China’s rising labor costs, the looming US trade war and Vietnam’s high growth are accelerating an already strong trend of foreign firms driving away from China to Vietnam.

Foreign footwear firms expect to shift their sourcing from China to Vietnam.

Man Wah Holdings, a furniture maker in Hong Kong, last month bought a Vietnam sofa manufacturing and export company for US$68 million, making its first move from China to Vietnam. 

Hung Hing Printing Group, which had produced products solely in China, is also expanding into Vietnam with a new printing and packaging facility in Hanoi. More than 70 per cent of Hung Hing’s business comes from exports, primarily to the US and Europe.

More world leading footwear manufacturers are also expecting to shift their sourcing from China to Vietnam as the former’s footwear industry has faced high tariffs imposed by the US.

Adidas’s Chief Executive Kasper Rorsted said that he expected a shift in its sourcing of footwear from China to Vietnam to continue although he shrugged off concerns about the possible imposition of US tariffs on Chinese-made shoes.

Factories in Vietnam produced 44% of Adidas footwear volume in 2017, up from 31% in 2012, while Chinese suppliers made 19%, down from more than 30% in 2012, Rorsted said, adding that: “I am not going to rule out that this trend is going to continue.”

After deciding to sell its hypermarket chain in China after suffering major losses, Lotte Group also announced that it aims to raise the number of Lotte Mart outlets in Vietnam to 87 by the end of 2020 from the current 13.

The South Korean conglomerate has also expressed an interest in making fresh investments in Vietnam's agriculture, manufacturing and construction sectors.

Ideal alternative location

Takimoto Koji, chief representative of the Japan External Trade Organization in Ho Chi Minh City office, said with its stable economic development, Vietnam is recording an increasing inflow of Japanese investment from China.

The same move was also seen in the investments of South Korean investors. According to Ban Won Ik, vice chairman of the Association of High Potential Enterprises of Korea (AHPEK), there has been a rising Korean investments relocating from China to Vietnam in recent years.

While the Korean investments in China have declined in the past years, the inflow to Vietnam has been rising strongly, making South Korea become Vietnam’s largest investor with some 6,760 projects worth US$59 billion in action. Last year alone, the Korean investments in Vietnam was more than US$9 billion, mainly in processing and manufacturing, real estate, energy, as well as merger and acquisitions.

Experts forecast that the number of foreign firms that have moved from China to Vietnam is expected to rise further next time.

Adam McCarty, chief economist at Mekong Economics, said that foreign companies from Japan, South Korea, Hong Kong and mainland China are flocking to Vietnam, largely to diversify their investments. That is especially true in manufactured goods, where Vietnam’s cheaper costs make it more desirable than China.

This is an acceleration of a trend that has been ongoing, McCarty said.

Vietnam’s economy has been growing at a record pace, driven largely by inflows of foreign direct investment. Growth surged 7.08% in the first half of 2018, the biggest increase since 2011.

First-half FDI rose 8.4% from a year earlier, building on last year’s record 10-year high, according to the Foreign Investment Agency under the Ministry of Planning and Investment.

Besides, managing director of Coats Vietnam, Bill Watson, said that more foreign footwear manufactures will relocate their businesses from China to Vietnam to enjoy the advantages of EVFTA.

Hanoitimes