News such as “transfer of global supply chain and the rise of new world manufacturing factories” and “foreign investors accelerate investment in emerging developing countries in Southeast Asia such as Vietnam” also ignited anxiety in Vietnam’s neighboring countries.
This small country, which has long been ranked after Indonesia, Thailand, and the Philippines in terms of economic output, suddenly became the center of everyone’s attention. In addition to the “crazy” export manufacturing industry, Vietnam’s cross-border e-commerce live broadcast, new energy vehicle industry, and even “real estate speculation” are considered by cross-border businessmen as possible potential outlets.
How is the potential of Vietnam’s manufacturing “super factory” formed? Is the rise of “Made in Vietnam” a “passive undertaking” under the pressure of the times?
Sportswear marked “Made in Vietnam” Source: Vietnamese media
Chinese genes, made in Vietnam
It is nothing new that international big-name OEMs choose to build factories in Vietnam.
The wave of enthusiasm about the “rise of Vietnam” started in April this year. However, the relocation of Chinese foundries to Vietnam began 10 years ago. Behind Vietnam’s soaring export data, it is also inseparable from the power of Chinese manufacturing manufacturers.
The manufacturing industries relocated to Vietnam are mainly concentrated in clothing textiles and light electronic products. According to foreign media data, in the structure of Vietnam’s export products in the first four months of 2022, processed products alone account for 89%, an astonishing proportion.
In 2021, the world-renowned sports brand Nike will have more than half of its footwear production and more than 30% of its apparel production from Vietnam. Similar sports brand Adidas also produces more than 40% of its footwear products from factories in Vietnam. And Sony,SamsungElectronic products such as Vietnam also depend on Vietnam’s cheap productivity. Samsung has more than half ofcell phoneExported products are produced in Vietnam.
But this does not mean that Vietnam has “snatched” the orders that originally belonged to Chinese OEMs. Compared with orders, the real dividend that Vietnam has taken away is labor employment, and it also means that the country has freed up space to usher in industrial upgrading.
In the past ten years, China’s large listed foundries have gradually relocated to Southeast Asia, and Vietnam is one of their main targets to build factories.
For example, Shenzhou International, the largest integrated clothing OEM leader in China, originally started in Ningbo, Zhejiang, and now has relocated garment factories in many Southeast Asian countries. It has 28,000 employees in Vietnam and 2 garment factories. and a fabric base.
Similarly, Huali Group, an international big-name foundry that just listed on the Shenzhen Stock Exchange in April last year, also moved its production plant to Southeast Asia early. The company’s three new factories in Vietnam have been put into production last year.
As a foundry for clothing brands such as Nike and Puma, Huali Group is now 100% of its production capacity overseas. In addition, the production base of Taiwan-funded Hong Kong-listed foundry Yue Yuen Group is mainly in Vietnam.
Source: Vietnam News Agency
According to statistics from the Vietnam Statistics Authority, Vietnam’s total import and export volume in the first quarter of 2022 was approximately US$176.35 billion, especially the export value reached US$88.58 billion, a year-on-year increase of 12.9%. At the same time, according to a report by Vietnam’s official NDO, foreign capital in Vietnam has increased by 60% in the past three years. In the past five years, the share of foreign-invested enterprises in Vietnam’s overall export volume has always been above 70%. In the first quarter of this year, the proportion of foreign investment in exports reached 73.8%.
Among them, investment from China, in addition to light industries such as garment processing and manufacturing, is also reflected in the fields of new energy and cross-border e-commerce. The photovoltaic investment of Chinese companies in Bac Giang province, Vietnam alone, has reached 2 billion US dollars. Vietnam is almost the largest photovoltaic product production base in China overseas.
The three largest e-commerce platforms in Vietnam (Shopee, TiKi, Lazada) also have large holdings of Chinese Internet companies such as Tencent and Ali, and play an important role in their operations.
Source: Shopee Vietnam Station
In this way, Vietnam’s so-called “prosperity” is inseparable from the industrial transfer of foundries in neighboring countries.
Ten years of “migration”
In 1986, Vietnam embarked on the road of “reform and opening up”, and in 2006 Vietnam joined the WTO. In addition, Vietnam has signed free trade agreements and regional comprehensive economic partnership agreements with many countries and regions in recent years. These foreign trade promotion documents have enabled Vietnam to achieve “zero tariff” on more than 90% of the trade in goods in the region.
With preferential investment policies and relatively low labor costs, Vietnam has undertaken a lot of overseas capital from Singapore, South Korea and China, and has become the transfer direction of labor-intensive industrial chains in various countries.
Among them, there are many overseas foundries from China. For example, Shenzhou International, a Chinese company, is one of the typical examples of “southward migration” in the past decade. Half of its production capacity is now distributed in Vietnam.
Shenzhou International is not only a foundry factory for international brands such as Nike, Uniqlo, Adidas, Puma, etc. Not long ago, the Internet celebrity brand lululemon also became its foundry customer, bringing a large order of 30 million US dollars, truly “making clothing OEM” became a big business.”
