The strategic decision of where to source components is becoming increasingly difficult.
The trade war between the U.S. and China, the Russian attack on Ukraine, political uncertainties, material shortages, and transportation security – there are many factors to consider.
In this article, we summarize what makes Vietnam stand out as a potential sourcing country for the medical device industry.
Sourcing decisions are not that easy.
The sourcing country should go together with corporate goals and values, efficiencies, and economies of scale.
Oh yes – and suppliers must comply with medical device regulations.
The rat's tail of requirements tends to get longer and longer. Finding a suitable solution here requires some research and forward planning.
As we are constantly looking for new suppliers for our customers, our research led us to a very special Southeast Asian country.
Vietnam, described by the Financial Times as "one of the seven economic miracles," is one of the most dynamic markets in Southeast Asia [1]. As a result, the country is experiencing GDP growth of 8.02% in 2022 – the most vigorous growth in 10 years [2].
But what makes the country so special and why should you consider sourcing from Vietnam as a medical device manufacturer?
1. You will find a pro-international business environment in Vietnam
The Communist Party has dominated the Vietnamese government since the end of the Vietnam War. However, since the mid-1980s, the Party has been making efforts to improve the business environment in the country, thus visibly attracting foreign investors. This is why large manufacturers of textiles & shoes (e.g. Nike), broadcasting equipment and electronics (e.g. Samsung, Apple, Intel) have been located here for years.
The Vietnamese government has improved the infrastructure, built a solid education system (high literacy rate [3]) and concluded numerous international trade agreements.
For companies in the EU, the Vietnam-European Union Free Trade Agreement (EVFTA), in particular, offers many advantages and great opportunities.
The agreement, which entered into force in 2020, will eliminate about 99% of tariffs between the EU and Vietnam by 2030. Other barriers, such as technical barriers to trade, will be removed in addition to tariffs. Vietnam has agreed to apply international standards to provide transparency and thus avoid unnecessary costs. In addition to this excellent trade facilitation, EVFTA also contains agreements on intellectual property protection, sustainable development, climate change, and labor rights protection. [4]
Vietnam is also a member of the World Trade Organization (WTO), which aims to liberalize international trade, and the Association of Southeast Asian Nations (ASEAN), which pushes political, social, and economic cooperation among 10 Asian countries.
2. Low labor costs & well-trained workforce
Let's name it – cost plays probably the most crucial role in procuring materials and components.
However, what is even more important than price is quality. After all, we are talking about the manufacture of medical devices. In addition, your suppliers must also meet the requirements of MDR 2017/745.
Here, Vietnamese suppliers offer great potential. The country combines low labor costs with qualified, well-trained personnel.
According to the International Labor Organization (ILO), Vietnam had the lowest hourly wage in manufacturing among Southeast Asian countries in 2020. [5]
So in terms of cost, Vietnam is hard to beat.
In addition, the country also has a large pool of skilled workers in fields such as engineering, mechanics, and electronics, all of which are relevant to the medical device industry. [6]
3. Vietnam as an attractive sourcing alternative to China
China remains an important trading partner for the EU, also in the field of medical devices [7].
Due to the increasing uncertainties regarding China (trade war with the USA, the long-lasting zero-covid policy or China's "Made in China 2025" plan), many companies are already pursuing the "China plus one" strategy. This means that companies are establishing additional suppliers or production sites in other countries to reduce their dependence on China [1].
Vietnam offers an attractive alternative to China due to its physical proximity, good infrastructure, cost advantages*, and a positive business environment with an international focus.
*The average manufacturing wage in Vietnam is about USD 327 per month (2022 data) – in China, this is about USD 1,137 per month (2021 data) [8].
Conclusion: Vietnam as a sourcing country for MedTech companies?
As mentioned in our blog post "Strategies for a resilient supply chain", it is advisable to look for alternative suppliers to minimize dependence on only one supplier or geographic area.
Vietnam is an attractive country to source components for medical device manufacturing due to its openness to international trade, numerous trade agreements, skilled workforce, and competitive costs.
Our Managing Director, Simon Föger, has already audited several suppliers for our customers and can say from experience that suppliers in Vietnam have great potential for medical technology.
If you are interested in sourcing from Vietnam and want to receive all necessary documentation to comply with MDR, send an e-mail to office@sifo-medical.com.
We will happily support you with supplier selection, audits, and supplier development.
References
[1] R. Sharma, „The seven economic wonders of a worried world,“ Financial Times, 26 September 2022. [Online]. Available: https://www.ft.com/content/0c84da4b-ccab-489f-aa7e-6039dd3ff6f9. [Accessed on 11 January 2023].
[2] „Trading Economies, Wages in Manufacturing | Asia,“ 2022. [Online]. Available: https://tradingeconomics.com/country-list/wages-in-manufacturing?continent=asia. [Accessed on 12 January 2023].
[3] W. Bank, „Literacy rate, adult total (% of people ages 15 and above) - Vietnam,“ UNESCO Institute for Statistics (UIS), 2019. [Online]. Available: https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=VN. [Accessed on January 2023].
[4] „Freihandelsabkommen zwischen der EU und Vietnam,“ Europäische Union, [Online]. Available: https://trade.ec.europa.eu/access-to-markets/de/content/freihandelsabkommen-zwischen-der-eu-und-vietnam. [Accessed on Jänner 2023].
[5] „Wages in Southeast Asia,“ International Labour Organization , 2020. [Online]. Available: https://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---ilo-hanoi/documents/publication/wcms_747827.pdf. [Accessed on 2023].
[6] „Human Capital in Vietnam: A Critical Resource for Business,“ European Chamber of Commerce in Vietnam, 2019. [Online]. Available: https://www.eurochamvn.org/publication/human-capital-vietnam-critical-resource-business/. [Accessed on 2023].
[7] I. Hallak, „EPRS | European Parliamentary Research Service,“ Member's Research Service , October 2020. [Online]. Available: https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/649387/EPRS_BRI(2020)649387_EN.pdf . [Accessed on January 2023].
[8] K. Vu, „Reuters,“ 29 December 2022. [Online]. Available: https://www.reuters.com/markets/asia/vietnam-2022-gdp-growth-quickens-802-vs-258-expansion-2021-2022-12-29/. [Accessed on 11 January 2023].