Vietnam’s manufacturing index rises fastest due to cost competitiveness: report

Vietnam continues to rise fast as an attractive manufacturing destination due to its edge in cost competitiveness, according to the findings in a report released by a U.S.-headquartered commercial real estate services firm last week.

The Southeast Asian country keeps developing and has become an ideal destination for the manufacturing industry after jumping a notch from last year to top the Growth Index of the Cushman & Wakefield (C&W) Manufacturing Index 2015, which was released by the New York-based firm in August 2015.

The third annual edition of C&W’s global report, “Where in the World? Manufacturing Index 2015,” provides a barometer for manufacturers to assess their real estate strategies against an index, ranking the top 30 global manufacturing locations defined by output and the top 15 locations witnessing the most prominent growth.

The C&W Manufacturing Index 2015 report uses 36 data sources that make up three key parameters identified as being crucial to manufacturers during site selection or expansion: Costs, Risk and Conditions.

Through ongoing discussions with a number of major manufacturers, its base scenario takes the example of a highly automated manufacturer, weighting these parameters as follows: Costs (40 percent), Risks (20 percent) and Conditions (40 percent).

The pace of growth in Vietnam’s retail market continues to present opportunities to retailers and manufacturers of fast-moving consumer goods alike as the sector expands, the report said.

According to Alex Crane, CEO of C&W Vietnam, the Southeast Asian country has demonstrated its advantages in terms of cost competitiveness.

Specifically, Vietnam has begun to benefit from the rising cost of production in China, the report said.

Foreign direct investment (FDI) capital for the production and processing industry in Vietnam more than doubled from 2012 to 2014, reaching US$11 billion, accounting for 71 percent of total registered FDI capital to Vietnam during the period.

In the future, when the Trans-Pacific Partnership (TPP) trade agreement is signed, it is expected to increase the competitiveness, while reducing taxes and improving the position, of Vietnam in the global supply chain.

The pact will likely create a better framework for issues like intellectual property rights and human resources, thus helping to increase the attractiveness of the country.

The TPP is a proposed regional free trade agreement aimed at eliminating tariffs and lowering non-tariff barriers that is being negotiated by 12 countries throughout the Asia-Pacific region.

The countries include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, which collectively contribute almost half of global output and over 40 percent of world trade.

Regarding global manufacturing output, Malaysia continues to lead the index.

In the meantime, the Asia-Pacific region has seven countries in the top 10, including Malaysia and Vietnam.

While countries from the Asia-Pacific still dominate the top half of the index, highlighting the importance of the region as a global manufacturing powerhouse, there remains some underlying volatility.

Rising labor and operational costs in China, the world’s largest manufacturer in terms of output, are adding to the attractiveness of lower-cost regions like Malaysia, Indonesia and Vietnam.

Yet changing dynamics in the Chinese market have meant that some manufacturers are reviewing their strategies, the report said.

Labor, construction and energy costs are all increasing significantly, and many companies are finding that China’s cost competitiveness is gradually eroding.

For those operating on a low-cost-based business model, the attraction of relocating away from the more expensive coastal regions to China’s inland second- and third-tier cities, or further afield to Vietnam and Cambodia, is rising.

However, those in more high-tech industries have begun to look further east, to Taiwan.

Moreover, rising global operating costs are also contributing to a trend for re-shoring facilities to the west, with stronger prospects for the U.S. (ranked fourth) and certain European locations.

Supply chain management and perceptions surrounding brand and where a product is produced are also high on a manufacturer’s agenda, adding to the allure of manufacturing in home markets.