Vietnam is preferred destination for supply chain diversification: Citi

Global trade continues to be impacted by macroeconomic and geopolitical forces. A focus on supply chain resilience is leading businesses to diversify partners.

According to a Citi report on supply chain financing, Asian economies are likely to continue to benefit from supply chain diversification strategies.

Vietnam and other ASEAN countries are likely to gain more prominence in technology supply chains due to strong pre-existing infrastructure.

Over half of global respondents in the Citi survey indicated that they already had or were considering supply chain diversification, with North America leading other regions at 63%.

Outside of China, Vietnam was the preferred secondary destination for supply chains, as indicated by respondents, except those in Latin America.

Respondents in Latin America were more likely than those in other regions to express a preference for bringing production back to their home market.

Of the respondents, 40% answered "yes" or "considering" to the option of moving production to Vietnam. Another 20% chose Thailand, and 25% mentioned other South Asian markets.

The Citi report highlighted that there is increasing evidence that reshoring and nearshoring are already happening on a large scale.

For one, U.S. construction of manufacturing facilities has picked up considerably over the last year.

Countries in Latin America, particularly Mexico, as well as other emerging Asian economies such as Vietnam and India, have also benefited from this reconfiguration.

India has made impressive gains in cell phone manufacturing, and its government has policies in place to attract businesses to other sectors, including semiconductors, renewable energy, and autos.

Thuy Lai, Citi Vietnam Head of Treasury and Trade Solutions (TTS) and Corporate, Commercial, and Public Sector (CCPS). Photo courtesy of Citi

According to Thuy Lai, Citi Vietnam Head of Treasury and Trade Solutions (TTS) and Corporate, Commercial, and Public Sector (CCPS), in today's dynamic global trade landscape, the demand for resilience and diversity in supply chains is more pronounced than ever.

This not only presents opportunities for larger corporations but also opens up avenues for smaller players, including last-mile suppliers in developing countries, to actively engage in the global marketplace.

"Vietnam, along with Malaysia and Thailand, are early examples of this in the Indo-Pacific region, where this shift is prominently evident," Thuy said.

However, these shifts are not likely to take away China’s position as an integral part of global supply chains.

Moreover, there are many reasons that firms moved production to China in the first place, including lower costs and supportive infrastructure, which are still likely to remain factors in the years ahead.

Additionally, there are some spaces, such as autos, where China has been gaining global market share in recent years.

Going forward, China is likely to remain a central hub in many production and sourcing chains.

As China heightens its focus on value-added manufacturing, the demand for manufacturing in more conventional sectors is moving to ASEAN.

This is expected to continue, positioning Vietnam, given its proximity to China, for sustained and significant growth.

"The growth of Vietnam as a preferred destination for supply chains is rooted in its strategic geographic location, robust infrastructure, skilled labor force, and a conducive business environment that fosters innovation and growth. By embracing this new era of interconnected trade dynamics, Vietnam is solidifying its position as a key player in the global supply chain landscape," said Thuy.