July and August 2014 |
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Betting on Vietnam: The
Future of Southeast Asian
Manufacturing
It has been remarkable towitness the rapid transformation of Vietnam into Asia-Pacific’s next manufacturing
powerhouse over the past decade. While some analysts have been quick to point out several striking
similarities betweenVietnamand China’s economic rise, it must be appreciated that Vietnam is following its
own unique roadmap for growth. In the past three years alone, a growing number of manufacturers have
relocated their operations from China to Vietnam in an attempt to escape rising costs and an increasingly
complex regulatory environment. In Dezan Shira’s Vietnam offices, we have witnessed this trend firsthand
as a number of our clients have sought our assistance in transferring their manufacturing and sourcing
operations to Vietnam in search of lower operational and labor costs in addition to a more investor-
friendly regulatory environment. Located in a strategic position for foreign companies with operations
throughout Southeast Asia, Vietnam is also the ideal export hub for pursuing a China + 1 strategy to reach
other ASEAN markets.
Compared with other developing markets in the region, Vietnam is emerging as the clear leader in low
cost manufacturing and sourcing, with the country’s manufacturing sector now accounting for 25 percent
of Vietnam’s total GDP. Currently, labor costs in Vietnam are 50 percent of those in China and around 40
percent of those reported in Thailand and the Philippines. With the country’s workforce growing annually
by around 1.5million, Vietnameseworkers are inexpensive, young, and, increasingly, highly skilled. Partly the
result of Vietnamese government investment in education and training programs—often in conjunction
with foreignmultinationals—over the next decade the country’s workforce is set to compete fiercely with
India and Singapore’s reputation for providing highly-skilled workers.
Another driving force behind Vietnam’s growing popularity is the country’s collection of free trade
agreements (FTAs)—most notably, the soon-to-be-signedTrans-Pacific Partnership (TPP) and EU-Vietnam
FTA. When these two agreements come into force, Vietnamese exports will be freely accessible tomany of
the world’s largest markets with few tariffs or restrictions. Vietnam’s participation in the ASEAN Economic
Community—scheduled to be fully realized in late 2015—is another key factor drawing investors as the
country prepares to secure tariff-free access to the entire ASEAN region. In terms of regulatory and financial
incentives, Vietnam has become increasingly investor-friendly in recent years. Since the mid-2000s, the
Vietnamese government has offered extremely competitive financial incentives tomanufacturers seeking
to set up operations in the country, in addition to a zero percent withholding tax on dividends remitted
overseas and a low CIT rate of only 22 percent (set to drop to 20 percent in 2016). These advantages also
enabled Vietnam to become a premier “sourcing economy” in the eyes of many companies. A prime
example of this can be found in the textiles market, with 70 percent of Vietnam’s garment industry now
dedicated to sourcing.
While still in a developmental stage, Vietnam is going to great lengths to ensure it continues to provide an
attractive business environment to investors. Since 2010, the Vietnamese government has pouredmillions
of dollars into upgrading the country’s infrastructure and is well on its way to crafting a world class network
of roads, railways, and airports within an integrated national logistics system. For investors and companies
keeping a close eye on global manufacturing trends and aspiring to take their manufacturing and sourcing
operations to the next level, Vietnam is one jurisdiction that should not be overlooked.
For more information on key considerations when choosing a
Manufacturing and Sourcing Jurisdiction
,
please emai
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