Vietnam becomes 'preferred destination' for production

Vietnam is emerging as a preferred destination for companies planning to move production out of China, according to research by Standard Chartered Bank.

China is shifting away from a growth model based on low manufacturing wages and is increasing automation as it moves up the value chain, said the bank’s global research team.

ASEAN countries are set to benefit with one-third of respondents identifying Vietnam as their preferred destination due to its lower wages, young and educated workforce and geographical proximity to China.

“Our clients have consistently picked Vietnam as their top alternative destination to China over the past three years. In 2015, 36% of respondents who preferred to move manufacturing out of China said they would move to Vietnam, 25% chose Cambodia and 10% each chose Bangladesh and Indonesia,” the report said.

Companies considering relocating from China are mainly low-end producers focused on garment manufacturing, based on their choice of alternative locations.

Textiles, garments and footwear are a key export segments for Vietnam, accounting for about 24% of its exports.

Vietnam attracts the second-largest amount of foreign direct investment (FDI) after Thailand, within the Mekong region. The manufacturing sector is the biggest recipient, accounting for 70% of FDI flows to Vietnam.

As Asia’s manufacturing industry and its supply chains continue to evolve, demand for risk transfer solutions is expected to grow. “There is constant change in the industry prioritisation in the Asia Region,” says Zurich Singapore chief executive Jonathan Rake.

“As the Pearl River Delta moves into higher-end manufacturing and incurs an increase in wage cost, that creates opportunity for neighbouring ASEAN countries to play a bigger role in developing the traditional manufacturing sectors. Enhancing the cross-border trading capabilities through Free Trade Agreements (FTA’s) and delivering on the objectives of the ASEAN Economic Community (AEC) will further facilitate this opportunity.”

“So there’s a lot of interconnecting change across this region with some of the powerhouses creating opportunities in sectors for other countries across the region,” he continues. “And whilst it has been well documented of potential geopolitical flash points in this Region, I believe the economic opportunity is far to great to place at risk and this will help to maintain stability.  I was recently at the East Asia World Economic Forum and my sense was this perspective was shared  by the business community at large.”