Vietnam’s Manufacturing Sector: Balancing Cost Competitiveness and Sustainability

Vietnam’s manufacturing sector has emerged as a global hotspot, attracting the attention of companies seeking cost-effective solutions without sacrificing quality. Vietnam’s ability to balance low operational costs with an increasing emphasis on sustainability sets it apart from many of its peers in Southeast Asia.

Why Vietnam is a Manufacturing Powerhouse
  • Competitive Labor Costs: Vietnam’s labor costs are among the lowest in the region, averaging $2.99 per hour in 2024—significantly less than neighbouring China, where wages are around $7.20 per hour. This cost advantage is a major draw for industries like textiles, electronics, and furniture.
  • Strategic Location: Situated in the heart of Southeast Asia, Vietnam offers proximity to major markets like China, India, and the rest of ASEAN. Its well-connected ports and growing infrastructure make it an attractive hub for global supply chains.
  • Trade Agreements: Vietnam’s active participation in trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA) has opened doors to tariff-free exports, giving it a competitive edge in global markets.
The Sustainability Push: More Than a Trend

Vietnam isn’t just about low costs—it’s also evolving as a hub for sustainable manufacturing practices. Here’s why sustainability is becoming the next big thing:

  • Government Policies: The Vietnamese government has committed to achieving net-zero carbon emissions by 2050. To support this goal, policies promoting renewable energy and green technology adoption are gaining traction.
  • Consumer and Global Pressure: Companies like Samsung and Nike, which have significant manufacturing operations in Vietnam, are under pressure from global consumers to ensure their supply chains are eco-friendly. This has led to an increased focus on renewable energy, waste reduction, and sustainable sourcing.
  • Green Energy Initiatives: Vietnam has become a leader in renewable energy in the region, with investments in solar and wind energy skyrocketing. For manufacturers, this means access to cleaner energy sources—a key factor in meeting international sustainability standards.
Opportunities for Foreign Businesses
  • Growing Sectors: Vietnam isn’t just about textiles anymore. The country is becoming a major player in electronics, automotive parts, and high-tech manufacturing. Companies like Intel, Samsung, and LG have already established significant operations in Vietnam.
  • Special Economic Zones (SEZs): SEZs like Quang Ninh and Hai Phong offer tax incentives, streamlined customs processes, and world-class infrastructure, making them ideal for foreign investment.
  • Skilled Workforce: While labor costs are low, Vietnam also boasts a young, skilled, and adaptable workforce. The government’s investment in vocational training programs ensures that workers are equipped to handle modern manufacturing demands.
  • Government Support for Industry 4.0: Vietnam is actively promoting the adoption of advanced technologies in manufacturing, such as automation, IoT, and generative artificial intelligence, to enhance productivity. Businesses that align with these initiatives can benefit from government incentives and stay ahead of industry trends.

Challenges: It’s Not All Smooth Sailing
  • Environmental Regulations: While sustainability is a selling point, it also comes with stricter environmental regulations. Companies must navigate these carefully to avoid fines or reputational risks.
  • Infrastructure Gaps: Although Vietnam’s infrastructure is improving, it still lags behind some regional competitors. Port congestion and underdeveloped logistics systems can sometimes hinder efficiency.
  • Dependence on Imports: Vietnam relies heavily on imported raw materials, especially in industries like electronics and textiles. This dependence can expose manufacturers to supply chain disruptions and price fluctuations.
  • Political Pressures: Vietnam, as a communist-ruled country, often encounters challenges with consistency in its laws and regulations, as government decisions can be subject to sudden changes or shifts in policy direction. This unpredictability can create uncertainty for businesses and investors, impacting their ability to plan long-term strategies.
  • Challenges in Language and Communication: Language barriers remain a challenge for foreign businesses in Vietnam, particularly in areas such as negotiations, documentation, and daily operations. Miscommunications can arise due to differences in language nuances or limited availability of skilled translators, which may lead to delays, errors, or misunderstandings in business processes.
How to Succeed in Vietnam’s Manufacturing Sector
  • Prioritize Compliance: Understand and comply with Vietnam’s evolving environmental and labor regulations. Investing in sustainability isn’t just a requirement—it’s a market differentiator.
  • Optimize Supply Chain Management: To mitigate dependence on imported raw materials, establish strong relationships with local suppliers and diversify sourcing options. Exploring opportunities for local material substitution or developing vertical integration strategies can further enhance resilience.
  • Capitalize on Trade Agreements: Take full advantage of Vietnam’s participation in major trade agreements like the CPTPP, EVFTA, and RCEP. These agreements provide access to reduced tariffs and streamlined trade regulations, enabling businesses to expand into new markets.
  • Understand Regional Variances: Recognize that Vietnam’s regions differ significantly in terms of infrastructure, labor costs, and industrial clusters. Tailor your site selection and operational strategies to align with the strengths of specific regions, such as the electronics hub in northern Vietnam or the textile focus in the south.
Conclusion
Vietnam’s manufacturing sector is a vibrant mix of cost competitiveness and an emerging focus on sustainability. Its strategic location, skilled workforce, and government support make it an attractive destination for businesses seeking long-term growth.

Of course, like any market, it comes with its challenges—from navigating regulations to addressing infrastructure gaps. But with a clear strategy, a commitment to sustainability, and the right local partnerships, Vietnam offers a wealth of opportunities for companies ready to invest in its bright future.

How ASEAN Business Partners Can Help You Succeed

Entering a market like Vietnam—or any Southeast Asian country—can be a complex journey, but you don’t have to go it alone. That’s where we step in.

With our deep expertise in market research, supplier connections, regulatory compliance, and tailored entry strategies, we provide the tools and insights you need to succeed in Vietnam’s manufacturing sector. Whether it’s navigating sustainability regulations, analysing industry trends, or building relationships with key stakeholders, we’re here to be your trusted partner.

Ready to tap into Vietnam’s manufacturing potential? Let’s work together to turn your Southeast Asian ambitions into reality.

Thao Nguyen

Thao Nguyen is ABP’s Country Manager – Vietnam. She is a dynamic leader with over 27 years of experience working for both global and local banks in Vietnam. Over the course of her career Thao has held senior leadership roles at HSBC, Citibank, ANZ, Techcombank and VIB View Profile | Connect on LinkedIn