Vietnam Cost Structure Analysis for Nordic Gearbox Provider
The client, a Nordic provider of gearbox equipment for wind turbines, considered to establish an assembly plant in Vietnam and decided to conduct a cost structure analysis of establishing and operating the plant in the country.
The aim of the project was to gain an overall understanding of the cost level in Vietnam, including such aspects as factory building, labor availability and cost, transportation between Vietnam and other destinations, as well as regulations of taxes and tariffs.
The study involved calculations of costs in each scope. For factory-related costs, both factory lease and construction were taken into account, as well as utility and other operational costs in three main economic regions of Vietnam. In regard to labor-related costs, labor availability in each region and the average labor cost were presented. To calculate the transportation-related costs, shipping connection from and to Vietnam by sea, railway, and estimated expenses were analyzed and presented. Lastly, tax-related costs were presented through mapping tariff rates of imported components to Vietnam, and the rates of exporting the finalized products to other countries, along with required taxes when operating in Vietnam.
Vietnam offers low costs in comparison to China and other countries in Southeast Asia, both in regard to factory and labor related expenses. Relocating an assembly plant to Vietnam means an increased cost control and decreased overall price level, which the client was interested in.
As Vietnam recently ratified their free trade agreement with the EU, exporting from Vietnam is subjected to either low tariffs, or is completely duty-free, resulting in highly lucrative opportunities in the country. Vietnam holds free trade agreement with not only the EU, but also other countries and regions, including China, ASEAN and India.
ARC Consulting conducted a high-level cost structure analysis for the client, including, but not limited to:
- Cost of establishing and operating a factory: factory lease, construction cost, utility costs and service fees in industrial zones.
- Labor availability and labor cost for both blue-collar and white-collar workers.
- Shipping costs and connections between Vietnam and other countries by sea, railway and road.
- Tariff rates of imported components and tariff rates of the final products when exported to other countries.
- Other taxes in Vietnam, such as corporate income tax, VAT, etc.
Shifting production from China to Vietnam is a highly lucrative option with remarkable advantages, including low cost of establishing and operating a factory, lower labor costs, lower transportation costs to the rest of Asia and Eastern Europe, as well as favorable tariff rates and trade agreements. However, the analysis also pointed out to the client to consider the lower availability of labor within the engineering sector, especially high-skilled labor, and the higher shipping cost from Vietnam to Western and Northern Europe than that of China.
ARC Consulting provided the client with a comprehensive analysis of cost structure in Vietnam regarding the establishment and operation of an assembly plant. To give further depth to the analysis, ARC Consulting conducted a benchmark comparison of the cost level in the three main key economic zones of Vietnam: The Northern zone, the Southern zone, and the Central zone.