Vietnam utilising its advantages of logistics to aid supply chain advances

September 29, 2022 | 09:00
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Vietnam’s logistics system remains less competitive than some neighbouring countries. Marco Civardi, CEO of JAS China , a privately-owned international freight forwarder, gave VIR’s Bich Ngoc his assessment of the shifting of manufacturers to Vietnam and how the country is positioning itself to be more integrated into the global supply chain.
Marco Civardi, CEO of JAS China & Hong Kong
Marco Civardi, CEO of JAS China & Hong Kong

What is your assessment of the shifting of manufacturers from China and other countries into Vietnam?

The main drivers for foreign investment to justify the shift of manufacturing activities out of China are quite a few beyond labour advantages: to reduce over-dependency from China in the light of the recent harsh lockdowns; to reduce suffering from tightening regulations on doing business and facilitate work permits; to avoid financial pressure deriving from sanctions; and to create a valuable source of supply alternative from a risk management standpoint and eventually also broadening market expansion in Asia.

It’s clear that China will continue to be seen in the dual role as a production centre as well as a consumer market, therefore its attractiveness won’t fade away.

From a supply standpoint, Vietnam is a very natural alternative for a number of reasons such as being culturally close to China, having a productive workforce and an already established industrial environment. It’s worth mentioning that not only are foreign multinational corporations rebalancing their exposure to China, but Chinese firms themselves are also looking for alternative sources of growth in Asia. Perhaps it can be a sign that China won’t be seen anymore as the only place to be in Asia.

When analysing such a near-shoring trend in a global context, China retains the lion’s share of low-end global manufacturing, hence it will never be replaced in its entirety as such. Although we can observe the production shift of textiles, furniture, and low-end electronics to ASEAN markets, chiefly with Vietnam as a prime location, we can’t agree on the notion of an exodus of manufacturing activities out of China.

Rather, we can concur that a China+1 trend is recently accelerating on the back of pandemic policy constraints in China and the enhanced need for firms to diversify the geographical exposure of their sourcing activities.

How can Vietnam’s logistics system compete with the likes of Singapore and Hong Kong?

Vietnam is relatively far from being a regional hub like Singapore and Hong Kong. The capacity and maturity of its port and airport operations associated with high standard storage and dispatch facilities made Hong Kong and Singapore credible to receive and ship goods from all over the world.

An important parameter is the timing/complexity it takes to complete the processes for importing and exporting goods. Having a fully online process, streamlined paperwork, automated and efficient port operations, enough capacity to avoid queuing, decent road connectivity, and storage operations to welcome any kind of goods is fundamentally what is still missing for Vietnam to compete with Singapore as a regional hub. In simple terms, a significant reduction of red tape would be needed.

Looking forward, with political determination and with substantial capital to upgrade the infrastructure and its processes, Vietnam could become a credible ASEAN hub in the coming few years. Importantly, Vietnam’s government is planning to invest by increasing capacity in airports, ports, and road connectivity. Therefore, with such aims, we can be confident that the transition to a more modern logistics system in Vietnam is on its way.

Moreover, the overall capacity in Vietnam is yet not fully utilised due to available convertible land for industrial usage and the workforce in the agriculture sector which could shift to coastal areas. Therefore, logistics capacity expansion perfectly fits with the increasing demand for sourcing/shipping projected for Vietnam in the years to come.

What can Vietnam learn from other markets in attracting more foreign investment into manufacturing?

There are a few items that could constitute valuable learnings for Vietnam starting from a comparison of red tape with other ASEAN countries to ensure Vietnam is the most investor-friendly country.

What appears to be needed are improvements in the transparency of the licencing processes, generation of a higher calibre talent pool, enhancing a more consistent experience at a provincial level to support the development of the less developed area, and granting ease of access from foreign talents into Vietnam.

The ongoing shift from low-end manufacturing to more value-added manufacturing in Vietnam is probably the most important battle to win which points to specialisation in complex manufacturing tasks in order to reduce its appeal mainly due to labour arbitrage advantages.

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By Bich Ngoc

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