I. Introduction
China makes 79% of toys sold in the United States and Europe, but Vietnam toy manufacturing has become a promising alternative. Major players in the industry prove this change. Hasbro plans to cut its Chinese production from 86% in 2012 to 60% by 2020.
The industry's move toward Vietnam shows real momentum. Last year saw nearly triple the number of companies from Guangdong, China visiting Vietnam to find production facilities. A recent deal between the U.S. Treasury Department and the State Bank of Vietnam has made this trend stronger by helping avoid U.S. tariffs on Vietnamese imports.
Our analysis dives into what toy manufacturers face when they think over Vietnam as their next production base. We look at manufacturing abilities, strong infrastructure needs, and potential risks that businesses should evaluate during this major change.
II. The Rise of Vietnam as a Manufacturing Powerhouse
Vietnam's manufacturing sector showed remarkable resilience throughout 2024 and reached many important milestones in production and investment. The country's Manufacturing Purchasing Managers' Index (PMI) data revealed a dynamic pattern of growth and adjustment throughout the year.
Manufacturing performance reached its peak during mid-2024. The PMI hit 54.7 in June-July, showing substantial expansion in production and new orders. The sector then went through varying levels of activity and ended up recording a slight contraction with a PMI of 49.8 in December. We noticed slower growth in output and new orders at year-end, along with reduced employment and inventories.
The manufacturing sector's development in 2024 had these key features:
Strong output and new order performance during mid-year expansion
Slower export orders in the second half
New rise in purchasing activity despite year-end challenges
Higher inflation affecting both input costs and output prices
On top of that, Foreign Direct Investment (FDI) grew impressively. Total disbursement reached $25.35 billion in 2024, showing a 9.4% increase year-on-year. The manufacturing and processing sector became the main beneficiary, drawing $25.58 billion in FDI commitments.
FDI sector made exceptional contributions to Vietnam's export performance. FDI enterprises generated about $290.8 billion in export value throughout 2024, making up 71.8% of the country's total exports. These numbers highlight foreign investment's vital role in Vietnam's export-oriented manufacturing sector.
Manufacturing remained the life-blood of Vietnam's economy, contributing more than 20% to the country's GDP. The sector's resilience helped Vietnam manage to keep positive economic growth, achieving an 8% growth rate in 2022.
Strategic advantages revolutionized the manufacturing landscape. Strong infrastructure supporting exports and Vietnam's strategic location along major trade routes played key roles. The country strengthened its position through 15 free trade agreements with partners in all continents, making itself an increasingly attractive destination for manufacturing investment.
III. Pros of Moving Toy Manufacturing to Vietnam
Manufacturing costs drive companies to think over Vietnam as their next production hub. Vietnam's labor costs at USD 2.99 per hour are much lower than China's USD 6.50 per hour in the manufacturing sector. This is a big deal as it means that manufacturers can save money by setting up their operations in Vietnam.
Vietnam's workforce keeps growing steadily. The manufacturing sector has 11.96 million workers, which makes up 23.3% of total employment. This resilient labor pool shows how well Vietnam can handle large-scale manufacturing operations.
Vietnam's location in Southeast Asia gives toy manufacturers unique advantages. A 3,200-kilometer Pacific coastline helps quick shipping to major markets. Companies can ship products fast to the US, EU, and Oceania, taking about the same time as shipments from China.
The US and Vietnam have built stronger trade ties. Their bilateral trade jumped from USD 30 billion to more than USD 139 billion since 2013 - a remarkable 360% increase. The United States has become Vietnam's biggest export market. U.S. goods imports from Vietnam reached USD 127.50 billion in 2022, up 25.1% from last year.
Vietnamese government gives great incentives to foreign investors in manufacturing:
Corporate Income Tax (CIT) rates as low as 10% for 15 years, including 4 years of tax exemption and 9 years of 50% tax reduction
Import duty exemptions for fixed assets, raw materials, and supplies used in manufacturing projects
Land rental exemptions ranging from 3 to 15 years based on investment location and sector
These detailed incentives and Vietnam's membership in 15 free trade agreements in all continents create perfect conditions for toy manufacturers who want to set up operations here. The government also helps manufacturing projects with capital over VND 6 trillion by offering extra tax benefits and incentives.
IV. Cons and Challenges of Toy Manufacturing in Vietnam
Toy manufacturers face most important challenges as they think about Vietnam for their production base. At the time we look at the numbers, Vietnam has just over 100 export-level toy factories. This pales in comparison to China's 5,000 to 10,000 toy factories. The huge difference raises questions about Vietnam's readiness to handle any major move in manufacturing.
