Global Links: Vietnam may be a viable sourcing alternative to China

Editor’s Note: This if the first of a three-part article written by Mi Nguyen, Seafreight Pricing Specialist - North America region for Kuehne + Nagel.

Minimum wage increases across China’s major cities and provinces have pushed up China labor costs significantly. In 2010, China’s average labor cost was reported $1.84/hour, up by 14 percent from 2009, while that of Vietnam was only $0.49/hour, up by 2 percent from 2009.

According to OTEXA, the U.S Commerce Department’s Office of Textiles and Apparel, although China remains the leading source of U.S combined textile and apparel shipments, imports from China in February 2011 increased by 12.4 percent compared to last February, while imports from Vietnam, U.S second largest supplier in the same category rose by 19 percent.

Rahul Verma, Quality Assurance Manager at Mast Industries Far East – a fully owned division of Limited Brands that is responsible for order procurement and quality assurance for Victoria’s Secret and PINK products in Vietnam – said that Vietnam is at least 30 percent less expensive than China.

Household furniture importers share a similar story. Vietnam is the second largest household furniture supplier to U.S. shippers, and imports from Vietnam can only keep surging rapidly as manufacturers are moving their factories to the country from China.

According to Richard Boyle, owner of Uniglobe Imports Inc. in Philadelphia, the main reason for the relocation is not so much about China’s rising labor cost, but because of increasing import duties that have bee placed on items produced in there. The anti-dumping duties of up to 212 percent in 2009 forced several major furniture producers moved most if not all of their production to Vietnam.

While U.S. shippers can save on labor cost and import duties, Vietnam does have some major drawbacks.

According to Verma, fabrics for textile production in Vietnam are mostly imported from China. Vietnam also has limited garment construction and adornment capability, and lower-quality sewing. Frequent labor strikes are also a problem.

Vietnam has a very young work force that needs more training and experience. Many U.S sourcing managers recommend sourcing from Chinese-affiliated factories in Vietnam. That way a U.S importer can benefit from both Chinese management’s familiarity with American retailers’ expectations, and Vietnam’s labor cost.

When asked about quality of Vietnamese production, Verma and Boyle both agreed that in factories where management is strong and active, production quality is rarely a problem.

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