Vietnam's Role in Supply Chain Restructuring

The restructuring of global manufacturing supply chains has accelerated since 2022, and Vietnam has been one of the primary beneficiaries. By early 2026, the country has established itself as a credible alternative to China for labour-intensive manufacturing and is now competing for more capital-intensive, technology-intensive production as well.

The Scale of Relocation

Between 2022 and 2025, an estimated $42 billion in manufacturing capacity relocated from China to Vietnam, according to data compiled from FDI registrations, customs records, and corporate announcements. The figure includes both direct relocation — where existing facilities are closed in China and reopened in Vietnam — and diversion, where new capacity is added in Vietnam rather than China.

Electronics and textiles account for the largest shares of relocated capacity, at 34% and 28% respectively. Furniture, footwear, and automotive components follow. The composition has shifted over time: early relocation was concentrated in textiles and furniture, while more recent waves include electronics assembly, battery production, and precision machinery.

The drivers of relocation are well-documented: rising labour costs in China, tariff exposure under US trade policy, geopolitical risk diversification, and the desire to reduce supply chain concentration. What is less commonly discussed is that many multinationals are not leaving China entirely, but rather adopting a "China plus one" strategy in which Vietnam serves as the secondary sourcing location for export markets while China remains the primary base for domestic Chinese sales.

Sector-Specific Dynamics

In electronics, Vietnam has moved beyond simple assembly to encompass more complex manufacturing processes. Samsung produces approximately 60% of its global smartphone output in Vietnam. Intel operates its largest assembly and test facility worldwide in Ho Chi Minh City. Foxconn, Luxshare, and Goertek have all expanded beyond their initial Apple product lines to serve additional clients and product categories.

The textile sector presents a more nuanced picture. Vietnam's garment exports reached $42 billion in 2025, but the country remains heavily dependent on imported fabric. The fabric import ratio — the share of fabric used in exported garments that is sourced from outside Vietnam — has improved only modestly, from 78% in 2020 to 72% in 2025. Domestic weaving, dyeing, and finishing capacity is expanding, but environmental constraints and capital requirements have slowed the transition.

Automotive components manufacturing is an emerging area. Vietnamese suppliers currently serve primarily tier-two and tier-three roles, producing wiring harnesses, plastic injection mouldings, and simple metal stampings. The opportunity to move up the value chain into tier-one components — transmissions, braking systems, electronic control units — is significant but will require sustained investment in engineering capability and quality certification.

Operational Realities

Relocating manufacturing to Vietnam is not a simple operational transfer. Labour productivity in Vietnamese manufacturing is approximately 65% of Chinese levels, according to World Bank estimates. This gap is narrowing but will persist for at least another decade. Companies must either accept lower output per worker, invest more heavily in automation, or employ more workers for equivalent production volumes.

Supply chain infrastructure in Vietnam is less developed than in China's Pearl River Delta or Yangtze River Delta. Lead times for imported components are longer, domestic supplier options are fewer, and logistics costs as a percentage of revenue are typically 1.5 to 2 percentage points higher. These costs are offset by lower labour costs and, in many cases, favourable tariff treatment, but the net benefit varies significantly by product and industry.

Regulatory compliance also differs. Vietnam's labour law, environmental regulations, and tax administration have their own complexities and enforcement patterns. Companies that assume Vietnamese regulations are simply a lighter version of Chinese rules often encounter unexpected compliance costs. Environmental permitting, in particular, has become more stringent, and the penalties for non-compliance have increased.

Domestic Supplier Development

The Vietnamese government has made local content requirements and supplier development a policy priority. The Law on Supporting Industry, revised in 2023, provides tax incentives, training subsidies, and preferential credit for enterprises that supply components to foreign-invested manufacturers. The target is to increase the local content ratio in manufacturing exports from 28% to 40% by 2030.

Progress has been uneven. Electronics localisation has advanced furthest in simple components — packaging materials, plastic housings, and metal brackets. More complex components such as semiconductors, display panels, and precision bearings remain imported. The automotive sector's local content ratio is approximately 15-20% for vehicles assembled in Vietnam, compared to 60-80% in Thailand and Indonesia.

Joint ventures between foreign manufacturers and Vietnamese suppliers are one pathway being explored. Samsung's supplier development programme has certified 32 Vietnamese enterprises as direct suppliers, up from 12 in 2020. These enterprises receive technical assistance, quality audits, and preferential payment terms. The model is being replicated by other multinationals, but the total number of certified local suppliers remains small relative to demand.

Conclusion

Vietnam's role in global supply chain restructuring is structural and likely to expand. The country offers a combination of cost competitiveness, political stability, trade agreement access, and improving infrastructure that few alternatives can match. However, the transition from assembly platform to integrated manufacturing hub will not happen automatically. It requires sustained investment in workforce development, supplier capability, and infrastructure — by government, multinationals, and domestic enterprises alike.