China +1 Strategy in Vietnam: Costs, Risks and Market Entry

A China +1 strategy adds a production or sourcing base outside China while retaining the parts of the Chinese operation that still work well. Vietnam can support that approach through manufacturing capacity, proximity to Chinese suppliers and access to export markets. The investment case depends on the product, production process, customer requirements and total delivered cost.

For foreign manufacturers and buyers, the useful question is which activities can be moved or duplicated successfully. This guide explains how to assess Vietnam, choose an operating model and turn a diversification decision into a workable factory or sourcing project.

What Does China +1 Mean for a Business?

The strategy can take several forms: buying from an additional supplier, outsourcing a selected production process, establishing a Vietnamese subsidiary or operating a factory alongside an existing Chinese plant.

The objective may be greater supply continuity, shorter delivery to selected markets, access to customers requesting geographic diversification or a stronger regional manufacturing footprint. Those objectives lead to different location and investment choices.

A company that needs an emergency backup supplier should prioritise qualification and spare capacity. A business seeking a long-term production base must also assess management, engineering capability, utilities, permits and working capital. The same country can suit one objective and be unsuitable for another product or production stage.

Why Is Vietnam Considered for China +1?

An Established Flow of Foreign Investment and Exports

Official first-half figures provide a useful view of the scale of activity:

Indicator	First half of 2026	Why an investor should consider it
Disbursed foreign direct investment	USD 13.03 billion, up 11.2% year on year	Measures investment actually implemented, rather than announcements alone
Registered foreign investment	USD 34.65 billion, up 61.0%	Includes registrations and adjustments; it is not the same measure as disbursement
Merchandise exports	USD 266.52 billion, up 21.0%	Shows the scale of the export economy, rather than demand for a specific factory’s product

Proximity to Existing Chinese Supply Chains

Vietnam can allow a manufacturer to retain selected Chinese components, tooling support and engineering relationships while adding production elsewhere. That is useful when relocating the whole supply chain would be too disruptive.

Map the items that still cross the border: components, moulds, spare parts and specialist services. Then assess lead times and alternative sources. A Vietnamese assembly site remains exposed to a disruption in China if it depends on a single Chinese component supplier.

Preferential Access to Selected Export Markets

The European Commission states that the EU-Vietnam trade agreement provides for eliminating 99% of tariffs. Removal follows the agreement’s schedules and qualifying conditions; it does not mean every shipment is duty-free immediately.

For an EU-bound product, examine its tariff classification, applicable schedule and product-specific origin rule. The European Commission’s origin guidance explains the framework. Retain the evidence needed for the relevant proof of origin and check whether imported inputs satisfy the rule.

How Many Companies Have Shifted to Vietnam, and What Comes Next?

In April 2024, Apple reported spending nearly VND 400 trillion through its Vietnamese supply chain since 2019, with annual spending more than doubling over that period. Apple’s diversification accelerated after pandemic shutdowns disrupted shipments from China. Northern Vietnam also provides access to existing suppliers in southern China, allowing companies to diversify assembly while retaining established component relationships.

Vietnam attracts Japanese businesses through both cost advantages and sales opportunities. In JETRO’s 2025 survey, 55.2% of Japanese-affiliated businesses cited low labour costs, while 68.4% highlighted market size and growth potential. This shows Vietnam’s appeal as both a production base and a market for their products.

Looking ahead, 56.9% planned to expand their Vietnamese operations over the following one to two years – the highest proportion in ASEAN. Businesses identified growing local demand and increased exports as leading reasons for expansion.

LEGO opened its Vietnam factory in 2025, followed by a distribution centre serving Australia, New Zealand, Malaysia, Singapore and Japan. Handling goods from both Vietnam and mainland China, the hub supports LEGO’s aim of creating a shorter, more responsive Asia-Pacific supply chain.

The company announced plans for the centre to accommodate 33,000 pallets and process more than 150 containers per week when fully operational in 2026. These capacity targets illustrate the scale of the expansion; LEGO has not disclosed quantified delivery-time or cost savings in the announcement. For foreign businesses, this expansion points to opportunities in packaging, warehousing, transport and production support.

Samsung reported Vietnam revenue of USD 64.9 billion and exports of USD 57.1 billion for 2025. These figures demonstrate the scale its Vietnamese operations can support.

What Are the Main Risks?

Tariff Savings Depend on the Product and Its Origin

Build a destination-specific duty calculation for each product. For US sales, the applicable result combines the product’s tariff classification, origin and relevant additional duties or trade remedies. The US International Trade Commission’s tariff schedule is the official classification and rate source.

Moving goods through Vietnam or changing packaging is not, by itself, a sound origin strategy. US country-of-origin rules consider whether further work in another country affects a substantial transformation. A claim under an FTA uses the applicable agreement’s own origin rules. The evidence must therefore describe what the Vietnamese operation actually does.

Prepare a bill of materials, process flow, supplier origin evidence, production records and the proposed tariff classification before deciding that the project creates a tariff advantage. Use a customs ruling where the origin or classification outcome is material and uncertain.

Labour Cost Is More Than the Base Wage

Compare cost per acceptable unit, not only monthly pay. Training, supervisor availability, overtime, turnover, transport, statutory employer costs, scrap and rework affect the result.

