Monday, July 15

Increasingly Favorable Conditions Drive Multinationals to Vietnam for Production Needs

China and India have long been the epicenters of cheap, rapid production for companies in the industrialized world looking to keep costs down. According to a new report from the digital newspaper The Establishment Post, however, both countries are quickly losing their grip over the globalized manufacturing sector, with Vietnam looking increasingly attractive to foreign investors and multinational corporations.

The last five years have seen a growing number of companies move their manufacturing from the Middle Kingdom into Vietnam. The move has been so pronounced that manufacturing has boomed, and now accounts for 25% of Vietnam’s economy.

Cooling Chinese Economy, ASEAN Boom Play a Big Role

The loss of manufacturing is particularly noticeable for China. Vietnam offers far more competitive production rates than China, not to mention other competitors in the region, like Thailand and the Philippines. When compared to the cost of production in China, Vietnamese labor and production costs are 50% cheaper.

According to HSBC statistics, Chinese manufacturing numbers have been declining steadily for months, with each month showing a noticeable decline over the last. Meanwhile, even in countries with comparable or greater costs — most notably Japan — manufacturing has ticked up. China’s overall economic outlook has slowed from a rapid 13% to a more average 7.5% on the year.

Foreign investments flooding into China’s main competitors are worsening the situation. The Association of Southeast Asian Nations (ASEAN) has received more foreign funds in the last year than China, for the first time in the alliance’s history. In 2013, the top five ASEAN countries received $128.4 billion in investments to China’s $117.6, a difference of 9.2%. Foreign business is sending a very clear message through their dollars that China may be on its way out.

That’s not to say that Chinese manufacturing is dead — it most certainly isn’t. However, as its neighbors paint themselves as friendlier for foreign companies looking for cheap production, the world’s second largest economy is certainly seeing its dominance of the sector challenged in a big way.

Do you think China will continue to bleed off manufacturing jobs? Tell us why or why not in the comments below.

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