Vietnam: In Need of an Un-pho-gettable Supply Chain Infrastructure Transformation

Last week, as the weather turned cold and wet in Chicago, five members of the Spend Matters crew made a lunchtime pilgrimage to "Argyle Street," or as it's better known in our confines, Vietnamese-town. Unfortunately, the quality of pho in Chicago is nowhere near what you can get in Seattle (or Tram's in Pittsburgh for that matter, at least on a good day). Still, it does the trick to ward off the Chicago autumn cold chills. In the broader domestic equation outside of comforting soup, Vietnam is following in steps of its large "Red" neighbor to the North, becoming as known in the US as a low-cost country producer as it is for its cuisine and restaurant proliferation. Yet the transition, at least from a Vietnamese logistics and operations perspective, is not as simple as it sounds.

Although Vietnam "is one of the world's fastest-growing sourcing and manufacturing locations with an average export growth rate that was the highest in the region during the last decade," according to the above-linked Bangkpost Post article, the country is also facing its share of growing pains that can directly impact companies working with local suppliers in the region. From an overland perspective, for example, "while Vietnam's vast network of inland waterways can transport goods efficiently, an inadequate road network (fewer than 20% of roads are paved) and limited railway capacity have prevented it from meeting its full transport potential."

Exporting is also slowed at ports: "Containers often require three to seven days to clear Customs, with delays of up to 30 days reported...[and] further port infrastructure issues in Vietnam include: haphazard and irrational planning and resource allocation; too many small ports with inefficient economies of scale; potentially low investment returns that limit investment in new port construction and management; and delays in delivery of master plan milestones such as dredging and road/bridge construction, further exacerbating congestion."

Of course, rising raw material costs and an 11.5% minimum wage hike in 2011 are doing little to slow the rising total cost of sourcing from or manufacturing in the region. Yet from a growth perspective, Vietnam has the same advantages as China that come from centralized planning, which can speed along much needed changes compared to India, Mexico, Brazil and other countries that companies often consider from a global sourcing perspective. In summary, just as every pot of pho stock is often different from the next (even at the same restaurant), it's likely that Vietnam's export and supply markets growth will develop strongly, albeit inconsistently. And companies doing business in the region should insure that their supply chains can tolerate a degree of uncertainty.

- Jason Busch