The country's infrastructure creates serious bottlenecks. Recent power outages in northern industrial parks have raised red flags about future energy supply. Several key issues limit the country's manufacturing strength:
Port facilities fall short of China's vast network
Roads need major upgrades
Production capacity can't handle large volumes
Supply chain support systems need work
Trade relations have become a growing concern. Vietnam's surplus with the United States reached USD 111.60 billion from January to November 2024, up from USD 94.80 billion during the same months in 2023. U.S. policymakers have noticed this widening gap, and President-elect Trump has threatened to impose 20% tariffs on all U.S. imports.
The stability of currency adds to these worries. The Vietnamese dong dropped 4.9% against the USD since early 2024, while it fell only 2.6% throughout 2023. Yes, it is good news for exporters who earn more in VND, but it drives up costs for imported raw materials and machinery.
Supply chain problems worry manufacturers because Chinese businesses own most Vietnamese toy factories. In fact, this became clear during COVID-19 lockdowns. Vietnamese factories could run but struggled to make products because locked-down Chinese suppliers couldn't deliver components.
Quality control during transitions adds more complexity to manufacturing. Industry experts say companies moving to Vietnam should expect to provide more guidance and watch suppliers closely. Companies might save some money but must deal with extra challenges and possible delays.
All the same, these obstacles show why careful planning matters before moving manufacturing operations. Vietnam's manufacturing base keeps growing but needs much more development to match China's toy production capabilities.
V. Vietnam’s Readiness for Increased Toy Manufacturing
Vietnam's readiness for increased toy manufacturing depends on its labor force, infrastructure, and government support systems. The manufacturing workforce currently stands at 11.96 million workers and could face pressure from a 20% move in toy production from China.
Vietnamese workers have proven their adaptability with quick learning skills. Several government training programs now work with technical schools to focus on:
Advanced manufacturing techniques
Quality control processes
Modern production management
Technical skill development
The Vietnamese government has set aside USD 119 billion to modernize transportation networks through 2025. These upgrades include:
Deep-water port expansion in Hai Phong and Ho Chi Minh City
Better road connections between industrial zones
Power generation capacity improvements
Modern logistics facilities development
Government policies and initiatives demonstrate strong support for manufacturing growth. Manufacturing permits now take just 5-7 business days to process. The Ministry of Industry and Trade's dedicated support centers in key industrial provinces provide:
Technical assistance for manufacturers
Quality certification support
Export documentation guidance
Supply chain development assistance
Some challenges still exist. The power grid meets only 75% of peak industrial demand and needs major upgrades. The workforce needs substantial training to match China's productivity, as workers currently reach only 65% of Chinese counterparts' output levels.
The government's complete industrial development strategy addresses these challenges. Companies can now get tax breaks for investing in worker training programs and special land-use rights for building technical training centers. The strategy aims to boost supporting industries and increase the localization rate from 40% to 65% by 2025.
Vietnam's success depends on how well it executes these ambitious development plans. These initiatives will determine if the country becomes a viable alternative for toy manufacturers looking beyond China.
VI. Financial Stability and Economic Outlook
Vietnam's banking sector shows both strengths and weaknesses as the country positions itself as a manufacturing hub. The banking system showed early promise with net profits from foreign exchange trading reaching 19.62 trillion VND in Q1-Q3 2024.
The sector now faces growing challenges. By March 2024, the loan-to-deposit ratio came close to the State Bank of Vietnam's cap of 85%. This ratio that indicates possible limits in the banking system's ability to fund rapid manufacturing growth.
Key stability metrics paint a mixed picture. The cost-to-income ratio went up in 2024 because of operational challenges and higher provision burdens. The banking sector's Return on equity (ROE) and return on assets (ROA) fell throughout 2024. These declining metrics raise questions about the sector's capacity to handle sudden increases in manufacturing activity.
Currency management has become crucial. The State Bank of Vietnam manages the exchange rate through several tools:
Daily VND/USD central exchange rate announcements
A trading band of +/- 3% around the central rate
Direct interventions in foreign exchange markets
Vietnam's foreign currency reserves grew substantially from USD 49 billion in late 2017 to over USD 88 billion by September 2020. This large reserve buildup protects against currency swings but also points to possible pressure on the dong.
Manufacturing costs change through several channels. The IMF's recent evaluations show the Vietnamese dong remains undervalued by 8.4%. This currency position helps exporters but creates problems for manufacturers who need imported parts.
The financial system faces several challenges in supporting increased manufacturing. The system-wide non-performing loan (NPL) ratio rose to 6.16% in July 2023 and ended up reaching 7.91% by year-end. This decline in asset quality might limit banks' ability to fund manufacturing growth.
The State Bank of Vietnam balances multiple goals through its currency management. The central bank keeps exchange rates stable while boosting export competitiveness through market interventions. This approach has kept the VND/USD rate steady with controlled movements within the set band.
