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Foreign manufacturers to shift factories to Vietnam

Foreign manufacturers to shift factories to Vietnam

Friday 17, 04 2020
According to JLL, Vietnam has become a promising destination to foreign manufacturers since the wave of factory relocation from China began.

Reduce tariff barriers pressure

This research organization pointed out that when factories were forced to close during the Covid-19 outbreak in China, many large companies had to plan to overcome the production restriction period. In addition, a number of multinational companies have been planning to expand operations in Vietnam since last year in order to reduce the pressure of new tariff barriers on goods exported from China to the United States.

Data from the United States Census Bureau shows that U.S. merchandise imports from Vietnam in 2019 increased by 35.6% over the same period, in contrast to a 16.2% decline in imports from China.

The figure for this year will be affected by the impact of Covid-19 on the global supply chain, but the trend of shifting production from China to countries in Southeast Asia will remain. “Vietnam has been a promising destination since the wave of factory relocation from China began.

Although the Covid-19 epidemic is causing certain difficulties for relocation activities, Vietnamese land owners are still confident to raise land prices in the first quarter of 2020.” Mr. Stephen Wyatt, General Director of JLL Vietnam emphasized. According to JLL's Q12020 report, the North attracts the majority of large corporations who want to diversify their production portfolio due to its a well-developed infrastructure and good location (located right next to China). The average land price is USD 99 / m2 / rental period, up 6.5% over the same period last year.

Ready-built factories - a favorite choice for small and medium-sized businesses - remain stable at rents ranging from USD 4.0-5.0 / m2 / month, and have been fully occupied. The Southern region recorded an increasing number of land lease requests and land owners have become more confident in increasing land rental rates.

The average land price in the first quarter of 2020 reached USD 101 / m2 / rental period, up 12.2% over the same period last year. However, the development of logistics and infrastructure in this region does not correspond to the increase in land prices, so potential investors have to start looking for other alternatives.

Rental price of ready-built factories in the South ranges from USD 3.5-5.0 / m2 / month. According to JLL, under the impact of Covid-19, the postponement of land lease agreements will be increasingly clearer if the situation does not improve soon.

However, the market will recover and grow rapidly after the epidemic is under control. The disruption in the global supply chain due to the impact of the disease has made businesses realize the urgency of diversifying their production portfolios and avoiding being dependent on one country.

Foreign manufacturers to shift factories to Vietnam

Covid-19 is the catalyst

Covid-19 may be the new catalyst to speed up production shifts, which were fueled by trade tensions last year. Therefore, Southeast Asia in general and Vietnam in particular will be more attractive to businesses in the future.

Meanwhile, China is focusing on developing value-added industries. It is home to the world's leading companies for solar cells, 5G networks, artificial intelligence and battery manufacturing.

The main reason is because these businesses produce high-value products, creating high tax revenues for the government. In addition, low-value manufacturing industries often cause more pollution, while China is eager to improve the environment in urban areas. Switching to cleaner production with less space will also free up land for re-planning.

However, according to JLL, not all manufacturing sectors can easily move to Vietnam. The salary of manufacturing workers in China is three times higher than Vietnam, but Chinese workers are also more skillful than Vietnamese ones.

The size of China cannot be replicated: the number of migrant industrial workers in China is even higher than Vietnam's population. Moreover, a large volume of manufactured goods is used to serve the Chinese domestic market. “In the long run, many businesses are likely to change their production plans to ensure supply chain continuity and minimize the risk of similar shocks in the future.

Along with initiatives to improve sustainable performance and limit the environmental impact of manufacturing operations, small manufacturers can choose to produce and buy products from the domestic market” said JLL representative.

​>> China tightens and restricts import at the border

Source: JLL

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