With its rising costs, China is no longer the go-to destination for many businesses, and Vietnam has arisen as a serious competitor. Recent trends show that the number of orders shifting from China to Vietnam has seen a significant increase.

For example, China’s Pearl River Delta, long known as one of the key factory centers for the world’s manufacturers (particularly those from Hong Kong) has now become too costly for many companies to stay in the region.

In the past few years, a growing number of businesses have relocated their operations from China to Vietnam in an attempt to escape rising costs and an increasingly complex regulatory environment.

Given the recent trade war between China and the US, alongside Vietnam’s recent free trade agreements such as the RCEP, the EVFTA, and the UKVFTA the country is steadily becoming more open to international trade and investment.

Located in a strategic position for foreign companies with operations throughout Southeast Asia, Vietnam is an ideal export hub to reach other ASEAN markets.

Compared with other developing markets in the region, Vietnam is emerging as the clear leader in low-cost manufacturing and sourcing, with the country’s manufacturing sector accounting for 25 percent of the country’s total GDP in 2021.

Currently, labor costs in Vietnam are approximately 50 percent of those in China at US$2.99 per hour compared to US$6.50 per hour respectively, and around 40 percent of those reported in Thailand and the Philippines. With the country’s workforce growing annually, Vietnamese workers are comparatively inexpensive, young, and, increasingly, highly skilled.

Another driving force behind Vietnam’s growing popularity is the country’s collection of free trade agreements.

The RCEP, which came into force on January 1, 2022, has also fostered the entry of goods exported in and out of Vietnam as it reduces cost, improves market access as well as offers streamlined customs procedures.

In terms of regulatory and financial incentives, Vietnam has become increasingly investor-friendly in recent years –the government has taken such actions as reforming its financial sector, streamlining business regulations, and improving the quality of its workforce.

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This article was first published by VietnamBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected].

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ASEAN Briefing features business news, regulatory updates and extensive data on ASEAN free trade, double tax agreements and foreign direct investment laws in the region. Covering all ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)

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