In China, a real sense of industrial tourism began to grow and cause attention in the late 1980s with the development of educational tourism market. With the adjustment of industrial structure and the vigorous development of tourism, industrial tourism gradually became a new economic growth point of the country and is playing more and more important roles in many aspects such as accelerating industry structure adjustment, increasing the fame of the country and promoting regional tourism development. Generally speaking, after about 20 years of trial and effort, industrial tourism is gradually developed in China. Hong Kong has also experienced a tremendous level of growth in its tourism sector, owing to the influence of British colonialism.
Here comes the million dollar question; has that growth come to an end? Is the spotlight of industrial tourism going to shift from China and Hong Kong to Asian counterparts like Vietnam? Before we can talk about that, we have to first address one of the key factors that influence tourism, manufacturing. China has been able to enjoy tremendous success in its tourism sector because it has perfected the art of manufacturing. Cheap labour, cheap production costs. Top companies from across the globe have been moving their manufacturing to China. This has led to an increase in the country’s GDP, infrastructures and national attraction.
Here’s where things take a turn for China; manufacturing, which has been the backbone of its tourism and national attraction is starting to dwindle. That’s right. Companies and factories are starting to leave China. And it’s all because of the trade war between the US and China.
According to Nikkei Asia Review, “KYOTO/TOKYO — Japanese motor supplier Nidec said on Oct. 23 that it will move some production out of China, joining Panasonic and other companies, including Chinese ones, in an exodus to Southeast Asia and Mexico over concerns that U.S. tariffs will undercut the competitiveness of the Made-in-China model.
Where a lot of companies and factories are leaving China for?
You guessed right! Vietnam. According to TechRadar, “Samsung closed its mobile phone manufacturing facilities in Shenzhen and Tianjin last year while expanding investments into Vietnam. Nintendo, Apple, Sharp and Google are also planning to move part of their production to Vietnam.” According to this SCMP article “When Ernie Koh first opened a production plant in Vietnam in 1993 to manufacture furniture, the Southeast Asian nation was not on the radar of many manufacturers, but a quarter of a century on, and companies are moving there in their droves.
Impact of US-China trade war on Vietnam
A combination of higher wages and increasing environmental regulations means China’s southern manufacturing powerhouse of Guangzhou is no longer the low-cost hub it once was, and for many companies, Vietnam has been viewed as a logical alternative. The US-China trade war, which is set to ratchet up a notch on Friday with a planned increase in tariffs on Chinese exports to the US from 10 per cent to 25 per cent, has accelerated this trend.”
“Evidently, there is now an influx of companies, many of which are looking to escape trade war tariffs. Everywhere, there are buildings going up. The roads are more crowded, the traffic jams are getting worse.”
The ADB says it expects that China’s economic growth will slow to 6.3 percent this year and 6.1 percent next year. China’s economy slump has been going on continuously for months, with its industrial growth at its lowest in 17 years, amid US trade war escalation.
According to SCMP, “Vietnam’s economy grew by 7.1 percent last year compared to 6.8 percent, while it has attracted a plethora of multinational companies, including Intel, Samsung, and LG, all of which have made huge investments.
Fred Burke, managing partner of law firm Baker McKenzie’s Vietnam office, noticed a flood of Chinese manufacturers into Vietnam even before the trade war. “There is just all kinds of people coming in. There’s a few coming in and saying that they’re being hammered by the import duties in the US on Chinese exports. So people making things like emergency exit signs, brake cables, all kinds of specific items that are being cost-plus manufactured in China,” Burke said.”
Even Chinese manufacturers have been increasing their investments in Vietnam in recent years. Ever since US President Donald Trump levied tariffs on US$200 million of exports from China in September, multinationals seeking a trade war detour to avoid US tariffs on China, have been testing Vietnam as their new manufacturing home.
The Heightened US-China rivalry is transforming Vietnam’s relationship with its neighboring countries and allowing the Southeast Asian nation to re-balance diversify its economic and security relationships. It has capitalized on the fallout of the US-China trade war to become a top destination for manufacturers looking to avoid tariffs. The probability of Vietnam suffering tariffs because of its trade surplus are quite low because Vietnam has indicated it is willing to negotiate a bilateral trade agreement with the US.
Vietnam has already signed dozens of free-trade pacts with several countries and economic blocs to have a much more favorable tariff policy on exports as compared to those from China or India. If this opportunity is made well, Vietnam will be the center for the processing and manufacturing industries in the bloc. Vietnam has also gradually built up its name on the global industrial map in recent years, thanks to its rapid developments in national infrastructure together with its numerous trade pacts signed with major economies and regions.
Vietnam’s transition from peripheral to mainstream industrial nation is rather swift and successful. Leveraging on the global trade conflict as a catalyst, China’s ongoing move towards a higher income nation and the deepening ties of Vietnam into global supply chains, CBRE believes that Vietnam can sustain its new standing as Asia’s rising manufacturing economy.
