Experience Not Logic has a nice post, entitled, “China’s Manufacturing Competitiveness Is at Risk”: Sort Of,” on the recently published Booz Allen/AmCham Manufacturing Competitiveness report, somewhat wrongly titled, “New Challenges for Foreign Producers: ‘China’s Manufacturing Competitiveness Is at Risk.” This report affirms what I said previously in my first post in this series:

My own unscientific sampling reveals that in most sectors of manufacturing, Vietnam’s manufacturing capabilities are just not there yet. I have asked around ten of my firm’s manufacturing clients and five or six manufacturing/product sourcing consultants where Vietnam fits in the manufacturing picture. All the manufacturers said Vietnam is not ready to manufacture their product and all the consultants said something along the lines of, “clothing and rubber duckies, yes. Much more than that, no.” This is not to say big companies like Intel will not be establishing their own manufacturing operations in Vietnam, but it does say we should not expect a wholesale transfer of manufacturing from China to Vietnam in anything approaching the near term.
Manufacturing outsourcing to both Vietnam and to China will continue increasing. Obviously, there will be many companies that choose Vietnam for their manufacturing who would have chosen China a few years ago. There will also be many who are in China now who will choose to expand their manufacturing operations in Vietnam instead of China. But China will remain the overwhelming choice for manufacturing and few companies manufacturing in China now will up and leave for Vietnam. Vietnam is not a panacea and it is not a replacement for China. Not even close.

Experience Not Logic cites a recent Knowledge@Wharton article, “New Challenges for Foreign Producers: ‘China’s Manufacturing Competitiveness Is at Risk” concurring with my rubber ducky conclusion:

K@W summarizes the [Booz Allen/AmCham] report and conducts its own research to discover that China’s manufacturing sector is still strong and that we should only expect a decline in the competitiveness of the “high labor, low value-added area” (read: basic cheap stuff).
K@W notes that it is only the low-value added companies that are moving out of China because the profit margins that these companies operate under are slim enough that they will see a significant gain by moving to India, Vietnam, Thailand, Malaysia or Brazil. And, these firms that are leaving are largely Taiwanese and Hong Kong companies that first opened factories in China back “in the late 1980s and early 1990s.” They set the trend with moving into China, and they are setting the trend in moving out of China.
K@W notes that high-value-added manufacturers, such as heavy harbor equipment manufacturers, have plenty of room for profit growth in China because there are many compelling reasons to keep factories in China:

China is still the right manufacturing choice for most American and European companies, most of the time. What do you think?

  • Timely post. I’m in China now and just finished up a post on this issue. We must be pulling from the collective unconscious of the blogosphere. Here’s my two cents:
    http://productglobal.typepad.com/gss/2008/03/the-next-sourci.html

  • I’m wondering how competitive the Chinese interior is in comparison to Vietnam.

  • Bill

    “Vietnam’s manufacturing capabilities are just not there yet”
    Using experience in China, when do you think Vietnam will be “there” ? How much manufacturing goods was exported from China when China manufacturing was “not there yet” ?

  • When I left Foxconn at the end of last year word was they were bringing in 20,000+ Vietnamese for training in their Chinese plant who are going to form the nucleus for a workforce of 200,000+ that they are hoping to have working at their Hanoi operation. Sure, things are just kicking off there, but there’s no reason why anyone with deep pockets wouldn’t want to get in there early. China’s just a safer option for companies that can’t afford to lose out on their first deal.

  • China Manufacturing Moving To Madagascar

    Earlier today, I posted on how China is still the place to manufacture all but the lowest end products. That post is entitled, “Goodbye China. Good Morning Vietnam. I Don’t Think So, Part II.” As is par for the course on this blog, I received a number …

  • Duncan

    There’s clearly a lot of people moving out. I spoke to someone in DHL who was saying a lot of the SME manufacturers for export were packing up and moving elsewhere. But beneath this there’s lots of subtleties. Indonesian firms can move back to Indonesia for example, but Chinese firms (including HK and Taiwan) are going to find it tough to get the same level of cultural affinity elsewhere, and will keep moving inland for longer.

  • Sammy Nguyen

    @Audall:
    China is not inferior to Vietnam.
    Better skilled labor and experience management; huge domestic market… to name some China’ superior edges.
    Moving inland will serve domestic market there readily but face significant obstacle to export in terms of transportation. Inland has few capable international airports, less accessible to seaports. VN, on the other hand, less huge and high-income domestic market, but easily accessible to seaports as the whole country is like a strip of seaports. Some high-capacity deap-sea seaports are broken ground at the same time few months ago, to ready end of this year.
    Vietnam is hungry for investments that its likely to accept most China-dumped low value-added enterprises.
    At this time, there is fear of overheat in VN, and bubble in property market. But the government already took measures to address this. I believe there will be no burst and the heat will be cooled when world economy picks up, hopefully at the end of this year i guess.

  • Sammy Nguyen

    I had conservation with C.E.O from a Singapore-based high-end service business, and director from a market research firm working on high-performance manufacuturing, about Vietnam market.
    They both said that for their specific industries interest, Vietnam market now is hungry as China 5 years ago and better than India.
    they suggested for the manufacturers starting to look at Asian market. Investing in Vietnam now is more favorable than India and the action should be taken early not to miss the boat. China market is already competitive. India is much more complex market and its infrastructure is terrible and slow improve progression.