Vietnam (And Others) vs. China

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I spoke at a Asia-Pacific Technology Network (APTN) seminar on Alternatives to China last week, and was very interested to hear presentations, from experienced advisors from around Asia, on reasons why businesses should not be narrowly focused on China when considering their regional strategies.

This issue was highlighted in the Sunday Times at the weekend, which reported that Vietnam is “a better bet than China” (an issue which I reported on here). This was based on a report from PwC that ranks 20 emerging markets based on “reward” issues such as production costs, market size, transport costs and tariffs, as well as “risk” factors (“largely defined by bond-market premiums”).

    “In the case of manufacturing – where it is assumed that 50% of production will be sold in the domestic market and the rest exported – China comes second to Vietnam, and is followed by Poland, Chile, Malaysia, Thailand, India, South Africa, Hungary and Saudi Arabia. Vietnam, according to the index, is highly cost-competitive, though risks are also relatively high.”

I have not seen the full research, but anecdotal evidence support this finding (at least partially). One of my company’s clients started seeking production of textile products in Vietnam, but ended up sourcing through us in China, despite the costs being higher. The main reason for the move was that doing business, and communicating (in English), in Vietnam was proving too difficult. The higher price in China has been offset by greater efficiency.

The APTN event looked at these issues, and covered a very broad range of markets and opinions – and it was interesting to see China in this wider context. Key points from my summary presentation included:

    • Change is rapid: Change in the region is very rapid in terms of market development and policy. If business planning is slow to develop, and takes a long time to implement, then the environment may already have changed. Awareness of change – and ability to react – is important.

    • Definitions are important: Strategy planning should not be constrained by very narrow (or very broad) market definitions. China can be defined as a region by itself, part of the Asian region, or as several sub-regions within it. The same thinking is true when looking at the rest of Asia where, local clusters are developing within individual countries (e.g. the auto industry in Thailand), and where regional hubs are emerging (e.g. South Korea for north-east Asia). Definitions need to be relevant, and may differ from business to business.

    • Segmentation: As suggested above, the region is big and complex. What is true for one business in one market, may not be true for another business somewhere else. A high-tech firm may be better off working in legal security with a world-leading client in Japan, while a low-end, volume manufacturer may be best located in central or western China or Vietnam.

    • Integration blurs the lines: A Taiwan-based company with a factory in mainland China may be making products such as iPods for export. Manufacturing and low added-value assembly may take place in one part of the region, with the high-tech component dealt with in a place where R&D and IP protection are strong. Regional head-quarters may be in a third location such as Hong Kong or Singapore, which offer legal, tax, or human resource advantages. To some extent, businesses can pick and choose the best that each market has to offer from around the region.

For those of us that have a focus on China, it is important to raise our heads and to see what is happening elsewhere. While China still seems to frame the debate about where to locate, there are a variety of interesting arguments for looking around.

As was pointed out in the Sunday Times article, China may not always be the low-cost option (though that may not be the most important issue). A recent post from the China Solved Blog “The New China Price – Part 1“) also notes that China is becoming more expensive (and that sometimes a higher price is worth paying).

China may well be the best place to locate for many businesses, but assumptions need to be tested against up-to-date research.

3 Responses to “Vietnam (And Others) vs. China”

  1. Finance information » Blog Archive » Vietnam (And Others) vs. China Says:

    […] Poland, Chile, Malaysia, Thailand, India, South Africa, Hungary […] Original post by Jeremy Gordon and software by Elliott Back

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  3. Vietnam passes China to become most attractive desitnation for FDI | China Briefing Blog Says:

    […] re-173″> Jeremy Gordon at the China Business Services blog offers some anecdotal evidence to support PwC’s findings: I have not seen the full research, but anecd […]

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