Why are companies picking Vietnam?
Vietnam, a hub for standard apparel and textile products, is also home to biggest footwear brands such as Adidas, Nike, Puma and Reebok. Sourcing supplies from Vietnam is easier than in India as many mainland Chinese and Taiwanese companies own factories in Vietnam. All of this is having a huge impact on the tourism sector of the country, and this is a big advantage for it.
Tourism has become the world’s fourth largest export industry after fuels, chemicals, and food. Specifically, tourism accounts for 6 percent of the world’s total merchandise and service exports that represent 30 percent of international trade in services in the year 2014. Besides, 9.8 percent of the world’s total gross domestic product (GDP) originates in the tourism sector during the same period. The influence of inbound tourism on national economies is becoming increasingly important because of the growing size of the tourist market.
Lots of good news for Vietnam which is emerging as a destination for tourists wishing to see less heavily visited countries. According to Wikipedia, “Vietnam’s economy relies largely on foreign direct investment to attract the capital from overseas to support its continual economic rigor. Foreign investment on the luxury hotel and sector and resorts will rise to support high-end tourist industry.
2016 was the first year ever which Vietnam welcomed over 10 million international visitors. According to World Atlas, “The service industry in Vietnam accounts for 38.2% of the country’s GDP. In the period between 1994 and 2004, the contribution to the GDP by the service sector averaged about 6%. Tourism plays a significant role in the economy of Vietnam and in 2012 the country received approximately 6.8 million visitors from different countries around the world. The number grew to more than 7 million in 2013. Vietnam has emerged as an attractive destination for tourists from different parts of the world, and according to the trip advisor, the top 25 destinations in Asia included major cities in Vietnam such as Halong Bay, Hoi An, and Ho Chi Minh City. In 2016, Vietnam attained a record of 10 million visitors from around the world, which represents a 26% increase from the previous year. Vietnam has now become the most favorable tourist destination in South East Asia. Many international and local tour operators in the country offer tours to ethnic minority groups, photography tours, bicycle and walking tours, kayaking trips, and multi-country trips, especially with the neighboring countries of Laos, Cambodia, and Thailand. Tourists from foreign countries can travel freely in Vietnam as this was made possible by 1997. The country’s economy has transitioned from an agrarian-based to almost a modern service-based economy, and more than a third of the GDP is generated by the service sector which includes transportation and hotel and catering industry.”
Vietnam has experienced a boom in both inbound and domestic tourism over the past decade. The number of international tourism arrivals to Vietnam has nearly quadrupled during this period, from 4.2 million in 2008 to 15.5 million in 2018. Moreover, there has been a marked acceleration in international visitor growth in the last 3 years, from an average of around 9 percent per annum between 2008-2015 to an average of 25 percent between 2016-1819. Domestic tourism in Vietnam, which is significantly greater in volume than inbound tourism from abroad, has experienced a similar surge—a four-fold increase in the number of domestic traveler-trips, from 20.5 million in 2008 to 80 million in 2018, underpinned by Vietnam’s rapidly-growing middle class, who have a strong appetite for travel, and improving affordability of air transport amidst the growth of low-cost domestic air carriers.
Vietnam has been experiencing this tourism boom for most of the past decade, establishing itself as one of Southeast Asia’s top tourist destinations. The country has capitalized on surging global and regional demand, successfully captured market share from its Southeast Asian competitors, and, over the past 3 years, achieved record growth in both international and domestic visitors. More than 15 million foreigners now visit Vietnam each year, compared to only 4 million a decade ago, alongside roughly 80 million domestic traveler-trips, which have similarly quadrupled in number over the past 10 years. The spending by these visitors has translated into rising employment and incomes for workers and firms in Vietnam’s tourism sector, including for relatively poorer localities and segments of the population.
By 2017, tourism directly accounted for 8 percent of Vietnam’s GDP (with additional contributions via indirect multiplier effects), and was the country’s single largest services export. Due to its tendency to employ high shares of low-skilled, rural, and youth workers, tourism has also had high pass-through effects on poverty reduction and in Vietnam. In the process, it also appears to have facilitated some redistribution of income from richer to poorer localities in Vietnam. As such, the sector’s continued growth is viewed by the government as a strategic priority and an important contributor to Vietnam’s socio-economic development.
Vietnam, however, is not alone in this pursuit to leverage the economic opportunities from tourism and will have to contend for market share with proactive regional competitors. Eager to capitalize on the rapidly-increasing outbound travelers to the region, many countries in Southeast Asia are prioritizing tourism in their economic development agendas, setting lofty visitor number targets, and formulating sector strategies and investment plans. In this fiercely-competitive environment for visitors, Vietnam will have to be strategic in focusing on the market segments where it has a competitive edge, resist the temptation to prioritize the quantity of visitors over their economic yield, and be cognizant of the implications of the pace and composition of its tourism growth for the sustainability of the sector and its impacts on the environment and natural and cultural assets.