Vietnam: A New Outsourcing Site for U.S. Manufacturers

Tax incentives and non-existent export duties have begun enticing U.S. companies to move their manufacturing operations from the United States and China to Vietnam, says Eric Stevens, CEO of California-based Source Vietnam.

The spark may have been lit nine months ago when Intel Corp. (NASDAQ:

The trend started gaining some forward motion about nine months ago," Stevens says. "Intel pretty much led the way."

Source Vietnam is a division of Lorachell International and works to facilitate the manufacturing process for American companies outsourcing to Vietnam. Source Vietnam handles financial issues for American businesses, including dealing with Vietnamese factories and managing shipping logistics. It employs 15 in California and 10 in Vietnam.

Stevens says Vietnam is becoming a more popular place for U.S. companies to outsource because China has recently dropped its tax incentives. He says U.S.-based companies with global operations, like Intel, thus far are shaping the Vietnam trend. He knows of no Central New York companies interested in moving operations to Vietnam at this time. Several of the national or global companies considering relocating operations to Vietnam do have offices in New York State, he says.

Vietnam currently offers outsourcing companies three years of 0 percent taxes, followed by five years of a 50-percent discount on tax rates, Stevens says. He also says the country currently levies no export duties on trade items. The country also has low land costs and low import taxes on machinery and other manufacturing assets.

"They are very eager to please and do what needs to be done to get your business in there," Stevens says. "Vietnam is probably where China was 15 years ago."

Grant Landis, vice president of media for Source Vietnam, says Source Vietnam has obtained 30 clients that have or are in the process of moving several of their offices or divisions to Vietnam. He says that nearly all of the companies have declined to talk to the media about the moves due to the political controversy over outsourcing and because they don't want competitors to follow their strategy.

"It's a very important strategic move for the companies, and they are very serious about preventing competitors from finding out," Landis says.

Stevens says many of the companies most interested in Vietnam are high-tech and apparel manufacturers.

Hubbell Inc., is the only client that Landis says has given permission to use its name. Hubbell (NYSE: HUB-A), based in Orange, Conn., is an electrical-equipment manufacturer. It generated $1.9 billion in net sales in the first nine months of 2007. Hubbell's Vietnam location handles the manufacturing of medium voltage switches.

Vietnam offers U.S. manufacturers a strong work force, according to Source Vietnam.

"There is a very young and intelligent work force. More than 90 percent of the country is literate," Stevens says. "It's also a lower labor rate than in China."

The average monthly salary for unskilled workers in Vietnam is $55 U.S. a month, according to Runckel & Associates, an international consulting service for clients interested in doing business in Asia.

The common workweek in Vietnam is 48 hours, and the minimum wage in large cities Hanoi and Ho Chi Minh City is $55 U.S. per month, according to the Source Vietnam Web site.

Vietnam is located south of China and, has experienced an annual growth of more than 7 percent for the past four years, Source Vietnam says. Vietnam became the 150th member of the World Trade Organization in January 2007. Vietnam's population is 84 million, making it the 14th most populated country in the world.