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Vietnam Over China For Small-Scale Manufacturing. Why Didn’t I Think Of That?

Posted in China Business

I constantly hear that China manufacturing is cheap only for manufacturing in fairly large scale. Many (most?) Chinese factories are geared up for large orders and large production runs and they oftentimes reject smaller orders or price them prohibitively high. This “go big or go home” mentality/capability also holds true for companies that make a wide variety of the same product. For example, a company that makes ten different kinds of widgets might find itself paying a “small quantity price” for each of the ten, rather than being able to combine all ten to achieve a large quantity discount.

When clients bemoan this sort of pricing, I usually respond with something along the lines of “I feel your pain.“  After today, my response is going to change.

My response is going to change in light of a Financial Times Beyond Brics Blog post, entitled, “Vietnam: Agility Can Beat Scale,” touting Vietnam as a China alternative for small orders and for manufacturing that requires flexibility. The article talks of how Vietnam is capitalizing on its smaller size to win new manufacturing business  and it quotes the owner of a pottery business as saying “while China is good at producing the huge volumes that big retailers such as Ikea and Walmart require, Vietnam can be more flexible.” The article goes on to discuss how Western retailers are trying to “distinguish themselves by offering wider ranges,”  and of how Vietnam’s smaller scale better enables it to meet “this need for diversity.” The article concludes by noting the beginning of “a wider shift in global manufacturing from a focus on large scale, low-wage production to a more dynamic approach.”

What do you think? China for the big runs, Vietnam for the small?

  • Ken-tex

    Is there any more reasonable evidence for saying that China for big and Vietnam for small?

  • Twofish

    It sounds more like wishful thinking than anything else.

    The problem with small production runs is that you get killed by shipping costs.  It doesn’t make any sense to go to Vietnam or China to manufacture one bowl, and if you want to custom manufacture one bowl, it’s better to do it locally. 

    • dell8500

      Who has a shop to sell one bowl?  Your garage sale is the only one. LOL.

      • http://www.facebook.com/people/Dean-SK/100003715102344 Dean SK

        His name is two fish so I guess, one more bowl for the fish. LOL.

  • RenaudAnjoran

    I think it depends on the industry. 
    - Potteries, decoration, arts & craft: what that FT blog post says is probably true.
    - Textile: the minimum order quantities are imposed by Chinese dyeing houses, so there is no difference.
    - Other industries: I’d be curious to read about other readers’ experiences.

    • Asymetrical

      I work for a Chinese/Foreign owned factory. In the past the factory had only done large, very large production orders. But, as of the last few years the quality declined and the customers went else where (Thus is why I am here. Fix the place). Most of the customers that do the large numbers have their own factory or already have a good manufacturer.

      Everyday just about, I have to remind the Chinese owner that he will not get a large order. They don’t exist anymore, this industry is small (sports related), has had some problems that slowed retail sales (weather related), and/or the customers already have a factory that they like. But everyday he wants the white buffalo, the 50,000pc order that doesn’t exist anymore. With any luck it might sink in and he will not turn away the smaller orders.

      Either A: he takes the smaller orders, makes some money and keeps the lights on, or B: he keeps hunting the mythical creature and goes under or keeps losing money.

      He’s been listening because we are starting to take smaller orders. So at least it’s kinda sinking in.

      @ Hua Qiao. Perhaps you know something or someone I don’t. It’s been a massive struggle to get the Chinese counterpart to want to accept smaller orders. It seems to be engrained into their head that the only way is massive numbers. And it very might be that way. But times are changing. You change with them or die. 

    • http://www.lisastewartlaw.com/ Lee S

       My experience is that the Chinese companies have faced declines in quality as their  costs have increased.

  • http://www.evolutionwriters.com/personal_statement_writing/ custom personal statement

    Bouth counties can manage with big manufacturing. So you choise must be based on product feature. 

  • Hua Qiao

    This is really more about picking up crumbs than truly competing with China.  Many Chinese companies are geared to big production and they have large fixed asset investment that they need to amortize.  Smaller Vietnamese companies rely more on labor and can be more flexible.  If, however, Chinese companies find the flow for large orders to be curtailed, they would not hesitate to move down market to smaller orders, even ones that are unprofitable as long as they can cover variable costs and partially cover the overhead.  Simple business. 

  • BagPuss

    I thought Steve had been interested in Cambodia and you in Myanmar. Why the backtracking? Vietnam has been taking light industrial industry away from China for several years already, this isn’t a new trend.   

  • AsiaWatcher

    Vietnam can take over even big scale  manufacturing because its infrastructure has been improving rapidly. A new Vietnam is to be revealed in the next three years. 

  • tangtang

    Of the people I have talked to operating out of Vietnam they say it’s not entirely easy to operate from there either. Right now companies operating there need to navigate both run-away inflation, legal ambiguity and widespread corruption which make it quite tricky to operate in the country as an outsider, especially for small companies. Instead, I would expect that for a lot western companies small-scale manufacturing is likely to move back to countries closer to the company’s  home-markets such as Turkey and Eastern Europe (for Europe) or Mexico (for the US).

  • Af

    I never bought the Vietnam vs. China argument. Seems like a lot of hype. Vietnam is simply NOT China. The sheer scale of labor, infrastructure, stability, political and social will, etc., needed to make something as complicated as overseas manufacturing as turn-key as it can possibly get, is herculean to achieve. Vietnam has not demonstrated over a long enough time scale it can in fact be any type of serious competitor to China at all. 

    • http://www.facebook.com/people/Dean-SK/100003715102344 Dean SK

      Give them time, Vietnamese are smart people and they will catch up fast. Lots of their students are educated at Western universities today. They only live and work in peace for 35 years after 1000 years of fighting against China, France, US and yet, their economy is better than Philippines who never really had a war.