US clothing brands and retailers mulling a sourcing switch to Vietnam to avoid the ongoing tariff war with China need to sharpen up – because doing business with Vietnamese trading partners is very different from working with Chinese suppliers. “The main issue is that many US buyers expect to do business in Vietnam the way they have been doing in China, but the business culture is very different and many find it impossible to work in Vietnam because they do not understand or accept the differences,” says Frank Vossen, who runs Seditex, a Ho Chi Minh City-based based sourcing consultancy, focused on quality control. He explains that while Vietnam and China share the same political system – officially one party communist states that allow large private sectors and markets to thrive – and Vietnam is inspired by the policies of its big neighbor, “they have some big cultural differences.” He points to Vietnam’s history as a French colony in the late 19th Century and early 20th Century. “Vietnam has absorbed some Latin culture and understands the importance of a win-win relationship; whereas the Chinese only consider they win when they are under the impression that the other one is on the losing end.” “The Vietnamese are more quality conscious, while the Chinese are more likely to value quantity over quality” – Frank Vossen He adds the Vietnamese are more quality conscious, while the Chinese are more likely to value quantity over quality, adding: “You can cold call a visit to a Chinese trader or factory and be received on a red carpet; in Vietnam they will not attend to you unless you have been introduced by someone they know or trust.” As for negotiations, Chinese suppliers may well try to catch business by promising great products, great prices “and later on the prices will increase and the quality will not be as good as promised.” The Vietnamese, on the other hand, do not run after business; business has to come to them. “They will be very conservative in their quotations, taking extra margins for errors, and once the relationship is established, the prices will be adjusted downwards.”
Different management models
Differences in business culture between China and Vietnam may be accentuated by different management models pursued by Europeans and Americans, according to Duncan Stirling, an Ireland-based freelance sourcing agent and management consultant who has undertaken market entry research for a wide range of industries in China and Vietnam. Stirling, who is a graduate of the EU-China Managers Exchange & Training Programme, and who has run sourcing businesses in the two countries over the past two decades, points to impressive German-owned factories he has visited operated by brands such as van Laack and Rieker in Hanoi, Hoi An and Ho Chi Minh City. “The [German] model is to set-up and run the factory for the long term…American brands seem to be different. I have never come across American companies actually investing in the same way. They use a lot of sub-contractors and suppliers but little in the way of ‘set-up and run your own show’,” taking the care that Vietnamese seem to like. “The people who run the factories the Americans use are very often Taiwanese or Singaporean, but usually Taiwanese. “As regards working culture, Vietnam is “much, much fairer to the worker,” according to Stirling. “Aside from more holidays compared to their Chinese counterparts, Vietnamese workers are represented by “unions and works councils that have an active say in the running of the firm…Vietnamese socialism is much friendlier in that respect. They do care about the workers more.”
Wages and quality
Wage inflation is more pronounced in Vietnam, he concedes. As in China, factory owners are often not sure if workers will return after the Chinese New Year holidays – celebrated in Vietnam as the ‘Tet’ festival – but this is less likely as more Vietnamese workers stay and build up salary. “It is only 90 million people – it is like one province of China, there aren’t the huge waves of people flowing to different places on a whim. People tend to stay put more. There are a smaller number of targets for them to go to for work. They tend to stay.” As for quality control: “It can take time to get the quality you need when working with a new supplier in Vietnam. After a few iterations, it improves,” but “a hands-off approach will never work here,” even if the “more experienced the supplier the better.” In China, by contrast, despite the generally weaker focus on quality, the management at Chinese suppliers do not need such careful handling to get the job done, assuming the supplier chooses to deliver what a brand needs. “In China, they have been up this learning curve already.” Stirling has advice for US brands seeking Vietnamese manufacturers: invest directly for the long term and retain control. “In short, if I were a brand and I wanted to build for the long term, then I would do it all myself there. And it would be tough at the beginning, but what isn’t. It always is. It would work and would pay-off.” With US interest rates so low, “if there was ever a time to try something like this, it is now.” So far as the clothing sector is concerned, American brands have yet to take his advice, however. Will they? Maybe, maybe not: American firms “are very footloose” in that respect.
