Vietnam offers companies China alternative

Rapidly rising wages may be a headache for manufacturers and the communist leadership in China, but they are good news for people like Ngo Truong Chinh in Vietnam.

Mr Chinh recently took a job as a quality control manager at a factory that XP Power, the UK-listed electronic components manufacturer, has just opened in Binh Duong province, part of Vietnam’s main industrial belt near Ho Chi Minh City.

“Labor costs are cheaper in Vietnam but the workers’ skills are good,” says Mr Chinh, a 35-year-old electronics graduate. “That’s why many foreign manufacturers are investing in Vietnam.”

XP Power is just one of many manufacturers looking to diversify production beyond their China base to capitalize on lower wages and mitigate the risks of concentration in one location – a peril highlighted last year by the industrial impact of the devastating Thai floods and Japanese tsunami and earthquake.

With China’s experienced workforce, well-developed supply chain and vast scale, few people believe its position as the world’s workshop is under threat. But spiraling wage costs in China have driven a growing number of Labor-intensive manufacturers to switch to countries with lower wages, such as Bangladesh, Indonesia and Vietnam.

Unskilled workers in Vietnam are typically paid $100-150 a month, compared to the $300 their counterparts might receive in the manufacturing clusters of southern China. And while Vietnam’s infrastructure cannot compare with its much wealthier northern neighbor, factory managers say that they can cope with both the occasional power cuts and delays at Vietnam’s under-developed ports.

Vietnam already exports billions of dollars of basic manufactured goods such as shoes, clothes and wooden furniture to Europe and the US each year. It surpassed China in 2010 as the biggest source of footwear for Nike, the international sports brand.

The arrival of more companies like XP Power, which makes industrial power supplies, will test whether Vietnam has the skilled workers and infrastructure needed to tempt more technologically-advanced, higher value-added manufacturers. Pioneers like chipmaker Intel and Samsung, the South Korean electronics group, have already set up factories in Vietnam and are ramping up production. Nokia, the Finnish mobile phone, announced plans last year to build a mobile phone factory in northern Vietnam.Max 90 Premium SE