Lao Chen has not returned to his hometown in Fujian for the Chinese New Year for three years.
He is a manager of a Taiwanese-owned Chinese shoe factory in Gia Lai province in central Vietnam. Lao Chen has been in Vietnam for eight years. Before, he was a worker in a shoe factory in Jinjiang, Fujian.
Jinjiang has always been an important shoe-making town in China. It’s not that Lao Chen never thought regarding returning to his hometown, but the reason for staying in Vietnam is also very realistic: “The salary is higher than that of the mainland and Taiwan, and the social security is complete.”
In the words of Cai Jinhui, chairman of Water Sports, Lao Chen is a “talent dug out by Vietnam”. When Lao Chen went to Vietnam, it has become a trend to transfer the manufacturing of footwear and clothing in China’s coastal areas to Vietnam. Cai Jinhui said that around 2010, many factories in Putian tried to open branches in Vietnam. “A group of people with first-line management experience went to Vietnam to pan for gold.”
In the past two years, discussions regarding whether Vietnam will replace China have intensified, with labor-intensive industries such as shoe and apparel manufacturing bearing the brunt. In the June questionnaire of the China Chamber of Commerce for Import and Export of Textiles, 85% of the interviewed foreign trade SMEs believed that the order transfer to Southeast Asia was more obvious.
According to the “2021 World Footwear Annual Report” released by the Portuguese Footwear Association (APICCAPS), Vietnam will account for 10.2% of global footwear exports in 2020, ranking second in the world, and only 2% in 2011; China’s proportion At 61.1%, it still ranks first, but it has dropped by 12 percentage points in the past ten years.
The transfer of the old giants Nike and Adidas is more intuitive – both companies have gradually reduced their production ratios in China since the early 2000s, and have continued to expand their presence in Southeast Asian countries such as Vietnam.
Tang Yao, associate professor of the Department of Applied Economics at Peking University’s Guanghua School of Management, said: “Industrial transfer itself has been a normal state since the Industrial Revolution. Labor-intensive industries themselves are not very profitable, and will naturally transfer to areas with lower costs.”
However, the destination of industrial transfer is not only Southeast Asian countries such as Vietnam. Many coastal enterprises have also moved to the central and western regions of China. Now Henan, Sichuan and other places have become major provinces for shoe and apparel manufacturing.
For many shoe and apparel factories, the future of going overseas is not always bright. Whether it is a one-time transfer or a new factory, the industry has to spend a lot of money and face uncertainty. Cai Jinhui said that most of the companies that went to Vietnam to build factories from Putian back then were unaccustomed to the soil and water, and those who might stay usually had a Taiwanese background.
Looking at the development history of the footwear and apparel manufacturing industry in recent years, “go to sea」and「inward migration」These two paths are intertwined in the development trajectory of the times, and the two similar important nodes in the path—Vietnam and Henan—are embarking on a differentiated path.
Low labor cost in Vietnam, high quality of Chinese workers
The most natural advantages of Vietnam are geographical and transportation advantages. From the map, the country is adjacent to China in the north, surrounded by the sea on three sides, and close to major global shipping routes. Due to the borders, China and Vietnam have established a number of trade zones, with railways and highways interconnecting, and trade exchanges are convenient.
Compared with other Southeast Asian countries, Vietnam is more complete in terms of international airports, railways, and port connections, promoting production, transportation and flow efficiency.
In recent years, Henan Province has actively developed transportation and logistics construction. The inland transportation is relatively convenient, but it still needs to rely on sea and air transportation. The cost of air transportation is high, and the time cost is increased when switching from land to water, and the convenience is not as good as that in coastal areas.
The second biggest advantage of Vietnam is lower cost. In order to attract foreign businessmen, the Vietnamese government has lowered the cost of land, lowered corporate taxes, and has less stringent regulations on environmental issues than China.
However, for labor-intensive industries such as shoe and apparel production, labor cost is the most critical consideration, and Vietnam’s overall wage level is lower than that of China’s coastal areas and lower than inland provinces such as Henan.
