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Goodbye China. Good Morning Vietnam. I Don't Think So, Part II

By Dan Harris and Steve Dickinson

Experience Not Logic has a nice post, entitled, "China's Manufacturing Competitiveness Is at Risk": Sort Of," on the recently published Booz Allen/AmCham Manufacturing Competitiveness report, somewhat wrongly titled, "New Challenges for Foreign Producers: 'China's Manufacturing Competitiveness Is at Risk." This report affirms what I said previously in my first post in this series:

My own unscientific sampling reveals that in most sectors of manufacturing, Vietnam's manufacturing capabilities are just not there yet. I have asked around ten of my firm's manufacturing clients and five or six manufacturing/product sourcing consultants where Vietnam fits in the manufacturing picture. All the manufacturers said Vietnam is not ready to manufacture their product and all the consultants said something along the lines of, "clothing and rubber duckies, yes. Much more than that, no." This is not to say big companies like Intel will not be establishing their own manufacturing operations in Vietnam, but it does say we should not expect a wholesale transfer of manufacturing from China to Vietnam in anything approaching the near term. Manufacturing outsourcing to both Vietnam and to China will continue increasing. Obviously, there will be many companies that choose Vietnam for their manufacturing who would have chosen China a few years ago. There will also be many who are in China now who will choose to expand their manufacturing operations in Vietnam instead of China. But China will remain the overwhelming choice for manufacturing and few companies manufacturing in China now will up and leave for Vietnam. Vietnam is not a panacea and it is not a replacement for China. Not even close.

Experience Not Logic cites a recent Knowledge@Wharton article, "New Challenges for Foreign Producers: ?China?s Manufacturing Competitiveness Is at Risk" concurring with my rubber ducky conclusion:

K@W summarizes the [Booz Allen/AmCham] report and conducts its own research to discover that China's manufacturing sector is still strong and that we should only expect a decline in the competitiveness of the "high labor, low value-added area" (read: basic cheap stuff). K@W notes that it is only the low-value added companies that are moving out of China because the profit margins that these companies operate under are slim enough that they will see a significant gain by moving to India, Vietnam, Thailand, Malaysia or Brazil. And, these firms that are leaving are largely Taiwanese and Hong Kong companies that first opened factories in China back "in the late 1980s and early 1990s." They set the trend with moving into China, and they are setting the trend in moving out of China. K@W notes that high-value-added manufacturers, such as heavy harbor equipment manufacturers, have plenty of room for profit growth in China because there are many compelling reasons to keep factories in China:

China is still the right manufacturing choice for most American and European companies, most of the time. What do you think?

Full post as published by China Law Blog on March 27, 2008 (boomark / email).