Vietnam's gift packaging makers leveraging lower labor costs

Export-manufacturers are banking on the price competitiveness, as well as the quality, of their products to boost sales.

Vietnam's gift packaging suppliers are banking on the price competitiveness, as well as the quality, of their products to boost sales. A number of companies do not intend to raise prices in coming months, unless there is a significant increase in production costs, to attract more orders.

The price competitiveness of Vietnam's products is thanks in large part to the low cost of labor in the country, relative to those of neighboring production hubs. Mainland China's minimum wages, for instance, can be over twice as high as the monthly minimum wages in certain parts of Vietnam.

Vietnam's gift packaging industry has also benefited from the influx of foreign investment in the packaging sector and auxiliary industries.

In recent years, the country has seen investors from Europe and neighboring countries in Asia establish operations or acquire a stake in existing facilities, bringing with them their production technology and management systems. Competition from these foreign-invested enterprises, as well as growing demand from the domestic market, has also encouraged a number of local packaging operations to invest in more advanced production and management systems.

Gift packaging suppliers are anticipating an increase of as much as 20 percent in export sales this year, as buyers switch to Vietnam from mainland China for their requirements. The US, the EU and Japan are expected to be the main overseas markets.

Challenges

Vietnam's packaging industry, under which most makers of gift packaging belong, is relatively young. As such, many companies still lag behind counterparts in North America, the EU and certain parts of Asia when it comes to technology and management experience despite the increased investment in the sector. Upgrading their production systems typically entails importing equipment, and this means an additional capital expense that few manufacturers can afford.

Gift packaging suppliers in Vietnam are also dependent on imports for their paper and plastic requirements. Consequently, they are vulnerable to fluctuations in currency exchange rates, as well as to changes in the cost of the manufacturing inputs.

Import tariffs also add to the production cost. Despite various trade agreements, taxes for importing key raw materials have not been totally eliminated. The import tax rate for kraft paper, for instance, can be as high as 15 percent depending on the type of material and the country of origin. Rates for paperboard can reach 10 percent.

This article and its contents are provided by the Hinrich Foundation, a partner of Global Sources in promoting trade across Asia. The products and the suppliers featured in this article are export assistance program beneficiaries of the Hinrich Foundation.