Trend Report – The Challenges of Sourcing in Vietnam
By Rachel

The economy booms but with scathing criticism from international buyers

Vietnam’s economy has been rapidly growing the last decade, with the GDP overtaking China in 2017. It continues to be one of the world’s fastest-growing economies. The Vietnam economy has not been affected by global economic slow-down and has benefited from the US-China trade war.

The rise of Vietnam manufacturing

Vietnam has risen rapidly as an important manufacturing sector in Southeast Asia and is playing a vital role in the global supply chain. Vietnam has been particularly focused on replacing China for labor intensive products, while slowly moving upmarket. The growth of the Vietnam exports, however, has not been accompanied by significant improvements in sourcing problems.

In contrast, the expanding production capacity has resulted in increasing sourcing problems, underscored by the frustration of many international buyers.

3 greatest challenges for sourcing in Vietnam

Product quality

The challenges facing products made in Vietnam are similar to those in other developing countries.

  • Product quality
  • Low prices
  • Meager earnings abroad
  • Weak branding

The fatal flaw is a lack of professional quality control. This issues has damaged the reputation of products made in Vietnam.

Poor or no quality systems, inferior production environments, and the lack of quality responsibility and accountability have had detrimental on the establishment of quality systems in Vietnam.

The issue of product quality is a primary bottleneck which restrains Vietnam industry in striving for excellence, and faster adoption by the global market.

Subcontracting

Subcontracting is very common in the Vietnam manufacturing industry. Suppliers and factories try to cut costs by subcontracting work out to other suppliers to reduce their cost. This makes it difficult to know who is making your products.

Many of these are small and less qualified suppliers. They often operate in the shadows with poorly trained workers and no quality systems, training, or accountability.

Wages in this sector have grown far more slowly since the factory avoids regulation and labor laws. This results in incentives for larger manufacturers to shift production to smaller ones to produce products at cheaper prices at improved margins.

Ethics

Corruption continues to be a major issue in Vietnam. To deal with some of these issues, it is important to be well educated on the businesses environment.

  • Labor Law
  • Child labor
  • Wage Irregularities
  • Slave Labor
  • Corruption
  • ­Bribery
  • ­Extortion
  • Fraud

Vietnam’s economic development has led to a series of public issues related to ethics and social responsibility ensnaring some major consumer brands.

Some of these brands were forced to admit lack of controls in their sourcing process that led to use of sweatshops and other suppliers with related issues.

While many brands are trying to address the fallout by proactively focusing on ethics in their Vietnam supply chain, it remains a pervasive problem.

Growing strain on international supply chains

Sourcing from low-cost locations in South and Southeast Asia bring obvious benefits, but the exposure to hidden risk cannot be underestimated.

To mitigate risk we recommend

  • Plan carefully in selecting suppliers and sourcing partners
  • Partner with an accredited quality control provider
  • Develop a balanced sourcing portfolio for each product category
  • Avoid over-reliance on few suppliers

How Can a QC Partner Help?

  • Develop and Implement a Supplier Standard

Supplier evaluations are critical. Setting a standard specification will help ensure suppliers being evaluated are being measured equally, and for the most important aspects. A trusted QC provider can help you do this.

  • Conduct factory Audits and Evaluations

While doing your own evaluation is an option, it is often much cheaper and more effective to rely on a local 3rd party provider to help. They know the business environment and are well suited to ferret out issues.

  • Quality Control

Aside from hiring your own staff, there is no better way to ensure your interests are guarded than with a QC partner.  From helping to optimize your supply chain, monitoring production, and doing inspections, the benefits far outweigh the cost. Let HQTS take he guess work out of ensuring social responsibility, on-time delivery, and quality management.