The international lawyers at my law firm have been increasingly fielding inquiries from companies looking to diversify their supply chains away from China. Many of these companies are looking to move their China manufacturing to Southeast Asia. To help our clients moving to or already in Southeast Asia, I recently went to Vietnam, Indonesia, and Singapore to meet with some of my legal counterparts and business experts to gain a better understanding of each country’s progress. Vietnam is ambitious in seeking to gain from China’s increasingly belligerent and problematic interactions with the world. It is still in its early stages and experiencing the growing pains that come from trying to quickly move from an agrarian-focused society to a high-tech society.
What I Learned in Vietnam
Vietnam’s relationship with China is long and messy. The Vietnamese carry a lot of animosity toward China, often just referring to China as “them” while pointing up (as if pointing north on a map). The Vietnamese are perfectly happy to claim as much market share from China as they can reasonably handle.
Hanoi, Vietnam, is a bustling government-focused city close to the Chinese border. But I heard from everyone that Ho Chi Minh City is Vietnam’s business city and is even more active/frenetic, much the same way Shanghai outperforms Beijing. The Vietnamese lawyers I met with were top-notch and gave me deep insights into Vietnam’s business dynamics.
Vietnam is much more focused on dealing with Japan, South Korea, Taiwan, and the US than its immediate neighbors Laos and Cambodia. This makes sense given the level of capital investment from these countries for decades, and given that Cambodia and Laos are much more in China’s orbit. It is telling that the common refrain in Singapore is that Vietnam’s time has come and they are not squandering their opportunity. This is important given that Mexico’s trade with the US just surpassed China’s trade with the US.
The infrastructure in Hanoi is at a reasonable level compared to Vietnam’s current development. It is dirty, busy, noisy, and crowded, but you can feel and see the optimism in the Vietnamese business community. Vietnam is the most optimistic country in the world and is teeming with young people.
I first arrived in mainland China in the summer of 2004 in a Tier 3 city called Deyang, an hour outside of a Tier 2 city called Chengdu, Sichuan Province. Hanoi today feels like Chengdu 20 years ago, including the energy and optimism and the constant infrastructure improvement projects. Today, Chengdu is a Tier 1 city (home to Intel and Texas Instruments) and part of the Chengdu Chongqing economic circle. But China’s aging demographics and plunging economy are generating increasing cynicism, including from established global companies. (See China has fallen into a psycho-political funk.)
What I Learned from Utah CEOs About Vietnam
I am not a native Utahan, but when I moved here five years ago from the East Coast I connected with the World Trade Center Utah (WTCU) when my friend and colleagues encouraged me to do so. My law firm’s relationship with WTCU has been rich and fulfilling because WTCU’s members are the “who’s who” of the international business community in Utah. And WTCU takes seriously its mandate to help Utah companies connect with the world, hosting delegations, events, and external trips frequently throughout the year.
Earlier this year, WTCU held two key meetings discussing Vietnam, China, and the ASEAN region. In one meeting, Jeremy Andrus, president and CEO of Utah-headquartered Traeger, said that China has been the obvious place to source and do business because of the staggeringly good efficiencies achieved in its planned economy. Most companies do not have “Nike level” resources to diversify their supply chains. Traeger went to Vietnam around 2019 and found a shortage of infrastructure, but they have continued to push to diversify from China.
In that same meeting, Jonathan Johnson, the CEO of Bed, Bath, and Beyond (formerly Overstock.com), said that most companies do not have the resources to diversify their supply chains from China or even to understand all the macroeconomic and geopolitical issues at play. But he lamented that the company’s retooled supply chains are still beholden to raw materials coming from China.
What I Learned from the Vietnamese Ambassador to the US
In another WTCU meeting, Vietnamese Ambassador Nguyen Quoc Dzong talked about how Vietnam is working to diversify away from China for its raw material inputs. He also said Vietnam has not received as much investment from China as they thought they would have. This is likely due to several reasons:
- China does not want to further empower one of its most capable competitors that has a significantly lower risk profile than China. Vietnam has a good labor force with competitive labor costs compared to China. Vietnam also has competitive investment policies and is a member of 15 free trade areas. With Taiwan-based Foxconn Semiconductors taking concrete steps to house its AI servers for the US market in Vietnam, China continues to be wary and is trying to woo foreign companies with promises of further opening its markets.
- China has carried out illegal activities in Vietnam’s territory. This likely refers to China’s ongoing claim to the Spratly Islands / Diaoyu Islands / Senkaku Islands in the South China Sea as its sovereign territory. This flies in the face of the international law of the sea and competing legitimate claims by Vietnam, the Philippines, Malaysia, Brunei, and Taiwan. It has earned China the “least trusted nation” status among its ASEAN neighbors.
- Vietnam is already quite saturated and struggling to catch up to investors’ requirements that it replace China as much as possible. Chinese companies are more likely to look to lower-cost countries in ASEAN, especially Malaysia and Indonesia, if it looks like the advantages from Vietnamese investment will be short-term (years instead of decades).
- Vietnam and China’s “messy” history (see above).
My Vietnam Summary
Vietnam is widely viewed as a much safer option than China due to its friendly relationship with the United States and the EU and its focus on high-tech (especially semiconductors), renewable and clean energy, and digital transformation. And unlike today’s China, Vietnam wants to grow its economy and increase English fluency and increase its people to people exchanges with the US (only 25MM Vietnamese students in the US right now).
It is easy to see why Vietnam is on the rise.
For more reading, see:
Vietnam: Tastes Like China Lite (A 2006 blog post by one of our lawyers after returning from ten weeks in Vietnam).