Exploring Vietnam & Cambodia:  Your Next Sourcing Destination?

Global supply chains are currently undergoing their largest transformation since the 1980s. China’s evolving demographics are impacting its manufacturing capacity and labor costs; new economies across Asia are emerging and providing alternative sourcing opportunities; and foreign executives are under immense pressure after the US-China Trade War and Covid-19 to secure their supply chains ahead of any further disruption or risk.

Foreign companies currently manufacturing in China are as proactively as ever trying to understand how other countries compare in status, opportunity and challenge. Vietnam and Cambodia are two of those countries, having in the last few years made significant improvements in their infrastructure development, attraction of foreign investment, and ability to prove themselves as viable manufacturing hubs.

This article offers a first-hand view of how Vietnam and Cambodia compare to China, the existing challenges and opportunities, and the first steps to consider if trying to relocate manufacturing efforts there.

China: The Global Manufacturing Giant

China has undeniably been the world’s manufacturing powerhouse in the last two decades. It’s had a vast labor force, developed an incredibly efficient infrastructure, and supported industry to be competitive and diverse. The country’s Special Economic Zones (SEZs) and Free Trade Zones (FTZs) have also played a pivotal role in attracting foreign investment.

The country’s emphasis on R&D and years of servicing MNCs who have helped their suppliers learn have propelled it to the forefront of innovation, cutting-edge technology, and sophisticated manufacturing capabilities.

From start-ups to Walmart and garden hoses to iPhone, companies have naturally gone to source, develop and manufacture in China. Things look to be changing, however. According to China’s customs administration, its exports declined by 14.5% in July compared to a year ago. Per China Briefing, “Exports to the European Union declined by 20.62 percent yearly, and those to the United States dropped for the twelfth consecutive month by 23.12 percent.

Vietnam: The Rising Manufacturing Star 

Vietnam joined the World Trade Organization in 2007, further accelerating its attraction to MNCs by participating in free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union-Vietnam Free Trade Agreement (EVFTA).

While technology companies such as Kohler, Intel and Samsung started investing in Vietnam early, it also welcomed Korean and Taiwanese apparel, bag and shoe manufacturers based in China and could no longer compete with local suppliers there.  

The country has focused on being business-friendly, improving its infrastructure, and promoting technology and automation as a low-cost, labor-intensive alternative to China.  

Today, Vietnam’s leading export sectors include food processing (19%), electronics (18%), textile and apparel (10.5%), and leather and footwear (10%).  

Cambodia: Emerging & Growing Quickly

Smaller in scale compared to Vietnam, Cambodia has recently emerged as an attractive destination for labor-intensive manufacturing. This has been driven by low labor costs, being a Generalized Systems of Preferences (GSP) beneficiary (the U.S. trade agreement expired in 2020 and is pending renewal), and increased investment from Chinese factories relocating there to avoid losing customers.

Cambodia’s manufacturing output saw an 83% year-on-year increase in 2022, accounting for 40% of its GDP. Clothing is 80% of Cambodia’s exports, followed by footwear and travel accessories such as bags. According to 2020 figures, its largest growing export sectors included furniture & lighting equipment (50% growth), machinery & electrical equipment (31% growth), and bicycles (28% growth).

A participant in several trade agreements, including The Regional Comprehensive Economic Partnership (RCEP), Cambodia anticipates continuing to receive foreign direct investment, especially from China, which borders it.  

Advantages in Vietnam & Cambodia 

Both countries have recorded impressive economic growth rates in the past decade and have foundations that signal this continued projection. As a manufacturer, these include:

  • Business Friendly: Both offer a range of government incentives like tax breaks, reduced import/export duties, and simplified business setup procedures. Investment into Special Economic Zones growth and services also continue. These initiatives have been highly effective in attracting foreign businesses. 

  • Strategic Location: Proximity to China means businesses diversifying from China can maintain consistency in their supply-chain logistics. Transportation routes from China to both countries are relatively efficient and safe. Shipping lead times between China, Vietnam and Cambodia to the U.S. and Europe also do not significantly change.

  • Young Workforce: Both countries boast a young, energetic workforce. Vietnam has a labor workforce of about 60 million people, and Cambodia’s nearly 9 million people (one of the smallest in the region). While this is significantly lower than China’s workforce, these countries have youth on their side compared to China’s aging population, no longer incentivized to work in manufacturing.  

  • Labor Costs & Capacity: Lower labor costs and a youthful population have allowed factories in both countries to employ many laborers. This allows buyers to place large quantities of several items within the same factory, compared to China, where capacity is reducing and forces factories to sub-contract (often without their customers knowing).  

