Pros and cons of setting up manufacturing in Vietnam
15 July, 2020
1. Advantages to set up manufacturing in Vietnam:
Vietnam has signed a lot of free trade agreeements with developed countries and territories:
Vietnam has become more and more open to the world,
Vietnam welcomes FDI and minimizing procedures for investors from all countries.
Together with signed FTAs, Vietnam also gives preferences to foreign investors in industrial zones
Remarkably, FTAs or trade agreements Vietnam has signed:
-EVFTA: a free trade agreement with the Europe, that is bringing tariffs of 2 sides to 0%, effective 1st August, 2020
-The US-Vietnam trade agreement that helps tariff on goods from Vietnam to the US decreased significantly
-CPTTP, the free trade agreement including 11 developed countries
-Joined WTO in 2007
-VKFTA, Vietnam-Korea free trade agreement
-VJEPA, Vietnam-Japan free trade agreement
-ACFTA, Vietnam-China free trade agreement
Vietnam also gives a lot of preferences to attract foreign investors.
Geo-politics has changed:
In 2020, Corona pandemic and the US-China trade war have made manufacturers in China feel at risk when put all eggs in one place (China), manufacturers plan to move out of China to South Asia, including Vietnam, Thai Land, Indonesia, India, Malaysia.
And Viet Nam is a bright star in this global chain shift.
In July, 2020, 30 japanese enterprises planned to move out of China and 15 chose Vietnam.
Here are reasons why Vietnam is a bright star in manufacturing sector:
Number 1: Population almost reaches 100 million in 2020
The population is very young and increasing 1% annually. That ensures a good supply of labor for factories and contributes a huge consuming maket in a promising economy that has registered an average annual growth rate of around 7% over the past decade.
Number 2: Strategically located at the heart of the Asia–Pacific region, directly connect to the most crowded maritime route (called East sea)
East sea accounts for more than 45% of the world’s goods traffic, equivalent to 5300 billion USD of goods going through here per year.
to Vietnam, 100% import or export goods must go through East sea.
Due to geological advantage, logistics cost relating to Vietnam is cheap and Vietnam is a gate from that goods of other countries penetrating deep into South East Asia countries easily.
Number 3: low set up cost
-The minimum wage in Hanoi is just $180/person/month in 2020, this also means low bonus and social insurance for laborer, and the average wage of workers is as half as that in China
-Ready-built warehouse and build-to-suit warehouse is growing fast in Vietnam, the price for lease form $3.3 to $5 per sqm per month. Those warehouses usually built in preferential zones, like, tax exemption for 2, 4 or 9 years
-foreign investor is also able to own a big land for up to 50 years and build a custom factory on it.
-energy price in Vietnam is just $0.8/kwh, it is 30% lower than that in the U.S and lower twice than that in some european countries.
See more here: set up cost estimate
Number 4: Tax incentives:
Depending on the location you set up the factory, your product type or the scale of your factory, tax incentives will be applied correspondently.
In particularly, by 2020, Vietnam has total 324 industrial zones, if you set up a factory there, it will be exempted or reduced from Corporate income tax for 2, 4, 9 years.
Number 5: stable politics:
Unlike in western countries, Vietnam has only one party with one mindset, each decision of the government is made for long term.
Number 6: Set up a company in Vietnam is very easy, like, a piece of cake
Most of the work items can be done remotely, all you have to prepare is just a copy of your passport and send it to a consulting firm in vietnam.
2. Disadvantages to set up manufacturing in Vietnam:
-Sub-vendors are limited, not likely in China, manufacturers still need to import machines or materials from other countries
-Housing for workers and expert sourrounding industrial zones is limited
-Infrastructure for logistics is still developing
-To big project, it takes time to get Investment certificate