Vietnam’s Popularity Is Poised To Redefine Sourcing Landscape In 2021, Survey Reveals
Vietnam saw its popularity among Western buyers grow by leaps and bounds over the past few years. | Source: Shutterstock
Decades ago, big producers began manufacturing and sourcing in China. With low labor and production costs, China is the most practical choice. But with the current trade wars and a global pandemic disrupting the global supply chain, the world’s dependence on China has become a complicated and problematic matter.
In the last few years, many companies have started rethinking their supply chain, moving away (though not completely) from China before tensions impact their overall operations. Many are now opting to relocate to countries that offer more stability and lower production costs.
According to a report by Qima, a Hong Kong-based supply chain compliance firm, Vietnam is leading the sourcing diversification charge away from China. India and Turkey also topped the list.
The firm surveyed 700 companies with international supply chains over the first quarter of 2021 and found that, while sourcing in China is “bouncing back strongly”, it has not yet returned to pre-pandemic levels.
“Alternative sourcing regions such as Vietnam, India and Turkey are experiencing sustained levels of growth,” Qima said.
“A traditional first choice for buyers diversifying away from China, Vietnam saw its popularity among Western buyers grow by leaps and bounds over the past few years – a trend that has remained in effect so far in 2021.”
Qima data show +16 year-on-year expansion in demand for inspections and audits in Vietnam in the first quarter of this year, which represents a third consecutive quarter of growth that had initially begun as a post-lockdown rebound in mid-2020.
This growth is more than just a return to pre-pandemic levels, as Q1 2021 inspection demand has, on average, doubled compared to Q1 2019.
The sourcing survey showed 43% of US-based respondents cited Vietnam among their top 3 buying geographies as of early 2021, twice the percentage in 2019.
“Furthermore, the appetite for Vietnam sourcing is far from satisfied and is poised to redefine the sourcing landscape in 2021,” Qima said. Around one-third of buyers globally and 38% of US-based buyers name it among countries where they plan to buy more this year.
Even though China continues to emerge strong in the post-pandemic period, the long-term diversification trends in global supply chain are continuing to chip away at its dominance – and while the surge in first-quarter China sourcing volumes compared to the previous year is undeniable (inspection demand +55% YoY in Q1 2021 vs. Q1 2020), it does not always translate into growth compared to the pre-pandemic period, according to Qima.
The textile and apparel sector, for example, saw an increase in inspection demand in China in Q1 of 2021, but it still represented a -20% drop compared to the same period in 2019.
By contrast, Vietnam’s textile industry recorded double-digit growth in demand for inspections from January to March this year, higher than 2020 and 2019. This indicates sustained expansion over pre-pandemic levels rather than a simple rebound.
Other Southeast Asian countries also showed growth across the board, fueled by the renewed interest from American and European brands alike.
But as global sourcing shifts, Qima also noted that compliance violations are also on the rise. In 2020, ethical risks mounted in the face of complex challenges and wide-ranging disruptions caused by the ever-changing situation amidst the pandemic. Over one-third of businesses surveyed reported that they observed additional ethical issues in their supply chain. Further, the percentage of factories that got a failing grade due to critical non-compliance climbed to 27%, a three-year high.
Major issues revolved around Health & Safety and Hygiene, where 15% of audited factories were found to have critical conditions.
Vietnam, on the other hand, is one of the few countries that maintained a high ethical audit score.