Vietnam: How To Plan A Supply Chain Shift To Vietnam: 3 Guiding Factors

Last Updated: 23 July 2019
Article by Maxfield Brown

Global supply chain networks have been disrupted since the US-China trade war began in January 2018, prompting several foreign investors to look for manufacturing alternatives. Vietnam Briefing highlights three key steps if planning a supply chain shift to Vietnam.

Vietnam is not without its share of challenges. In the short-term, manufacturers may find the production shift daunting as supply chains have to realign. Companies often struggle to decide what to relocate, how they plan to enter the Vietnamese market, and where they will establish operations within the country.

Those that understand these issues will have a leg-up over their competition in the immediate term, but they will also make more informed decision that will position their operations for success over the their first few years of in-country business operations.

Step 1: Choose production elements to relocate

Companies should approach Vietnam, or any other China plus one investment destination, with a clear understanding of the production that they intend carry out in this market. For most companies, China plus destinations are chosen because of their lower costs, which are well suited for basic manufacturing and assembly.

Those targeting more complex manufacturing should conduct a thorough review of Vietnam's current labor force, sourcing networks, and infrastructure to ensure that this production will prove feasible.

Companies planning to export finished goods from Vietnam to the US, the EU, or other markets should also have a clear understanding of how the processes carried out in Vietnam will influence the origin of the finished product, and how this will influence tariff exposure.

Step 2: Pick your entry strategy

Vietnam provides three main options for market entry: engaging local contractors to fulfill elements of production, establishing a new manufacturing facility, or conducting a Mergers and Acquisitions (M&A) deal with an existing factory.

Representative Office plus local supply partner

Supply partners are a fast solution for companies seeking to restructure supply chains as quickly as possible. Under this model, the foreign company enters into a contract with a local factory to manufacture a set amount of goods meeting the foreign company's specifications.

Ordering from a local supplier does not require the presence of a local entity. Depending on the supplier in question, it may be possible to find a partner with a good understanding of local logistics and customs clearance.

Companies seeking to work with multiple suppliers on a long-term basis often choose to set up a Representative Office (RO) to oversee production within these facilities, and to act as a cost center for sales activities. This is particularly popular in the garments industry.

Unlike China, Vietnam's supplier market still developing. Companies that are interested in entering Vietnam through vendors should understand the capacity of the local market to support their production needs.

100 percent Foreign Owned Enterprises

Foreign Owned Enterprises (FOEs) provide the greatest level of access to and maneuverability within the Vietnamese market, allowing investors to engage in profit generating activities across all unconditional investment sectors.

100 percent FOEs let foreign investors maintain full control of their Vietnamese entity. Companies that are listed, have strong supplier networks in China, or are targeting Vietnam as a long-term investment opportunity tend to prefer this method of entry.

Executives that elect to establish their own facilities will forge the ability to tap into the market knowledge of local partners. Companies should develop a clear understanding of Vietnam's investment environment and make several trips to the country to vet potential locations, logistics providers, and infrastructure networks.

Manufacturing companies overwhelmingly choose to set up factories in Vietnam within Industrial Zones (IZs). The time to set up a legal entity for a 100 percent FOE takes between 4 to 6 months, while full production can take up to a year to get off the ground.

Companies that require a quick relocation often choose to work with local factories during the interim period and transition to full production upon completion of manufacturing facilities.


A M&A allows investors to gain access to the Vietnamese market quickly by acquiring the business licenses, factories, workforce, and connections of a local company.

The second potential benefit of an M&A strategy lies in the knowledge of the local company, since local partners can provide greater access to suppliers, customers, and sometimes improve a foreign brand's reputation within the domestic market.

The setup time for M&A is two to four months. However, this does not include the lead-time needed to negotiate an agreement between Joint Venture (JV) stakeholders. Negotiations over stakes, leadership, and structure of stakeholder obligations can often delay setup; however, they are integral to a successful JV and should not be rushed.

Foreign investors engaged in M&A or JVs are exposed to the liabilities of the company that has been acquired and, in the case of a joint venture, may face operational constraints.

Vietnam's legal and financial reporting systems are opaque and make it easier to conceal ongoing legal disputes and financial liabilities than may be the case in a company's home market. Companies considering an M&A entry strategy are strongly advised to thoroughly vet any targets.

Step 3: Identify an optimal location for investment

Vietnam has three Key Economic Regions (KERs) that host the majority of foreign investment and industrial activity within the country. Each KER provides a unique set of production conditions that lend themselves to different investment strategies. Companies should develop a clear understanding of each zone, the specific provinces within this zone and where industrial activity is carried out.


The Northern KER covers the provinces of Hanoi, Hai Phong, Quang Ninh, Hung Yen, Hai Duong, Bac Ninh, and Vinh Phuc. Together, these provinces account for roughly 16.2 percent of Vietnam's total population and 4.7 percent of its landmass.

Vietnam's Northern KER is best positioned as hub for China plus one manufacturing investors with time sensitive production chains, especially when shipping components between factories in China.


The Central KER covers the cities Da Nang, Thua Thien Hue, Quang Nam, and Binh Dinh. As of the latest census data taken on a regional level, the region accounted for roughly 7 percent of the national population.

The Central KER yields an investment environment with comparatively less competition than investment hubs in the north and south of the country. In recent years, the region's largest city Da Nang has benefited from good urban planning and development.

Investors increasingly identify central Vietnam as a low-cost destination because the north and south have become saturated with investment, driving up costs and congesting logistics networks.


The Southern KER encompasses the provinces of Binh Duong, Binh Phuoc, Long An, Ho Chi Minh City, Tay Ninh, Dong Nai. Vietnam's Southern KER is economically diverse. As a result, businesses from more niche sectors are likely to find that the south provides a more suitable environment for investment.

This is particularly true for small and medium sized enterprises (SMEs), since they are likely to benefit from a great degree of balance between support for small and large-scale investment. In recent years, Ho Chi Minh City has become a hub for start-ups and tech entrepreneurs for this exact reason.

Consumption is another major advantage for the southern region. Investors seeking to establish brand identity with Vietnamese consumers are sure to be able to find opportunities in the south, where the country's largest city, Ho Chi Minh City, offers access to a large consumer base.

For this reason, Ho Chi Minh City is the preferred destination for companies trialing food and beverage products, pharmaceuticals, and luxury goods.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions