China+1 Strategies: Is Vietnam the Supply Chain Restructuring Location of Choice?

August 19, 2020

As businesses around the world continue to address manufacturing impacts and navigate supply chain risks through the COVID-19 pandemic, ASEAN and especially Vietnam have been emerging as resilient manufacturing hubs. Coupled with the U.S.-China Trade War, COVID-19’s hard hit to China’s rank as the world’s largest factory is highlighting Vietnam as the optimal location for China+1 strategy, specifically for the textiles, electronics, and industrial goods sectors. Tractus Asia discussed lessons learned to prevent and diversify risk and how Vietnam is the right choice moving forward. “It’s not only about investing in Vietnam and considering it as a low-cost country,” said Tractus Vietnam Country Manager Christoph Lam. “Vietnam should be seen as a whole, offering free trade agreements and benefits with its strategic location.” Continue hearing from Christoph, Tractus Executive Director Dennis Meseroll, and Tractus U.S. Chief Representative Manager Michael Hirou below.

Further advantages of the China plus one strategy

Some additional considerations might also be useful. Due to the increase in this strategy, Vietnam has seen a rise in FDI. This has contributed to a largely positive cycle of development and growth involving much more than supply chain disruptions. Furthermore, despite Vietnam not being one of the most developed countries in the world, it handled the pandemic much better than some other nations. Their risk diversification strategy seems to have been quite effective.

The enormous domestic consumer markets and branching out to global supply chains and global distribution has meant improvements in regulatory compliance. The government has been quite good with protecting business interests and trying to maintain low production costs. The increased demand for production capacity and the advent of global companies including Western companies, has resulted in improved infrastructure. Other Southeast Asian countries have followed suit as ASEAN continues to become a global manufacturing hub.

Lastly, Vietnam also has a young workforce that is well-educated and steadily growing. This advantage has ensured Vietnam’s place as a global manufacturing powerhouse and ensures that more multinational corporations will continue to contribute to the country’s economic growth while manufacturing operations remain strong. While the cost advantage is appealing it is not the only appealing factor related to this plus one strategy. New talent pools can be leveraged along with access to new markets and more spread out business risk.

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