A World Production Center – A Good Choice For Vietnam?

Vietnam is believed to become the world's new production base

Adidas’ managing director predicted the rise of a new production base, Vietnam, based on the increasingly high proportion of products made at factories in the country. In 2017, the factories produced 44 percent of Adidas’ total shoes, much higher than the 19 percent proportion in China. 

Puma had 1/3 of its products made in China and is drawing up an urgent plan to relocate a part of its production from China to other Asian countries. Meanwhile, Nike has been relocating its factories to Vietnam since late 2015.

The obvious explanation for the move is the increasingly high labor cost in China and expensive production premises, which have decreased investors’ profits sharply. As a result, they have to head for new destination points which have lower production costs.

Vietnam has a young population and cheap labor, and is a member of ASEAN Economic Community (AEC), and has signed many FTAs. 

All these factors could be great advantages allowing Vietnam’s footwear industry to dream of replacing China to become the production workshop which does outsourcing for big brands in the field.

However, big worries still exist. Analysts predict that as Vietnam is still in a low position in the value chain, it can expect pollution and other social probems.

In 2017, Vietnam exported $14.6 billion worth of footwear products, ranking second in the world in footwear export turnover. 

However, most profits went to the pockets of foreign invested enterprises (FIEs). This was because Vietnamese enterprises only undertook simple works which did not require high capital and high technologies. 

Do Thien Anh Tuan from Fulbright Economics Teaching Program commented that the cheap labor force is not a great and sustainable competitive edge, and in some cases, it could be a ‘double edged knife’.

“The country which focuses on exploiting its cheap labor force would fall into the trap of development, which means that it would be hard to escape labor-intensive growth and cannot undertake the works which bring high added value in the value chain.

Duong Dinh Giam, former Head of the Institute for Strategic Studies, also commented that if Vietnam cannot make products, but simply does outsourcing, it will not be able to reach China’s level.

As a matter of concern, the prospects of the footwear industry are believed to be the future of textiles & garments, electronics and other industries Vietnam takes pride in.

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Thanh Lich