In June, the Italian Chamber of Commerce in Hong Kong and Macao collaborated with the Belgium-Luxembourg Chamber of Commerce in Hong Kong to host an after-work seminar that offered the question: “Doing Business in Vietnam – Is Vietnam the New China?”
The question isn’t new – this discussion has long been humming away as China pivots away from mass manufacturing to focus on honing its specialist high-tech skills – but it has become more pronounced of late.
China’s attractiveness as a manufacturing destination has been on the wane for a few years now, with increasing wages contributing to rising manufacturing costs. However, the ongoing trade dispute with the U.S. has exacerbated things. Last month, Nikkei research found that more than 50 global companies have announced plans to, or were mulling over, moving production out of China as a result of the country’s declining trade relationship with the U.S.
But the Southeast Asian country is hardly an unwitting beneficiary. Vietnam has taken a proactive approach towards encouraging interest in the market, recently signing a free-trade agreement with the European Union that will eliminate export taxes.
Chris Milliken, senior associate at Freshfields Bruckhaus Deringer, says that it is difficult to tell the impact the trade war between the U.S. and China has had on Vietnam at this stage, but “anecdotally we have heard that a lot of companies are looking to move their operations to Vietnam.”
While Milliken isn’t convinced that the trade war between the U.S. and China is the sole reason why interest has spiked, he says it is “likely a part of the rationale.”
“Another, more prosaic, reason is that companies are simply becoming more aware of the opportunities in Vietnam - as one of the few sizeable and dynamic populations having high development growth - than they were in the past,” he adds.
This sudden flow of work toward Vietnam has not escaped political attention. During the G20 summit, held in Japan last June, Trump told broadcaster Fox News that Vietnam may be next in the firing line for tariffs. “A lot of companies are moving to Vietnam, but Vietnam takes advantage of us even worse than China. So, there’s a very interesting situation going on there,” Trump reportedly said.
GROWING OPPORTUNITIES FOR LAW FIRMS
At this stage, whether this will result in concrete policy or regulatory retaliation remains unknown, but what is undeniable is hand in hand with interest in the market, has come a greater influx of opportunities across the board for law firms.
“There are more marketing and business development opportunities, such as conferences and speaking events, now than in the past. There have also been events organised outside in Vietnam, such as in the UK, to drum up interest, though these are not organised by individual firms but rather mainly by business groups and trade publications,” Milliken says.
While Milliken notes labour and other costs in Vietnam are cheaper, the country also benefits from its various trade treaties “including ASEAN FTA, CPTPP and more recently EU FTA,” he says.
“Compared to countries with similar per capita income, Vietnamese people are better educated. The government is also very keen to establish Vietnam as a key manufacturing hub. Factories and local companies here have longstanding connections with Asian conglomerates from Taiwan, South Korea and Japan,” Milliken adds.
But how Vietnam copes with this interest, and whether it can overcome the hurdles it is beset with, remains to be seen. The country is grappling with a number of challenges including a smaller population, fewer skilled workers, and less developed infrastructure – and add to this rising land prices, which Milliken considers are “serious disadvantages.”
And the country will have to keep working to overcome these disadvantages. As businesses operating in the market continue to monitor geopolitical developments carefully, they are increasingly hedging their bets by exploring other markets at the same time.
Eclat Textile, supplier to Nike and Lululemon, which moved its manufacturing from China to Vietnam in 2016, recently told Bloomberg that it was looking to diversify as a mechanism to avoid future trade disruptions. And tech powerhouse Apple recently revealed it will begin manufacturing its AirPods in Vietnam, as it reportedly mulls over moving more of its production out of China. But where to remains to be seen.
For lawyers, and firms, the biggest takeaway appears to be that the era of one massive manufacturing hub is over, and the dawn of plotting diverse supply chains has begun.
To contact the editorial team, please email ALBEditor@thomsonreuters.com.
