As China wages and costs continue to rise, many of my firm’s clients in low-skill industries are beginning to talk about moving out, either entirely or partially. The big discussion is to where.
When asked for my opinion (as I was by an Israeli textile company today), I virtually always suggest Viet Nam. I let them know that I have a bias towards Viet Nam because my firm has done considerable business with that country and it is one of my favorite places to visit in the world. But then I tell them that the same reasons I like going there are good reasons to have a factory there. In multiple surveys, Vietnam comes in first on business optimism and I just plain like a country where the overwhelming majority of its citizens believe tomorrow will be better than today.
I contrast that with many of the countries with which Vietnam is seen to compete and I say that if I were to be building a factory right now, I would be focusing more on where the country is going to be in 3-5 years than on where I can save $50 per worker per month. I also think it good to locate in a country where you can bring in your regular managers without having to pay extra for combat duty.
Global Sources just did an article saying pretty much the same thing:
Beset by rising costs, the labor shortage and policies discouraging low-value industries, China’s export manufacturers are setting up production lines in Southeast Asia. But relocation has its disadvantages.
An increasing number of China companies are constructing factories overseas, mostly in Vietnam and Indonesia, to take advantage of lower costs and more favorable trade policies there. Although the exact number of factories that have established offshore factories is not available, many enterprises manufacturing household appliances, automobiles, TV sets, footwear, textiles and apparel have made the move in recent years.
According to the article, monthly salaries in Vietnam are about “three-fifths of those in China” and “an assembly-line worker in Vietnam earns roughly $101 per month, 53 percent lower than in China.” Electricity costs in Vietnam are also “40 percent lower than in China.”
The article then quotes me on how China’s less than welcoming attitude of late towards low-skill/high pollution industry is also causing foreign companies to give Vietnam a really close look:
The push to relocate does not only come from the pressure to keep costs low and avoid trade sanctions, but also from Beijing itself. The national government is encouraging suppliers to expand their business overseas, particularly those engaged in low-value manufacture, and highly polluting and energy-consuming industries.
“China’s government has been very clear on this,” said Dan Harris, lawyer and writer of the China Law Blog. “It wants to see China moving up from low-end, high-pollution products and it has instituted policy after policy to help bring this about. And slowly but surely it is working. It is definitely much tougher now than it was five years ago to get approval to go into China with a low-end, high-pollution factory. It is also considerably more expensive to have such a factory in China today than it was five years ago. The tax subsidies are gone. Wages are up. Many of these sorts of companies are looking elsewhere.”
I am going to be making yet another trip to Vietnam (both Saigon and Hanoi this time) before the end of this year and if anyone would like to meet me there, please press the contact tab above and let me know and I will do my utmost to schedule it.