Author Topic: Vietnam strains to reap the rewards of the U.S.-China trade war  (Read 1909 times)


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Vietnam strains to reap the rewards of the U.S.-China trade war
JULY 12, 2019 9:32 AM

Reporting from Ho Chi Minh City, Vietnam —  The requests that textile factory manager Huynh Thi Ai Diem receives are almost always the same: A foreign company is desperately trying to relocate production from China to Vietnam. Tariffs imposed by the U.S. have eaten away their profit margin. Can she help?

Huynh would like nothing more but is swift to provide a reality check. She only has enough workers, raw materials and factory space to produce one-fifth the volume of bath towels and apparel churned out by her chief competitors in China. Her prices are competitive, she says, but contrary to popular belief, they aren’t cheaper than those of her Chinese rivals.

“Our prices are reasonable and we can deliver good quality, but we can only take small orders,” said Huynh, a manager at Phong Phu, a 54-year-old manufacturer.

Few countries have benefited more than Vietnam from the year-old trade war between the United States and China. Companies, already under pressure from rising production costs in China, have been scrambling to identify factories to work with in the Southeast Asian country to avoid heavy tariffs.

In the first five months of 2019, Vietnamese exports to the U.S. have surged 36% compared with the same period last year. With $25 billion in shipped goods through May, Vietnam has become the eighth biggest source of American imports, up from 12th place a year ago.

But as Huynh explained, the “Made in Vietnam” label comes with a disclaimer.

The country of 97 million has one of the fastest growing economies in the world — punctuated by towering new real estate here in Vietnam’s economic center — but it’s not nearly big or developed enough to absorb the sudden exodus from China.

As some Vietnamese factory managers turn down orders because they don’t have the capacity, competition for increasingly expensive labor is forcing low-cost clothing companies to rethink their expansion plans. In addition, ports are struggling to deal with container ship traffic that’s almost doubled in the past year, according to data from MarineTraffic.

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Still, Vietnam has made massive strides this decade diversifying beyond shoes and apparel to higher value products by attracting companies such as Samsung, Intel and Canon.

Samsung alone employs over 150,000 workers in Vietnam producing smartphones that accounted for nearly a quarter of Vietnam’s exports last year. The world’s biggest smartphone manufacturer started shifting production to Vietnam from China in 2011 to chase lower labor costs. The South Korean giant could serve as a model for its biggest rival Apple, which is looking to move some production out of China.

A key to attracting more multinational firms to Vietnam is infrastructure improvements, experts say. In addition to crowded ports, roads remain spotty across the country. And a first-of-its-kind metro rail project in Ho Chi Minh City has been plagued by major delays and cost overruns.

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Inquires to Sourcify have doubled in recent months, he said, because foreign companies can’t easily find factories in Vietnam like they can in China by searching Alibaba.

One of those factories is Tellbe Vietnam, a metal fabrication plant located in an industrial suburb of Ho Chi Minh City on land that used to be a snake-infested lemon grove. For more than two decades, the factory has seen growth in its business making stainless steel racks, metal dolly carts and display signs, including ones for Volvo (the company has Swedish investment).

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