After China’s reform and opening up, Shenzhou International’s old factory in Ningbo has successively undertaken a large number of products from Japan and Europe.beautifulHigh-end clothing OEM orders. At that time, many eastern coastal cities in China had become the place for the transfer of labor-intensive industries in developed countries.
As the foundry business is getting bigger and bigger, Shenzhou International has gradually built a foundry factory for Nike and Adidas, and also has a trend of “vertical integration” of modern factories. But after that, the proportion of domestic clothing exports began to decline, and these foundry factories began to turn their attention to Southeast Asia.
As early as 2005, Shenzhou International’s garment factory in Cambodia started production. After 2013, the first and second phases of the fabric factories invested in Vietnam have also been put into production. With the expansion of production capacity in Southeast Asia, there are Setong Vietnam garment factories, Deli Vietnam garment factories, etc., which employ local people to expand production capacity and absorb these orders from high-end sports brands in Europe and America.
Source: Shenzhou International Official Website
Compared with the rising labor prices in China and the tightening of environmental protection policies at that time, the low-cost labor and tax incentives in Southeast Asia have become the direct factors that attract Chinese foundries to relocate abroad, and the layout of Southeast Asia has become a necessity of the times.
After 2010, domestic foundries started the “ten years of relocation” to Southeast Asia. In the past ten years, listed companies in the textile industry such as Shenzhou International, the trend of production capacity shifting to Vietnam cannot be underestimated.
According to Northeast Securities data, Shenzhou International’s fabric production capacity in Southeast Asia is 50%, and its garment production capacity is 40%. Another clothing OEM, Jiansheng Group, has three production bases in Haiphong, Anxing and Thanh Hoa in Vietnam, and the related production capacity accounts for 50% of the total production capacity. Blum Oriental and Huafu Fashion, whose main business is the production of colored yarns, also have spindle factories in Vietnam, accounting for 60% and 15% of the total production capacity respectively.
In addition, electronic product foundries such as Foxconn have also invested 350 million US dollars in Vietnam, building a factory area of more than 60,000 people, and planning to invest 700 million US dollars in newappleOEM assembly plant.
Vietnam, which is flooded with overseas capital, has gradually acquired the label of “a new generation of world super factory”.
“Epidemic Window” Special Opportunity Period
Although the formation of the manufacturing export industry chain is not a one-day achievement, the “surging growth” of Vietnam’s export data in the first quarter of this year is mostly because Vietnam has grasped the window period of epidemic fluctuations.
In July last year, when Vietnam experienced the peak of the first round of the epidemic, it faced a severe labor shortage. A large number of Vietnamese workers chose to leave the densely populated factories and return to their hometowns because of the fear of the epidemic. The industrial parks where Samsung, Apple and other electronic product foundries were located were once closed, and the Vietnamese manufacturing industry was severely impacted.
At the beginning of this year, Vietnam experienced another round of serious epidemics, and many foundries in Southeast Asia were seriously insufficient in operating rate and production capacity, resulting in a decrease in shipments. Shenzhou International, which has a production capacity in Vietnam, was also affected, and its share price fell by more than 30%.
However, after March this year, with the improvement of the epidemic situation in northern Vietnam, the production of the foundry has been quickly resumed. Vietnam’s export and foreign trade have seized the gap under the global epidemic and exerted efforts to undertake the industrial chain, thus achieving its advantageous conditions to stand out.
Therefore, in the short period of time that was disturbed by the epidemic this year, Vietnam showed a high growth rate and became a “world factory” in a special period, squeezing the export order resources of neighboring countries affected by the epidemic.
Some domestic small and medium-sized factory owners who have been engaged in OEM for many years said that this year, many European and American customers have decided to move their original domestic orders to Vietnam for production, causing many domestic OEM companies to lose a lot.
Large-scale listed OEMs that have already deployed in Vietnam have taken on more production pressure overseas due to the loosening of the epidemic in Vietnam. In this case, capital, raw materials, and process technology are not sourced from Vietnam, and local labor is only responsible for processing and assembly.
According to the research report of Zheshang Securities, from 2016 to 2020, the labor cost of China’s manufacturing industry is basically more than twice that of Vietnam. Whether in terms of export volume or supply chain perspective, Vietnam is obviously still in the stage of attracting labor-intensive industries overseas with low labor costs.
Source: Zheshang Securities Research Report
In terms of export scale and volume, Vietnam’s export scale in 2021 is only equivalent to 10% of China’s, and it can barely surpass Shenzhen in this year’s domestic epidemic window.fromFrom the perspective of the supply chain, Vietnam lacks a complete industrial structure and heavy industry, especially the supply of raw materials depends on China’s exports, and the degree of freedom is very low.
In addition, although Vietnam’s labor costs are relatively low, due to the relatively slow pace of local life, it lacks the basic qualities of “skilled workers” in domestic factories. For example, AirPods produced in Vietnam often encounter complaints, and the quality control of the textile and garment light industry chain also has more problems than domestic ones.
From a longer-term perspective, Vietnam is still in a relatively early stage of development, and it is difficult to replace China’s position in the global supply chain in the short term.