VII. Strategies for Successful Transition to Vietnam
A successful move to Vietnam's toy manufacturing sector needs a well-coordinated strategy that weighs both opportunities and risks. Companies that want to make this move should take a systematic approach to run sustainable operations.
A. Phased approach to production moving
The best strategy is to transfer manufacturing capacity gradually. Companies should first identify which production elements they want to relocate. We focused on simple manufacturing and assembly operations. The transition timeline usually takes 4 to 6 months to set up a legal entity. Full production can take up to a year.
Manufacturers can optimize their transition process by:
Starting with simple product lines that need basic assembly
Running parallel production in China during transition
Setting quality control standards before scaling operations
Increasing production volumes based on performance metrics
B. Investment in workforce development
Success in Vietnam depends on building a capable workforce. Vietnamese factories need more oversight and training than their Chinese counterparts. Here's how to develop an effective workforce:
Strategic collaborations with local educational institutions help develop skilled labor pools. These partnerships should emphasize technical training, quality control processes, and modern production management techniques.
C. Supply chain localization
Vietnam's supplier market is still developing, so supply chain development needs special attention. Here's how manufacturers can build local supply networks:
Representative offices help oversee production with multiple suppliers, especially when you have garment industry operations. This approach lets companies retain control while building relationships with local suppliers.
D. Risk mitigation measures
Risk management strategies should tackle multiple challenges. The Foreign Owned Enterprise (FOE) model gives investors the most control. It allows full oversight of their Vietnamese entity. Companies can also look into Mergers and Acquisitions (M&A) opportunities, which take 2 to 4 months to set up.
Recent exchange rate changes make currency risk management vital. Companies should implement detailed hedging strategies. They need flexible pricing structures to handle currency movements.
Geographic diversification is another vital risk mitigation tool. Vietnam has three Key Economic Regions (KERs), each with unique advantages:
The Northern KER includes Hanoi and surrounding provinces. It works best for manufacturers who keep strong ties with China. The Southern KER, with Ho Chi Minh City at its center, offers better consumption markets and established support networks for SMEs.
Companies that move to Vietnam must balance speed with careful planning. Vietnam shows great potential, but developing full local supply chains and reaching Chinese efficiency levels takes time.
VIII. Case Studies
Toy manufacturers have found both soaring wins and learning opportunities in Vietnam. We focused on well-known players who showed workable paths for moving their manufacturing operations.
A. Success stories of toy companies that have moved to Vietnam
Cotec Plastic Corporation shows a great example of successful transition. The company started its operations in Thai Binh, Vietnam in 2001 and grew into a strong manufacturing hub. They now offer integrated plastic figurines, toy designing, and packaging services. Their success comes from a balanced mix of Chinese expertise and Vietnamese workforce.
Nam Hoa, a 30-year old company in Ho Chi Minh City, stands out in wooden toy manufacturing. The company ships products to major markets like Korea, Japan, the UK, Germany, France, Italy, Spain, Netherlands, Belgium, and Greece. Nam Hoa's success builds on strict compliance with international standards, including EN 71 Part 1, 2, 3 for children's toys and ISO 9001 certification.
Tang Group Wooden Toys started in 2001 in Binh Duong Province and shows how focused expertise leads to success. The company earned its place as a top wooden toy designer and manufacturer. They gained acceptance in strict markets like Europe, the US, and Japan by meeting international safety standards.
B. Lessons learned from challenges faced by early movers
Companies that first entered Vietnam's toy manufacturing sector faced several key challenges. Their experience shows that success needs careful planning:
Production Capacity Management
Vietnam has just over 100 export-level toy factories compared to China's 5,000-10,000
Companies learned that slow and steady capacity building works better than rapid growth
Supply Chain Development
Vietnam's toy manufacturing ecosystem relies heavily on Chinese components and expertise
Successful manufacturers built hybrid supply chains that kept Chinese suppliers while growing local networks
Quality Control Adaptation
Vietnamese factories needed more oversight and quality control measures
Successful companies set up detailed training programs and quality management systems
GFT Group's experience with factories in Haiphong and Hai Duong shows why flexible production strategies matter. They work with major brands like Takara Tomy, Hasbro, and Spin Master, proving that Vietnam can deliver high-quality manufacturing with proper infrastructure and training.
These examples point to a clear fact: Vietnam offers great potential for toy manufacturing. Success depends on careful planning, investment in workforce development, and realistic timelines. Companies that did best kept their Chinese operations running while setting up Vietnamese facilities. This approach let them build capabilities gradually.
IX. Future Outlook
Vietnam's toy manufacturing sector faces both bold targets and major challenges as it looks toward 2030 and beyond. The country wants to reach upper-middle-income status by 2030, which marks a vital milestone in its economic growth.