Challenges to Consider 

  • Infrastructure: While major cities are well-connected, hinterland infrastructure, crucial for manufacturing, might not always be up to the mark. This is particularly true in Cambodia, where road and rail networks need continued upgrading. Domestic delivery of material or shipment from factory to seaport can often be delayed, something companies need to anticipate if used to China’s speed and efficiency.

  • Skill Gaps: While labor is abundant, specialized skills, especially in electronics or high-tech manufacturing sectors, are still lacking. This means assembly or output efficiency is often not as high as in China on the production floor and can impact overall lead times. In R&D, which relies on designers and engineers, foreign companies seeking to develop, innovate, and sample may require being more “hands-on” than they’re used to in China.

  • Raw Material Availability: China’s supply chain is large and diverse in its raw material manufacturing and availability, but this is not the case in Vietnam and Cambodia. Be it electronics or apparel, the majority of raw material used by factories still requires procuring from China. This lack of raw material availability impacts sample development, quality assurance efforts, and production lead times.

  • Product Costing: One of the biggest misconceptions about sourcing outside China is that product costs will naturally be lower due to lower labour costs. Several factors impact costing competitiveness in addition to labor costs, including overall factory overhead, product complexity and production efficiency, material availability, etc. As such, it’s a mistake for companies to assume their sourcing efforts outside of China will result in better costs.

How Onward Global Helps Companies
Move Sourcing from One Country to Another 

Moving procurement from one country to another can be a complex endeavor that requires careful planning and consideration of various factors. Onward Global has been helping international companies source, develop and manufacture across Asia for many years and assists clients in sourcing relocation and diversification. This is done by providing expertise and a localization strategy similar to the one outlined below.  

  • Country Identification: To save time before starting sourcing efforts, it’s important to understand which countries make the most sense to focus on. This can differ based on location, market expertise, trade agreement benefits or barriers, geopolitical risks, and short- or long-term planning considerations.  

  • Supplier Sourcing: This requires finding new suppliers or transitioning existing relationships. Onward Global helps identify supplier options and conduct thorough evaluations to understand their expertise, capabilities, capacity, and reliability. The more options, the better. Supplier sourcing, verification and onboarding is a process that requires time, but doing it right from the start can save buyers plenty of headaches.

  • Cost Analysis: As explained in this article, low labor costs don’t always equate to low product costs. Before committing to relocating to another country, buyers need to understand how procurement costs differ and, most importantly, why. Onward Global helps oversee this process, ensuring that costing efforts are managed accurately, transparently, and in consideration of any external factors such as import/export duties. 
  • Cultural Understanding: Each country has its own local customs, business practices, and communication styles. While it’s important for foreign companies not to change their values or standards, it’s equally important that they understand local culture and incorporate this into their day-to-day operational, relationship management and negotiation strategies.  

  • Legal & Compliance Risk Management: One would be shocked to learn how many MNCs ask suppliers to sign agreements that aren’t enforceable in the countries the suppliers reside in. Onward Global advises what mistakes to avoid, how to maximize legal protection, and how to effectively negotiate with suppliers if required. This includes agreements that secure intellectual property and outline standards and terms as they relate to procedure, quality and ethics.  

  • Stakeholder Onboarding: Relationship management in Asia starts at the top. Supplier owners need to be involved in negotiation agreements and strategic planning. It is important that supplier employees are clear on what’s expected and any standard operational procedures the buyer has. This sometimes requires supplier training.  

  • Production & Quality Oversight: As with any new supplier or business, surprises can always happen. Onward Global works with clients and suppliers to prepare as best as possible to avoid surprises. To maximize success, though, Onward Global helps oversee production and quality assurance from purchase order placement to shipment. This ensures that product quality is compliant and that shipment dates are met without delay. It also gives clients first-hand insight into supplier performance and ways to improve going forward.

  • Logistics & Shipping: Moving manufacturing to a different country may require establishing new logistics networks. Companies must evaluate and understand the new location’s transportation infrastructure, customs procedures, and potential bottlenecks to ensure seamless shipments from Point A to Point B.  


Diversifying supply chains by tapping into Vietnam and Cambodia offers compelling advantages. As these countries mature as global supplier bases, foreign companies and buyers will benefit from growth opportunities there. The nuances of their manufacturing landscapes call for a well-informed and strategic approach, though.

Onward Global’s expertise and local teams can help companies plan and successfully execute these efforts to secure supply chains for the future and increase competitive advantage.

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