China’s high costs drive outsourcing orders to Vietnam

Many Vietnamese companies in labor-intensive sectors such as footwear, textile and garment have been receiving a large number of outsourcing orders transferred from China, where production costs have soared.

Ho Chi Minh City-based handbag manufacturer Thai Duong Company, for instance, said it had received orders to make 240,000 handbags a month in the first half of this year, which is a 20 percent increase over the same period last year.

“Most of the orders were transferred from China,” its director, Tran Thai Duong, said, adding that foreign manufacturers have increasingly placed their orders with Vietnam instead of China.

N.T., director of a major footwear exporter in the southern province of Binh Duong, said 15 percent of the US$30-million export turnover of his company in the first six month of this year came from the outsourcing orders transferred from China.

Nguyen Duc Thuan, chairman of the Vietnam Leather Footwear Association, attributed the increasing number of outsourcing orders to rising production costs in China.

A recent survey by consultancy KPMG Vietnam showed that from 2011-2015, workers’ wages were forecast to rise from $2.5 to more than $4.5 per hour in China, while in Vietnam it would rise from only $0.5 to around $1.5 per hour.

Thuan added that Vietnamese companies’ production capacity and workers’ skills have been much improved and this is also making Vietnam a more attractive outsourcing destination for foreign producers compared to Indonesia, India, Malaysia or Bangladesh.

Thuan said some well-known fashion brands such as Adidas, Nike, Puma and Prada are also restructuring their outsourcing markets by transferring their outsourcing orders from China to Vietnam and other countries to create a stable supplying source with competitive costs.

“Vietnamese enterprises should take advantage of this opportunity to improve their production capacity and workforce skills,” he said. – Tuoitre

Tags: VIetnam China trade