Production Location Vietnam: Local Know-how for Market Entry

1. Vietnam: Infrastructure at a glance
2. Logistics: Overcoming challenges with local expertise
3. Monitoring and limiting risks
4. Growing awareness of sustainability
5. Workforce and wage development

To handle the increasing flow of goods logistically smoothly, the existing infrastructure is being gradually optimized. For this purpose, the master plan for transport infrastructure adopted by the Vietnamese government in 2021 provides for investments of 65 billion US dollars by the year 2030. Planned are, among other things, the construction of 5,000 kilometers of highways along economic corridors, the modernization of outdated railway lines and a majority of the existing airports, as well as the construction of some new routes and a deep-water port in Haiphong.

The favorable geographical location in the heart of Southeast Asia and the 3,000-kilometer-long coastline make Vietnam, with its 44 seaports and seven container ports, one of the most important port transshipment points in Southeast Asia. In 2019, more than 19.35 million TEU (twenty-foot equivalent unit) and thus 654.6 million tons of cargo were handled – 14 percent more than in 2018. The "Master Plan on the Development of Vietnam's Seaport System" provides that the seaports will handle 1.5 billion tons of cargo by 2030, including 38 to 47 million standard containers (Twenty-Foot Equivalent Unit, TEU). The estimated costs for the expansion of the cargo seaports by 2030 amount to 13.8 billion US dollars and are to be primarily borne by private investors. Extensive expansion plans are in place for the deep-sea port Lach Huyen in northern Haiphong, the deep-sea port cluster Cai Mep-Thi Vai in Ba Ria-Vung Tau province, and the Van Phong port in the central Vietnamese province of Khanh Hoa. The Mekong Delta, which currently has no direct connection to international shipping routes, is to receive its own seaport with the Soc Trang Port, which is intended to serve as a logistics hub, especially for agricultural products and seafood produced in the Mekong Delta.

Vietnam has twelve international and ten national airports. However, only two of the international airports, Tan Son Nhat and Noi Bai, currently have international cargo handling centers. According to a logistics report published by the Vietnamese Ministry of Industry and Trade in 2020, air transport currently accounts for only a small share of the total volume of goods transported in Vietnam, but 25 percent of the country's total export value. Market experts believe that air transport will gain importance due to limited access connections and the size of the country. The investment capital required for the development of Vietnamese airport infrastructure from 2021 to 2030 is estimated by the Ministry of Transport to be around 12 billion US dollars.

The expansion of the road network is a high priority for Vietnam's further economic development. Nationwide, a variety of expressway, bridge, and tunnel projects are in planning, with a focus on expanding the North-South Expressway. The paved road network had a total length of 594,898 kilometers in 2019. Currently, despite the comparatively high costs, road freight transport remains the most popular form of transport due to its flexibility and independence from weather conditions, making up a large share of domestic freight transport.

The expansion of the railway network (3,143 kilometers in 2019) is progressing more slowly. Currently, there are only four international railway stations in Vietnam for the transport of agricultural products: Lao Cai, Yen Vien, Dong Dang, and Hai Phong. All these stations are located in the north, so the central and southern parts of the country are hardly connected to the rail network. Extensive investments of around 10 billion US dollars are planned for the railway sector by 2030. /!* elementor - v3.11.5 - 14-03-2023 */
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The 2030 master plan for transport infrastructure with an investment volume of 65 billion US dollars sets the course for the development of Vietnamese transport infrastructure to meet the swelling flows of goods driven by high growth from investments, production, and exports. Nevertheless, the local infrastructure does not yet fully meet modern standards. To address the associated challenges and ensure smooth processing, foreign companies can rely on logistics service providers such as Hermes International and SEKO. As part of a strategic cooperation, the two companies offer their clients comprehensive expertise in international goods transport as well as in-depth regional know-how. As experienced partners, they provide tailored transport solutions for the entire supply chain – sea, air (consolidation), rail, truck, and a combination of several modes of transport – as well as value-added services such as customs services or warehousing. Additionally, SCM tools and reporting services can contribute to increased transparency along the entire supply chain.

In Vietnam, there is generally a growing awareness of sustainability, occupational safety, and social responsibility. The Southeast Asian country has a comprehensive legal framework in which relevant labor standards are established, as well as the responsibility of employers to comply with them in the supply chains. In light of the European Supply Chain Due Diligence Act, significant efforts have recently been made to meet social and ecological requirements. Nevertheless, it is advisable to establish specific requirements for mandatory social and sustainable standards in the context of a code of conduct before entering into new supplier relationships and to have them signed by new suppliers. To ensure compliance with the required standards in Vietnam, particularly US and European companies tend to establish local compliance teams to monitor the implementation of the requirements.

Vietnam has a growing and well-educated workforce with diverse skills in production and high technical competencies. In 2022, the population was around 98.18 million, more than half of whom are female. Additionally, the population is young and tends to continue growing. Currently, female employees make up 47.3 percent of the total workforce, making Vietnam one of the 15 countries with the highest proportion of working women worldwide. The employment of women is tax-advantaged, so today about eight out of ten women in the age group of 15 to 64 are employed. Particularly in logistics and freight forwarding, more women than men are employed. Compared to China, wages in Vietnam are relatively low – the current wage costs in factories are about 50 percent lower than average hourly wages. However, as wages will also rise here in the future, it is advisable to design production and logistics from the outset with a focus on high efficiency. Additionally, growing competition for skilled workers suggests proactively investing in the training and development of local personnel and specifically developing supplier companies in this regard.

Adrian Biasi, Head of Commercial, SEKO Logistics Vietnam "As an emerging market, Vietnam offers great potential in Southeast Asia for European companies looking to tap into new sourcing markets or pursue a China +1 strategy. When entering the market, a variety of country-specific regulations must be considered, which is why the approach should be planned in detail. With our many years of experience in the logistics business, our profound local know-how, our established network of local partners, and our strategic partnership with Hermes International, we contribute to the smooth processing of goods flows and support companies in optimizing their supply chain performance." SEKO is the strategic partner of Hermes International to successfully handle goods movements to and from Vietnam. More about the collaboration will be available soon in a joint interview here on the Hermes Supply Chain Blog. Further figures, facts, and information about Vietnam can be found in our current market overview