Lowering Cost Opportunities Peak for OEMs Willing to Offshore Contract Manufacturing
Vietnam is emerging as the leader in contract manufacturing operations
The Bureau of Labor Statistics, U.S. Department of Labor recently released that “compensation costs for civilian workers increased 4.5 percent for the 12-month period ending in March 2022 and increased 2.6 percent in March 2021. Wages and salaries increased 1.2 percent and benefit costs increased 1.8 percent from December 2021.”
Image Reference: https://www.bls.gov/news.release/pdf/eci.pdf
With the continuous labor cost increases in the United States, and labor accounting for as much as 30 percent or more of production costs, it might be the right time for OEMs to consider the cost-saving opportunity of a low-cost country alternative when it comes to their contract manufacturing needs. Having a U.S. contract manufacturer partner with operations in Vietnam is an ideal combination.
Unlike other Southeast Asian nations, Vietnam offers lower-cost labor along with the appropriate manufacturing skills, quality, and reliability needed for complex electromechanical devices for commercial aerospace, defense, space, life sciences, medical devices, industrial and semi-cap applications.
The resulting combination makes Vietnam, not just another low-cost production hub. Concerted political efforts and national and local levels along with significant capital investment from U.S.-based product design and custom manufacturing companies have prepared Vietnam to move into more complex, sophisticated technologies. Today, 65 percent of Foreign Investment for Development (FDI) in Vietnam is in manufacturing and processing, a large amount of it is for electronics.
There is no tariff on products assembled and finished in Vietnam and shipped to the United States. This is a significant financial opportunity and can certainly benefit manufacturers. However, keep in mind that the situation is likely short-term — the bigger, longer-lasting financial value lies in Vietnam’s pricing, quality, and ease of doing business.
FREE TRADE AGREEMENTS
Vietnam has free trade agreements (FTAs) with more than 200 countries — including the United States — giving the country access to multiple economies and creating opportunities for OEMs and CMs to connect with global production networks through Vietnam.
Financial and service benefits for manufacturers range from hassle-free customs, new export markets, and supply chains, to staying price-competitive with rivals who operate in FTA countries. The Vietnam network of trade agreements is among the best any manufacturer will find at this point on the value chain.
Vietnam’s reformed customs process and many seaports make shipping fast and seamless. With the right custom manufacturing partner, sourcing from Vietnam can be simplified with a partner guiding your company through each step and ensuring that all documentation is in order.
Vietnam stands out in the region for offering substantial financial advantages without endangering intellectual property. When an OEM partner with a U.S.-owned contract manufacturing facility located in Vietnam, the OEM can realize other benefits, such as:
- Local supply chain sourcing to reduce costs
- Direct contact with project and engineering staff
- English-speaking service and engineering leads
- Guaranteed response times
- Measurement against international quality standards
- Rigorous training and skills that match what's available at U.S. facilities
Want to learn more? Download our White Paper on "Contract Manufacturing in Vietnam Increases Profitability: OEMs can Lower Labor Costs, Improve Quality, and Protect IP with the Right Partner".