Supply Chain News Bites - Only from SCDigest

-May 31, 2007


Procurement and Sourcing News: Is Vietnam the Next Hotbed for Offshoring?


Country Tries to Move More Upscale, and Direct Foreign Investment Soars; Watching Lessons from China


SCDigest Editorial Staff


Vietnam, with the help of Western corporations, is becoming an increasingly strong force in capturing offshoring and outsourcing work from developed economies, growing its already sizable presence in low end goods while successfully moving upstream into higher end manufacturing and service offerings.

Over the past decade, Vietnam has built a decent business in basic goods such as apparel, shoes and bicycles, based on its low labor costs. Estimates are that wage levels throughout Vietnam are only about one-third of those in China’s eastern coastal region, and land is also considerably cheaper there. Companies chasing lower labor rates are already increasingly moving production to Vietnam.

But the country is now looking to advance up the supply chain, following China’s so far successful model of facilitating entrepreneurship and foreign investment while the Communist government maintains tight control over politics and social policy.

The efforts are paying off. Last year, Intel announced plans to build a large semiconductor factory near Ho Chi Minh City, which has led other companies to look more closely at the country and in some cases make investments in the country.

Vietnam is also becoming a growing force in offshore software development for Western companies, offering increasingly strong technology resources at rates much lower than India, for example.

A Wall Street Journal article recently noted that Vietnam is beefing up its educational system, and that a large percentage of university students major in computer science, engineering, and the hard sciences (chemistry, physics, etc.) – all of which will position the country’s labor pool and skill sets for higher end manufacturing and technology related work.

The Asian Development Bank reports that direct foreign investment in Vietnam more than doubled in 2006 versus 2005 to over $4 billion.

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