Author: Warren Shoulberg
The Vietnam war was one of the most traumatic periods in American history and more than four decades after it ended there are still scares to be dealt with on both sides. It’s why what’s happening in Vietnam today – and the role America is playing there – is something nobody could have ever predicted.
Because we’re no longer talking about military battles or geopolitics. Now it’s all about business: the business of making products for American consumers. And it’s becoming big business for the country of Vietnam.
Industries from furniture to footwear are increasingly looking to the Southeast Asian country as the place to go to manufacture their products—products previously made in China and, way before that, in the United States.
Much of this is due to the ongoing Trump trade war that has turned the global sourcing model upside-down for China, but also for some other nations elsewhere in Asia as well as Europe and even North America. With tariffs a moving target, changing at the whim of a tweet, U.S. companies are rethinking their supply chains trying to find new solutions to new problems.
But if one of the stated intents of the increased tariffs was to return manufacturing back to America, nothing of the sort has happened. Yes, there have been isolated occurrences of smaller companies reshoring here, but it’s not widespread, and it’s proved to be far harder than any tweet would suggest.
Instead, importers are moving out of China as fast as they possibly can, a migration that was already in process due to rising labor costs, currency shifts and a general push by the Chinese government to move into more sophisticated industries like tech and aerospace rather than basic consumer goods.
And for many industries, Vietnam has become their first choice in this manufacturing diaspora. The country has always had a heritage for handcrafted products, particularly ones requiring delicate sewing and fabrications going all the way back to its days as a French colony in the early 20th Century.
But this latest development is different, involving large-scale manufacturing far beyond handmades. Ironically, a fair number of the factories being rapidly put up in Vietnam are owned and financed by the same Chinese companies being dislodged in their home country. This echoes a similar migration 40 years ago when factory owners in Taiwan transitioned their operations to mainland China after the country was opened up to trade. In fact, some of those same Taiwanese families are part of this most recent shift to Vietnam two generations later.
One of the industries in the forefront of the great Vietnam surge has been furniture. Again, the movement out of China into Vietnam was already underway before the current tariff crisis but it has accelerated greatly over the past two years.
In a video report on Vietnam by industry business publication Furniture Today, a good number of furniture producers talked about how they were rapidly developing their Vietnam facilities. Wanek Furniture, which is affiliated with the largest American supplier and retailer Ashley Home, said it has moved 50-70 percent of its import mattress production out of China and into Vietnam in just the recent past.
It’s part of the larger expansion of Vietnamese mattress production. The country had a 28% share of mattress imports in the recent numbers compiled by Raymond James, up substantially from earlier levels.
Man Wah, a large Chinese upholstery producer, said it had built a 2.5 million square feet factory in Vietnam in just nine months and is rapidly shifting production to reflect the changing trade situation. From zero, it now ships 1,100 containers a month from Vietnam, a rate it expects to increase to 2,000 a month by the end of the year and eventually to 4,000 per month as it builds out production.
But furniture isn’t the only industry were Vietnam is gaining market share. Sourcing Journal, an online industry newsletter, reports that footwear imports from Vietnam are up 11.3% year-to-date and the country’s share of the American market is now just over 26 percent. That still trails China’s nearly 50% share but marks a significant shift in a product classification that once was overwhelmingly dominated by China.
While most observers expect Vietnam to continue to gain business across a wide spectrum of product categories, there may be limits. The country is experiencing a severe labor shortage which is restricting expansion plans and unlike China with its seemingly endless labor force Vietnam’s overall population is only a 1/16th of China’s.
Vietnam also still doesn’t have the vast infrastructure in place that China has built up over the past four decades. Its roads, ports and freight handling capabilities are very much still a work in progress. Nor is there a fully developed sub-contractor supplier base that produces the numerous components needed by final assembly manufacturers.
All of that will come in time but for now, the country is the Wild West frontier for American sourcing. It is still very much “Good morning, Vietnam.”