A. Projected growth of Vietnam's toy manufacturing sector
The government has set specific growth targets for the manufacturing sector, which includes toy production. Manufacturing should contribute 30% to the overall GDP by 2030, and high-tech products should make up at least 45% of this share. The sector needs to grow more than 8.5% yearly, while labor productivity should increase 7.5% annually.
These goals fit with broader economic targets. The country's real GDP per capita has shown remarkable growth from USD 700 in 1986 to almost USD 4,500 in 2023. Experts predict economic growth will reach 6.1% in 2024 and 6.5% in 2025.
Vietnam has created several key initiatives to reach these bold goals:
More investment in research and development to boost national technological capabilities
Better coordination between policymakers, businesses, universities, and communities
New industries that focus on renewable energy and circular technologies
Better energy efficiency across manufacturing sectors
B. Potential impact of global economic trends on Vietnam's manufacturing industry
Several major trends shape Vietnam's manufacturing future. The World Bank points out key factors that will shape the sector's growth:
Rapid population aging affecting workforce availability
Declining global trade patterns
Increasing automation in manufacturing processes
Growing environmental concerns
Escalating climate change threats
These trends create big challenges for Vietnam's toy manufacturing sector. The country spends just 0.27% of GDP on higher education, which falls behind China's 1.12%, Malaysia's 0.95%, and Thailand's 0.6%. Research and development investment is 0.4% of GDP, while China invests 2.4%, Malaysia 1%, and Thailand 1.3%.
Research output shows these limitations clearly. The best Vietnamese university published only 10 international studies in sciences from May 2023 to April 2024, which shows the need for more academic and research investment.
Environmental pledges will reshape future manufacturing methods. Vietnam promised at COP27 to cut methane emissions by 30% and stop deforestation by 2030, with the goal of reaching net-zero carbon emissions by 2050. Manufacturers must adapt their operations and invest in environmentally responsible practices to meet these targets.
Vietnam needs about 6% average annual per capita economic growth over the next 20 years to become a high-income country by 2045. This would triple income per capita, but the shift to greener manufacturing makes this goal challenging.
The manufacturing sector must change through:
Better policy implementation in finance and environmental protection
Accelerated digital transformation initiatives
Better poverty reduction and social protection measures
Development of low-carbon infrastructure
The success of this transformation depends on closer work between government agencies, businesses, and universities. Vietnam could benefit by bringing in Vietnamese scientists and professionals from international universities and multinational corporations to strengthen its manufacturing capabilities.
X. Conclusion
Vietnam attracts manufacturers with its low costs and government perks, but moving toy production there comes with major risks. The numbers tell a stark story - Vietnam has only 100 export-ready toy factories compared to China's 5,000-10,000. These limits raise red flags about meeting production targets and keeping quality high.
Northern industrial parks face frequent blackouts. The country's transportation and logistics infrastructure needs work too. Vietnam's financial health shows warning signs. Non-performing loans have climbed to 7.91% while the loan-to-deposit ratio nears the 85% regulatory limit.
The trade situation adds more complexity. Vietnam's trade surplus with the US hit $111.60 billion in late 2024, which could trigger protective measures. Currency swings impact both daily operations and future planning. The heavy dependence on Chinese parts makes manufacturers vulnerable to supply disruptions.
Companies should be extra careful when looking at Vietnam. A better strategy might be keeping production spread out while watching Vietnam's progress. The path to success needs careful risk evaluation, realistic timelines, and solid backup plans.
FAQs
Q1. How has Vietnam's manufacturing sector benefited from US-China trade tensions? Vietnam has emerged as an attractive alternative for manufacturers looking to diversify from China. The country has seen increased foreign direct investment, particularly in the manufacturing sector, and has become a key player in the "China Plus One" strategy for many global businesses.
Q2. What are the main advantages of manufacturing in Vietnam compared to China? Vietnam offers lower labor costs, a growing skilled workforce, and strategic location in Southeast Asia. The country also has favorable trade relations with the US and provides government incentives for foreign investors, making it an increasingly competitive option for manufacturers.
Q3. What challenges do toy manufacturers face when moving production to Vietnam? Key challenges include limited production capacity compared to China, infrastructure concerns, potential trade risks due to Vietnam's growing trade surplus with the US, currency stability issues, and supply chain disruptions. Manufacturers also need to adapt to different quality control standards and workforce training requirements.
Q4. How is Vietnam preparing for increased manufacturing activity? Vietnam is investing in workforce development, infrastructure improvements, and implementing government policies to support manufacturing growth. The country is also focusing on developing local supplier networks and improving its logistics capabilities to handle increased production demands.
Q5. What strategies can companies use for a successful transition to manufacturing in Vietnam? Successful strategies include adopting a phased approach to production shifting, investing in workforce development through partnerships with local educational institutions, focusing on supply chain localization, and implementing risk mitigation measures such as geographic diversification and currency hedging strategies.
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