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How to choose a manufacturing site in Vietnam

Picture - How to choose your manufacturing site in Vietnam

June 2023

Vietnam ended 2022 with a GDP growth rate of 8%, placing the country at the top World GDP growth rate. With its dynamic economy, and as one of the major ASEAN countries in China + 1 Strategy, the demand for having a manufacturing site in Vietnam has skyrocketed. Now more than ever, companies should seize the opportunity to expand in the country. But how to pick location that meets your business’ needs?

In this article, ALTIOS’ experts will share with you 3 key steps for a mistake-free choice.

1. Secure your manufacturing site in Vietnam's location

This is the key bottleneck for site selection. Many projects were denied after the site check because the government had not approved of the location or park.

In fact, each park has a previously admitted sector list: light and heavy industries can locate in it, as well as sectors whose wastewater reaches National Type B. In other cases, certain parks accept safer industries.

To maximize your and your investor’s time, make sure to secure your business’ location approval and feasibility.

2. Consider these 6 factors for optimal selection

Location:

A well-connected location will become a unique value for a manufacturing site in Vietnam. In fact, the country is divided into 3 main zones: North, Middle, and South, and each one contains different regions with unique advantages. In addition, the presence of possible and future clients, as well as the proximity with local suppliers, also plays a huge role in your factory’s success. Choosing where to set up your business will have a major in pact on its profits.

Manufacturing site legal conditions:

Vietnam has the overall rule for IRC, ERC, environmental, and fire certificates. Certain regions are more preoccupied with investment quality and environmental security, so further documentation may be required, along with evidence for the investors.

These aspects should be well-defined and clarified before the final decision. Moreover, an expert operator can strategically guide the investors to complete processes.
Our international expansion specialists can support you through these crucial steps.

Infrastructure:

Logistics supports:

Every manufacturing site in Vietnam is legally obliged to include:
an internal traffic system, electricity and water systems, a drainage system, a wastewater treatment system, fire prevention and fighting systems, and telecommunications systems.

Since not all locations meet the legal infrastructure standards, ensuring that is the case for your factory will make a huge difference.

Pay close attention to wastewater treatment systems. International investors need good wastewater treatment support to ensure the commitment to the cross-country compliance and ESG values of the global group.

An incidence in a subsidiary can diminish the stock price of the whole group on the Nasdaq or Euronext.

When choosing the right location for your manufacturing site in Vietnam, it is important to consider logistics availability in its varied aspects.

Transportation (road, highway, inland waterway, seaports), high-quality transport supplier–forwarder, as well as the cost for the distance between the different locations.

Abunding with logistical options can positively impact your business’ adaptability to variation.

Keep in mind that the logistics cost in Vietnam is still higher than neighbor countries Thailand and Singapore. For this reason, a fine decision needs to be made to insure an optimal cost

Human resources:

Nowadays, general workers have a fluctuating supply in Vietnam. In some periods, it’s very easy to hire. Sometimes, it’s extremely rare to find general workers. Finding a location that can provide
a stable supply of workforce
is important if your business needs
a high quantity of workers.

As for hiring skilled workers, it is another story. Skilled workers’ availability depends on the current businesses on the site and the existing training and formation in the region. Some training is rare in Vietnam, like die-casting or dyeing. Some training is only concentrated in big cities like IT, and finance.

A good scan of human resources availability needs to be made before choosing your manufacturing site in Vietnam to facilitate recruitment in the future.

Facilities for staff relocation:

When developing abroad, numerous businesses relocate experts and managers from other countries. To ensure international standard lifestyles, the new factory must be well connected to a modern city with international education and healthcare systems.

A prior scan before the final decision can help not only in location selection but also in cost estimation.

3. Build your Business Plan

A check of your manufacturing site in Vietnam will give you many details, including land price, legal consultancy cost for the administrative procedure, current local salary, relocation costs, etc. With this information, the investors can estimate the P&L project.

In many cases, land price is much higher in an adequate location than it is in a less appropriate one, in addition to the logistics costs.
In other cases, every other condition is good, but the lack of international facilities limits the foreign expert relocation.

An optimal decision always needs local insights, that’s the reason why third-party consultation does a great contribution to the expansion’s success.
Reach out to one our experts for more information.

Want to learn more?

If you are interested setting up in Vietnam, read our article How to ensure effective interultural communication for doing business in Vietnam

What can ASEAN offer the international manufacturers?

Picture - Local Insight ASEAN preview

November 2022

Is ASEAN the new global Manufacturing Hub?

The markets of the Southeast Asian countries offer very interesting prospects. 60 % of the region’s population is expected to be middle class by 2030. ASEAN is also preparing its members for the Fourth Industrial Revolution.

The Association of Southeast Asian Nations (ASEAN) is one of the most successful inter-governmental organisations in the world today. The ASEAN Free Trade Area (AFTA), which includes its ten member states, has increased Intra-Asia trade fourfold from 2000 to 2017, while global trade grew only 2.8 times in the same period. A key driver of this growth is the manufacturing sector of the ASEAN economies, contributing more than 20% of gross domestic products in markets like Singapore, Indonesia, Malaysia, and Thailand. The sector has shown an annual growth rate of 6.6% between 2016 and 2021 and is attracting more and more foreign investments because of its low operating and transaction costs. 

