Importers are Moving Their Footwear from China to Vietnam

China has been known as the world’s factory for a long time, but it may finally have some competition. Vietnam is becoming a close second supplier for many major importers. In this blog, we’ll explore why China continues to be the world’s factory, despite the fact that some importers are moving out some of their supply chain.

So, what motivates importers to produce in Vietnam? Cost. Major US brands, like Adidas and Nike, are moving their shoe production to Vietnam for lower costs. Labor costs are rising in China and China’s factories are no longer trying to be the low-cost supplier. Instead, they are focusing on being the value supplier.

As of last year, Adidas produced 44% of its footwear in Vietnam, in comparison to the 19% produced in China. According to Customnews.vn, Nike had 46% of its footwear made in Vietnam, with only 27% made in China. However, this encompasses only a fraction of the industry. According to an article from the TheFashionLaw.com, brands such as Prada and Armani continue to produce footwear in China. This means that most high-end footwear is still made in China, where the focus is placed on value and quality.

Luxury brands rely on China for its technological advancements that make it difficult for other sources to compete. Vietnam, on the other hand, lacks these advancements. Factories are not equipped with the technology that Chinese factories have available to them. This may cause Vietnam to become a “landfill” for other countries. According to this article, lack of technology could cause problems for Vietnam in terms of labor exploitation and pollution

Despite the lack of technology, Vietnam contributed 1 billion pairs of shoes to the 27 billion pairs produced globally. However, production time is slow because of absent technology. This slower productivity can counteract labor costs. For example, a China laborer can make 1.2 pair of shoes in an hour. A Vietnam laborer can make .7 shoes per hour. If order quantities are lower, importers are more likely to move their operation to Vietnam to save money. However, for higher volume orders of higher quality shoes, it’s sensible to keep production in China.

Cost, production time, and technology are key factors for businesses when selecting their supply chain. For these reasons, we can expect Vietnam to become a realistic option for sourcing low cost footwear, as China continues to be the high-end supply chain of choice. But records show that labor costs are on the rise for Vietnam, too.  In fact, the trend for most Asian countries after China finally increased its labor costs, is to raise their own labor costs since higher earnings for workers translates into a stronger local economy.

Vietnam footwear export value has grown rapidly in recent years (42% in 2017) partially because many of the big factories in Vietnam are Chinese investments.  But 3 questions arise for the savvy importer:

1. Is Vietnam going to become the low cost provider for quality footwear?
2. If so, for how long?
3. Does China still have the best supply chain for quality footwear?

Do you think Vietnam is a good source for footwear? Share your thoughts with us in the comments below!

By Jocelyn Trigueros