Imported material and component costs
Like other countries, sourcing supplies in Vietnam can be difficult. And even if a supplier is found, costs can be a major topic to concern. That’s why the majority of the components needed in the Vietnamese industries are still imported. It can be said that there is a high dependency for manufacturers.
- Textile in the garment industry → 70-80% from China.
- Electronics industry → imports 77% of total product value
- Pharmaceutical industry → imports 85 to 90% of materials
- Plastics industry → imports 70-80% of the total value of the production cost
At first sight, importing materials may seem expensive because of customs fees, tariffs… However, Vietnam benefits from many trade agreements that drastically reduce customs fees and a great location as it shares a border with China. This is a significant advantage in the region compared to other regional countries (Malaysia, Indonesia, Philippines,..) and this is undeniably part of China’s Plus One strategy.
Finding skilled people
After finding suppliers, it is imperative to find labour. Labour itself is not difficult to find in Vietnam, but finding the right workers for the job may be a challenge. Even though Vietnam offers a very adaptable workforce, the more niche industries such as the aerospace industry will have trouble finding suitable workers for their ventures. Nevertheless, in general, there is a clear improvement in the Vietnamese workforce due to the quality of the country’s education and universities.
Control labour costs
The minimum wage in Vietnam ranges from USD 125 to USD 180 per month. Unsurprisingly, the Vietnamese wage is one of the reasons why manufacturers want to relocate their supply chains.
On one hand, Vietnam has an abundant and increasingly sophisticated workforce in technical industries. But in the other hand, it can be seen to be experiencing shortages, and for good reason: it is over-subscribed. Indeed, many facts such as the trade war between China and the USA make the Vietnamese workforce more in demand.
Rising prices due to a decreasing supply
In addition to labour costs, relocation and facility development costs must be considered as well. Relocating to Vietnam should be perceived as an investment : it is a win-win operation in the medium term.
You should be fully aware that costs, such as industrial leases, have started to skyrocket in Vietnam. The reason is that demand for industrial spaces is getting bigger and bigger, while the supply is decreasing. Companies have understood the importance of diversifying, which comes for many of them in the form of foreign investment.
Quality control costs in Vietnam
Quality control is a crucial stage in production. Moreover, the price in Vietnam is quite expensive (around 300$ per day). If the quality control service provider is not always on the site of production, then the costs will increase. The following breaks down how:
- Higher travel expenses for inspectors needing to travel a longer distance to the inspection site
- Longer lead times for scheduling inspection
- Integrity concerns due to a lack of centralised ethical and operational policies
In addition, it is imperative to carry out good quality control. Indeed, neglecting this step can lead to poor quality mass production and consequent losses. This is an important point not to be taken lightly, and that would ensure a smoother transition when moving operations into Vietnam.
Understand the logistics network
According to the World Bank’s 2018 Logistic Performance Index, Vietnam ranks 39th whereas its competitors (except China, 26th) are lower in the ranking : Indonesia (46th), Cambodia ( 98th) or India (44th). Therefore, Vietnam is currently one of the most infrastructure-rich countries in ASEAN, but this network can still be improved. Vietnam is committed to it and is ranking second among the countries in the region that invest the most in transport infrastructure.
As an example, Vietnam has recently introduced a $5 billion North-South expressway to further improve its infrastructure.
As you can see below on the chart, the country is striving to improve the national network via its expenses in infrastructure compared to the national GDP.