost management.
4/ Final thoughts
Over the past few years, Vietnam’s manufacturing industry experienced strong growth, creating a high demand for foreign investors to look for factory renting. With an affordable workforce, government support for FDI, and diverse potential renting placements, Vietnam is regarded as a prospective destination for logistics investing and business opportunities. However, investors must go through procedures and paperwork, along with the struggle of understanding Vietnam’s strategic locations in order to rent a factory.
As such, SOA’s sourcing team enables investors to have better global supply chain management. Our service supports clients in every step, including setting up factories, outsourcing manufacturing, and logistics, with an in-depth knowledge of the Vietnam market. Clients are able to find the best match for the renting requirements.
Contact us for more information about how to rent a factory in Vietnam or find out more about our Sourcing services for your business in Southeast Asia.