The pandemic has proven to be a golden opportunity for the ASEAN nations to move up the manufacturing value chain. Worldwide political and economic trends, especially the increasing wages and tightening regulations in China and its ongoing trade war with the United States, have prompted international companies to rethink where they make and source their products. As Boston Consulting Group concludes in its latest analysis of the ASEAN manufacturing sector: “Companies seek to make their supply chains more resilient against disruption, those in sectors ranging from medical technology to consumer electronics have made a shift to Southeast Asia as a leading alternative location, to diversify their manufacturing footprints and to produce goods closer to end markets.” 

Picture - ASEAN medical technology

What can ASEAN offer your company?

ASEAN is working hard to resolve internal hurdles for international manufacturers in the region. In November 2020 a free trade agreement, The Regional Comprehensive Economic Partnership (RCEP), was signed by fifteen East Asian and Pacific Nations, which is expected to significantly accelerate the flow of finished goods and investment between the Southeast Asian countries and its trade partners such as China, Japan, South Korea and Australia.

Currently international companies that manufacture in ASEAN for the regional market are still facing challenges when it comes to exporting their products from country to country”, says Arnoul d’Arschot, Head of Advisory & Business Development at ALTIOS International. “But the RCEP will create greater access to Asia’s biggest and most developed markets, which will lower the costs of importing manufacturing inputs, and make it easier for companies to build supply chains that leverage different advantages and skills across the region.”

The Southeast Asian countries that make up ASEAN are no longer just a low cost destination where international companies manufacture their goods at competitive prices to then export them back to Europe or the U.S. The markets of the member countries offer very interesting prospects. For example, sixty-five per cent of the region’s population is expected to be middle class by 2030. In fact, one of the region’s rising stars, Vietnam, took just 10 years, from 2010 to 2019, to double its GDP per capita from 1629 dollar to
3419 dollar.

ASEAN is also preparing its members for the Fourth Industrial Revolution, by setting up structures that give manufacturers in less developed countries, like Indonesia and the Philippines, to work with solution providers from Singapore to adapt to this development faster. “If ASEAN can take full advantage of these trends, it is estimated that by 2030 the region can generate up to 600 billion dollars a year in additional manufacturing output, increase annual foreign-direct investment in manufacturing by up to 22 billion dollars, and create up to 140,000 new jobs a year”, says Arnoul d’Arschot. 

Infographic ASEAN

Softbox: Manufacturing innovative and award winning packaging systems in ASEAN

Packaging innovator Softbox is based in Singapore, where it works with multiple manufacturers to produce its award-winning temperature controlled packaging solutions. “Our systems offer a great solution for sectors that need to strictly control the temperature of their products while shipping, like the pharmaceutical industry”, explains Christophe Guillot, Regional Manager Asia for Softbox. “For example, we designed a special, ultra-low temperature system for COVID-19 vaccines in 2020. Creating and manufacturing specific packaging systems requires us to work with manufacturers that are both innovative and detail-oriented.”

Softbox is benefitting a lot from the fast adaptation of industry 4.0 solutions in the manufacturing sector of Singapore. “Our solutions initially were only suitable for one time use, but we’re currently focusing on the sustainability and the reusability of our products, so we are working on a new range that can be reused several times or refurbished”, says Christophe Guillot. “Besides this, the newly available technologies allow us to improve the tracking and control options our clients have with our packaging. For example, customers get better insights in the temperature regulation and the location of the products, which are solutions the market is asking for currently due to the big challenges in global distribution. Our technology makes sure our clients’ products will reach their destination with complete integrity.” 

How to set up manufacturing in ASEAN

If you are interested in setting up a manufacturing location in one of the ASEAN countries, it is important to have a very clear idea of the goal you want to achieve in the region and then select the country that best fits that scenario. “Every country in ASEAN asks for its own approach. They are very different, different economies, they are at different moments in their growth”, says Arnoul d’Arschot. “For example, Singapore is a very mature economy, but Indonesia and Vietnam are still developing. You can’t approach ASEAN as a whole or with one strategy. It’s therefore important to establish your objective and then find a partner with good knowledge on the region to help you find the country that is the right fit for your company and can help you get started there quick and effortless. ” 

For more information, please contact:

Arnoul d’Arschot
Head of Advisory & Business Development / SEA & ANZ
T. +65 6352 7714
M. +65 9349 6781

Visit our website:
www.altios.com

Other website to visit:
www.asean.org
www.softboxsystems.com

This article was written from a webinar “Is Asean the new Global Manufacturing Hub?”

Insights & Promising Trends » organised in October 2021, with:
• Speakers Arnoul d’Arschot, Head of Advisory and Business Development for ALTIOS Southeast Asia / Bruno Mascart, Group Managing Partner, from ALTIOS,
• Special guests Christophe Guillot, Asia Regional Manager, Softbox Systems Ltd. / Stéphane Livet, VP Sales Asia, SPS INGROUPE

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