Vietnam offshoring and outsourcing contract manufacturing

Vietnam offshoring and outsourcing contract manufacturing services are a late comer to the global supply chain destination stage.

Due to an emergence of a wide degree of sourcing arrangements within, and with, the country, Vietnam’s contract manufacturing opportunities are developing at a rate that was not on the global radar ten to fifteen years ago.

While Vietnam’s wages can be as low as 1/20th of Taiwan’s wages, its labor rates are still not as competitive as China’s. Meanwhile, Vietnam has devised a national strategy for its IT industry that is much different from those strategies adopted by Singapore and South Korea in the 1960’s and 1970’s

Singapore and South Korea followed IT industry strategies that reflected dominance of in-house manufacturing.

Singapore developed its IT supply chain by supplying parts and services to multi-national corporations (MNC) that established in-house manufacturing facilities in Singapore. Whereas, South Korea primarily built-up its IT industry supply chain by reverse engineering company products already in the marketplace while manufacturing them in Korean-owned companies.

So, Vietnam had to consider how its Vietnamese IT industry supply chain would fit into the global supply chain. What Vietnam decided on was accomplishing this through varying stages of production being associated with different sourcing arrangements. Currently, many of Vietnam’s imported electronics components are sourced from China, Japan, South Korea, and Taiwan with high tariffs.

As tariffs on electronics components into Vietnam (currently ~30%) become more reasonable, interest in Vietnam as a destination source for offshoring and outsourcing contract manufacturing services should grow larger.

Meanwhile, the Vietnamese government continues to try and make Vietnam an attractive destination for electronics manufacturing. Overall production of electronics goods continues to increase. From 2000 to 2004, electronics production grew 25% per year.

Vietnam electronics contract manufacturing challenges

Some of the challenges facing Vietnam’s electronics industry include:

power (much of Vietnam’s electricity is generated from hydropower which can have a questionable supply consistency due to prevailing weather conditions. This can create trying conditions given high electricity consumption rates associated with technology manufacturing).
IP (intellectual property) rights can be considered weak
Vietnam’s transportation system is in relatively poor condition with less than 45% of its roads topped with asphalt
Questionable funding to support Vietnam’s railroad infrastructure
Telephone calls into the country, from North America, can be difficult to connect at times

A few of the electronics companies currently committed to manufacturing in Vietnam include Intel, Canon, and contract manufacturing and design companies Jabil Circuit, Spartonics, Mechatronics Engineering Group and, MiTAC Precision Technology.

VentureOutsource.com, November 2006