Lao Chen’s factory is located in the plateau area of western Vietnam, close to the cotton production area. It is not rich, and the labor wages are relatively low.
Lao Chen said: “(Workers’ wages) are the same as those in the country. The price is calculated by the piece. The average worker’s monthly salary is 5.5 to 6 million VND (RMB $1,580 – $1,800). “Usually, the wages of footwear workers are higher than those of clothing, and the wages of big brands are higher, but they are equivalent toRMBthose who exceed 2,000 yuan are already very high.
In comparison, the salary level in Henan is lower than that in Fujian. A recruitment manager of the Hongxing Erke factory in Suixian County said that the average salary of a sewing machine worker is between 3,000-4,000 yuan, and that of a sewing team leader is over 5,000 yuan.
Although the wage cost of Chinese labor is higher, the quality is higher, and there is no obstacle to communication with management.
A person in charge who once set up a factory in Vietnam said that although the cultures of China and Vietnam are similar, it is still difficult for the management to integrate with the local team. “Thinking is still localized, many habits and working methods are different, and a lot of training time is required.”
Lao Chen also worked as an assembly line worker. He said: “Just by looking at the movements, you can see that Vietnamese workers are much slower than Chinese workers. In the early stage, you have to get started in two or three days in China at most, and half a day if time is tight. Our (Vietnamese factory) needs at least ten days.”
The hardest part is communication. Lao Chen rarely communicates with Vietnamese workers, and the factory circle is very different. He believes that Vietnamese workers lack “loyalty” to companies, and they just leave. Therefore, when they select team leaders, they often don’t look at technology, “just stay long enough.”
Vietnamese workers also have a different understanding of work. “One to 4:30 following get off work, the rumbling sound of motorcycles makes people’s brains hurt.” Lao Chen believes that Vietnamese workers are indeed quite “free”, and “overtime is another job that requires additional pay.”
Vietnam’s tariff advantage highlights China’s strong manufacturing capacity
“Its tariff environment is more stable than China’s, especially since it has signed high-level free trade agreements with countries such as the European Union,” Tang Yao said.
The EU is Vietnam’s second largest export market following the US. In 2020, Vietnam became the first developing country in the world to sign a Free Trade Agreement (FTA) with the European Union. After the agreement takes effect, tariffs on a small number of apparel products will be reduced to zero, and most apparel products will gradually return to zero within 3-7 years.
The EU is also one of the important markets for China’s footwear and apparel textiles. After the above agreement comes into effect, Chinese products will face direct competition from Vietnamese products.
At the same time, the US-China trade war has hit footwear and textiles. Data from the U.S. Department of Commerce’s Textile Office (OTEXA) shows that China’s share of U.S. textile and apparel imports has been decreasing year by year, from 36.59% in 2018 to 23.47% in 2022 (statistics to May this year).
In some categories, China is no longer the largest importer of the United States. For example, the import share of cotton clothing has been surpassed by Vietnam and Bangladesh, and cotton textiles have been overtaken by India.
Many studies view Vietnam as a beneficiary of the US-China trade war. According to official data, Vietnam’s gross domestic product (GDP) growth rates from 2019 to 2020 were 6.8% and 3.5%, respectively, and total imports and exports increased by 7.6% and 5.4%, both of which were the highest in Southeast Asia.
However, Vietnam’s shroud lies in its weak manufacturing capacity, while China is more advanced.
Maxfield Brown, consulting manager at Dezan Shira & Associates, said: “Due to the lack of the same level of manufacturing hardware and procurement material quality as China’s, Vietnam’s current infrastructure and supply chain can only represent China a few years ago.”
A former head of Adidas Greater China also said that the production line between China and Vietnam is clear. Chinese foundries mainly produce products for China, as well as some high-end running shoes. Vietnam mainly produces “big goods” – that is, general sports shoes. This kind of shoe is not too difficult to produce or assemble.
