Vietnam preferred as destination for manufacturers: survey

Standard Chartered Bank has said Vietnam is emerging as the most preferred destination for companies planning to move production out of China, Vietnamese local newspaper Saigon Times Daily reported Wednesday.

The bank's global research team said in a recent report that China is shifting away from a growth model based on low manufacturing wages and is increasing automation as it moves up the value chain. This is opening up opportunities for low-cost manufacturing regions like the Association of Southeast Asian Nations (ASEAN).

Vietnam is poised to be among the biggest beneficiaries of China's move up the manufacturing value chain, cited by more than one-third of respondents of its latest survey.

Lower wages, a young and educated workforce and geographical proximity to China make Vietnam an attractive destination, particularly for more labor-intensive manufacturing segments. In addition, Vietnam is regarded as an attractive consumer market thanks to its fast-growing middle class and increasingly affluent population.

Respondents of the survey prefer to move to regions closer to their existing operations. Vietnam's geographical proximity to China would allow them to continue to use their existing supply- chain network, enabling a seamless transition out of China.

"Our clients have consistently picked Vietnam as their top alternative destination to China over the past three years. In 2015, 36 percent of respondents who preferred to move manufacturing out of China said they would move to Vietnam, 25 percent chose Cambodia and 10 percent each chose Bangladesh and Indonesia," the report said.

Respondents estimated that moving to Vietnam would provide an average cost reduction of slightly more than 19 percent, while moving to Cambodia would save 20 percent on labor costs. Moving to inland parts of China would provide smaller estimated savings of 16.8 percent.

Companies considering relocating from China appear to be predominantly low-end producers focused on garment manufacturing, based on their choice of alternative locations. Textiles, garments and footwear are a key export segment for Vietnam, accounting for around 24 percent of its exports.

Within the Mekong region, Vietnam attracts the second-largest amount of foreign direct investment (FDI) after Thailand. The manufacturing sector is the biggest recipient, accounting for 70 percent of FDI flows to Vietnam.

"We expect this to increase further as more companies move production to Vietnam," the report said. Endi