When the American game company Learning Resources tried to move its production from China, it discovered how deeply integrated the country remains in the global manufacturing chain. Moving your factories is one thing: taking China out of these factories is completely different.
In the Vietnamese city of Phu Ly, two hours south of the capital Hanoi, the Dong Phuong toy factory looks more Chinese than Vietnamese. Signs in Chinese, Feng Shui ponds, and Chinese managers supervising hundreds of workers. The plant is owned by a company from the Chinese province of Zhejiang, one of several Chinese companies that have recently moved their operations to Vietnam.
For Elana Woldenburg Ruffman, vice president of marketing and a member of the company's founding family, this change is part of a broader strategy to diversify supply chains in response to the tariffs brought by the Trump era. "We have to diversify in order to survive," he says.
Vietnam attractive
Vietnam looks attractive: although the US has 20% tariffs on goods from Vietnam, this is lower than the 31% imposed on Chinese imports and much less than the 145% that the US president had threatened China with. However, executives like Ruffman are discovering that moving production is a much more complex task than they expected.
Vietnam's economic rise over the past decade has been impressive. While low-value manufacturing once dominated, Vietnam now exports more than $400 billion a year. Much of this boom has come from foreign investors, including a growing number of Chinese industrialists, who are looking for ways to avoid tariffs and rising costs in China. Industrial parks near Hanoi are now filled with Chinese-owned factories.
Learning Resources in the past had reached the point of producing in China more than 80% of its approximately 2,000 products. Ruffman now plans to significantly reduce its dependence on China. However, Vietnam's industrial ecosystem is much smaller: China has about 10,000 toy factories, while Vietnam has about 100, with potential for exports. Labour constraints make the task even more complicated. With 53 million. workers – less than a tenth of China's – Vietnam cannot absorb the wave of companies looking for locations to relocate.
Slow and costly
The process is slow and expensive. Each toy requires multiple steel molds – almost all of them made in China – and it costs about $5,000 to move each one, increasing expenses by millions. And although the finished products may be labelled "Made in Vietnam", many components still come from China. This increases the risk of sanctions from the US.
Costs in Vietnam end up being 10%-15% higher than in China. At the same time, productivity is lower, as factories employ more workers and rely more on manual labour, while Chinese competitors have invested heavily in automation. Ruffman notes that production per worker in Vietnam can be 40% down.
However, the company is committed to diversification. As tariffs are unpredictable, exclusive reliance on China has become very risky. Learning Resources has already raised prices by about 6% in order to offset rising costs, with Ruffman warning that ongoing trade tensions will inevitably push prices higher. Cost pressures are also reshaping product design. Across the industry, games are being simplified: Fewer accessories, cheaper materials, less detailed finishing. Consumers will soon feel the impact of inflation, she says.
In addition to toys, addiction is also reflected in the packaging. Learning Resources has outsourced the production of books, manuals, and cardboard accessories to Caile Intelligent Packaging, a Chinese-owned printing company. Caile can offer high-quality production, but, once again, the factory is Chinese.
All this requires a huge administrative time. Over 30% of Learning Resources staff are engaged in tariffs and relocation of production, rather than product development.
Uncertainty but also optimism
At the same time, Vietnam's broader transformation is everywhere visible. Employees are paid about $300. per month, an amount that exceeds the money they would earn from agricultural activities. Families that once relied on agriculture are now sending their children abroad to earn a degree. Vocational schools working with global manufacturers fuel a steady stream of workers in factories, and employment prospects are high.
However, uncertainty remains. As industrial parks expand, small businesses are worried about their future. Factory workers often eat in canteens, depriving local shops and cafes of revenue.
Despite the challenges, optimism in Vietnam is strong. Factories continue to expand, foreign investment increases, and the workforce is rapidly upgraded. Ruffman shares this cautious optimism: "Vietnam certainly has potential," she says. But China's unparalleled combination of economies of scale, expertise, and infrastructure cannot be easily replicated. "You can't rebuild China's ecosystem elsewhere – not in 2025. It will take time," he notes.
ATTRIBUTION – EDITING: DIMITRIS STOLIS
BloombergOpinion