Test whether the local team can perform the required process at the required yield. A labour-intensive process may depend on a different workforce profile from electronics testing, tooling maintenance or precision machining. Interview local recruitment providers and potential managers using the actual job specifications.

A Factory Lease Does Not Settle Operational Readiness

Review the permitted use of the premises, landlord’s rights, construction status, fire-safety documentation and environmental requirements. Confirm the utility capacity required by the production line, including water quality, wastewater treatment and backup arrangements.

Obtain written evidence for critical infrastructure. A marketing brochure stating that an industrial park has power and wastewater services does not establish that the specific unit can support the proposed process or discharge characteristics.

Supplier Development Takes Management Time

Qualifying an alternative vendor involves drawings, samples, tolerances, traceability, change controls and commercial terms. A supplier may perform well on a sample but struggle at production volume.

Include engineering time, tooling ownership, quality audits and second-source qualification in the budget. For sensitive designs, define access to drawings and responsibility for tooling, data and rejected goods in the manufacturing agreement.

Where Should You Locate the Vietnam Operation?

Location focus	When to investigate it	Site-level questions
Northern industrial locations around Hanoi, Bac Ninh and Hai Phong	Projects needing access to northern supplier networks, ports or land connections towards China	Inbound component route, staffing, engineering support and reliable delivery to the selected port
Southern industrial locations around Ho Chi Minh City and Dong Nai	Projects serving southern customers or using the region’s manufacturing and logistics network	Trucking routes, workforce catchment, warehouse availability and customer proximity
Central locations around Da Nang or other suitable industrial zones	Projects with a central-market, port or specific site advantage	Depth of specialist suppliers, recruitment, freight connections and utility resilience

Compare actual sites using the same production assumptions. Administrative boundaries and addresses should match current official records; an old province name on a broker’s brochure is not sufficient for the lease and licensing documents.

Choose the Right Market-Entry Model

Model	When it fits	Main issues to resolve
Contract manufacturing	Testing a product or adding supply without owning the factory	Capacity allocation, quality control, tooling ownership, origin evidence and confidentiality
Own entity in a ready-built factory	Greater control with an existing building	Site suitability, investment and company registrations, operating permissions and equipment installation
Purpose-built facility	A specialised process or long-term capacity requirement	Land rights, design, construction, environmental and fire requirements, utilities and financing
Joint venture or acquisition	Access to an existing operation, assets or local capabilities	Ownership restrictions, due diligence, historical liabilities, management control and integration

For a new subsidiary, InCorp Vietnam’s company formation services can support the entity and registration work. The business plan should connect the legal structure to the intended manufacturing, trading and export activities.

Build a Total-Cost Comparison

A useful model compares the current China operation, the proposed Vietnam operation and the cost of running both during transition.

Cost area	Include in the comparison
Materials	Supplier prices, duties, scrap, freight and qualification costs
People	Salary, employer costs, overtime, training, supervision and travel
Facility	Rent, deposits, fit-out, power, water, treatment and maintenance
Production	Equipment, tooling, yield, downtime and quality controls
Delivery	Inland transport, port handling, freight, insurance, destination duty and warehousing
Finance	Inventory, customer credit, exchange-rate exposure, tax timing and funding costs
Transition	Duplicate capacity, engineering transfers, trial batches and customer approval

Illustrative break-even test: if the additional operation has monthly fixed costs of USD 100,000 and saves USD 2 per saleable unit after all variable costs, it needs 50,000 units per month to cover those additional fixed costs. If scrap, freight or duty eliminates the unit saving, greater volume will not rescue the original cost assumption.

Refund timing also affects funding. Manufacturers with qualifying input VAT should assess eligibility and documentation using the Vietnam VAT refund guide, while retaining enough working capital for review and payment delays.

How to Implement a China +1 Project in Vietnam

Step One: Select the Products and Define Success

Choose the products or process stages to transfer. Set the required quality, delivery, capacity and total-cost outcomes. Identify customer approvals and product certifications needed before production can be sold.

Step Two: Validate Suppliers and Locations

Audit shortlisted manufacturers or sites against the actual process. Obtain evidence for utilities, permitted activities, staffing and logistics. Request trial production and test the assumptions about imported components and local substitutes.

Step Three: Complete the Legal and Funding Plan

Map the foreign-investment requirements for each business activity. Determine the applicable ownership conditions, project and company registrations, land arrangements and sector permissions. Set a realistic capital contribution and financing schedule and prepare the required bank-account arrangements.

Step Four: Prepare the Factory and Operating Systems

Complete the required construction, environmental and fire-safety work for the project. Recruit managers, set up accounting and payroll, install equipment and establish purchasing, inventory and quality procedures. Assign responsibility for maintaining origin evidence as production begins.

Step Five: Pilot, Approve and Scale

Run pilot batches, test quality and delivery, and obtain customer acceptance where required. Compare actual cost and yield against the business case. Scale after correcting the causes of missed targets and confirming that repeat production is stable.

Conclusion

Vietnam can strengthen a China +1 strategy when the selected products, location and operating model work commercially and operationally. Build the decision around verified site conditions, a complete cost model and defensible origin evidence. InCorp Vietnam’s manufacturing setup team can help assess locations and organise the registrations and operational requirements for the project.