Factories Left China for Vietnam and Brought the Supply Chain With Them
Relocating assembly is straightforward. Relocating the network of component suppliers that feeds it is the actual work, and it explains why the shift took years rather than months.
What Actually Gets Moved
A finished product is assembled from components made by many suppliers, most of them located close to the assembly plant. Proximity matters because it shortens lead times, reduces shipping cost, and allows engineers to solve problems in person.
Moving assembly to another country is a matter of building a factory and training workers. Moving the supplier network is a matter of persuading hundreds of separate companies to invest in a new location, which they will only do once there is enough demand there to justify it.
The chicken and egg problem is the whole difficulty. Suppliers will not move until assembly is there at scale, and assembly is inefficient until suppliers arrive.
The Intermediate State
The transitional arrangement is that final assembly happens in the new country while components continue to come from the original one. This satisfies rules that determine where a product originates, and it does not reduce dependence much.
| Stage | Components | Real diversification |
|---|---|---|
| Assembly relocated | Still imported | Limited |
| Some suppliers follow | Mixed | Partial |
| Local supplier base | Largely local | Substantial |
Trade statistics can therefore overstate how much has changed. A fall in direct imports from one country accompanied by a rise from another may reflect a relabelled supply chain rather than a relocated one.
What the New Locations Actually Offer
The advantages are real: lower wages, trade agreements providing better access to certain markets, and being outside the tariff exposure that prompted the move.
The constraints are equally real. Smaller labour forces mean scaling has limits. Infrastructure, particularly power reliability and port capacity, is frequently the binding constraint rather than labour cost. And the depth of engineering talent that supports rapid product changes takes many years to develop.
Why Wages Are Not the Main Driver
Labour cost is a modest share of the total cost of most manufactured goods, and it is not usually what determines location.
What matters more is the total delivered cost including logistics, the reliability of delivery, the ability to scale production quickly when demand moves, and the speed of solving engineering problems. A location with cheaper labour and unreliable power or a thin supplier base can easily be more expensive overall.
This is why the shift has been selective. Products with simple assembly and few components moved readily. Products requiring dense supplier networks and rapid iteration moved slowly or not at all.
The Cost Nobody Advertises
Diversification raises costs. Running two supply chains means losing scale in both, duplicating tooling, and managing more complexity. Companies accept this because concentration risk became visible enough to justify paying for insurance.
That is a rational trade and it should be recognised as a cost. Supply chain resilience is purchased, not discovered, and it shows up in margins.
Who Benefits Within the New Country
The distributional question matters. Assembly operations employ many people at relatively low wages and generate modest local value added when components are imported.
The larger gains come when local firms enter the supplier network, which requires capability development that does not happen automatically. Countries that captured lasting benefit from earlier waves of manufacturing relocation generally had deliberate policies to build domestic supplier capability rather than relying on assembly employment alone.
The Bottom Line
Moving factories is easy and moving supply chains is not, which is why relocation produced years of assembly in one country using components from another. Real diversification arrives only when the supplier base follows, and the intermediate state can look like a bigger change in the trade data than it is in the underlying dependence.