South Vietnam Ports

Concerned by increased valuation of the Chinese currency, rising Chinese labor and benefits costs, and eastern China's less favorable tax treatment, companies began looking toward Vietnam for other global sourcing opportunities. With relatively plentiful young labor and plans to build new ports near Hanoi and Ho Chi Minh City, the Vietnamese government was working hard to attract new factories. However, the Vietnamese government was about 20 years behind its Chinese counterparts in export-related infrastructure investment.

By late 2006, production had migrated en masse to Vietnam and the production shift continues to this day. One furniture executive predicted that most of the furniture industry would soon be in Vietnam, but he also noted that Vietnam needed to upgrade its roads and its only deep-water port (Thomas, 2008). Furniture is one of the most space-consuming products and the United States' largest containerized imports by volume (U.S. Census Bureau, 2009). The value of furniture-classified exports from Vietnam to the United States increased 1,405 percent between 2002 and 2007 (U.S. Trade Statistics, 2009). Other industries such as toys and electronics moved into Vietnam between 2006 and 2008. For example, in 2006, Intel announced greater investment in Vietnam than in China over the previous decade (Folkmanis, 2006). The exports that moved via ocean put an enormous strain on the port infrastructure and the inadequate road infrastructure (Conti, 2009). Inflation spiked from an estimated 7.3 percent to over 25 percent by May 2008 (U.S. Department of State, 2008) as the country was impacted by rapid growth.

Cargo sat on the docks waiting for consolidation, and furniture containers congested roads to the various ports and the feeder vessels. To move from the outlying factories to the port, container trucks competed with motorbikes and cars on city streets. The new ports, scheduled for completion in 2009 at Hiep Phuoc and Vung Tau, offered little short-term relief. Trucks moving with the 40-foot "High Cube" containers popular for furniture and other light goods had to take circuitous routes or hire a person to push low-hanging telephone wires above the tall container during transport. Ocean freight companies began to levy new surcharges to consolidate freight and reduce the allowed dwell time for freight awaiting consolidation. Local landlords found that they could charge rates higher than Shanghai, Hong Kong and Los Angeles and receive a two and a half year payback on their warehouse investment (Anonymous, 2009b). Capacity issues caused delays in unloading ships that could cost $5,000--$6,000 U.S. per day. Prices to transport by air versus ship increased costs from around $1,100 U.S. per container to $32,000 U.S. per container (Tam, 2009). The performance impact of these unexpected changes was severe.

The theory of FMR provides a broad framework that suggests organizations be wary of FMR for inputs from adjacent and unrelated industries. However, it does not provide any specifics regarding when such risk may exist, only that it may. The above cases of Vietnam and China offshoring provide initial evidence for the following propositions:

  Proposition 1: Moving a significant quantity of offshore production
  to a new geographic area will create FMR for capacity of supply
  chain services. (2)

  Proposition 2: Firms that anticipate and plan for impending FMR for
  supply chain services from product and nonproduct-market rivals will
  experience better on time performance of goods produced in that
  region than those that only focus on the behavior of product-market
  competitors.

  Proposition 3: Firms that anticipate and plan for impending FMR for
  supply chain services from product and nonproduct-market rivals will
  experience better cost performance on goods produced in that region
  than those that only focus on the behavior of product-market
  competitors.

Shifting market conditions create these situations, and impair the organization's ability to achieve its sustainable competitive advantage. Although the first proposition may seem obvious, rivalry and its negative impact are commonplace in global markets; the rivalry for supply chain services often seems to be unanticipated, creating disruptive effects. When rivals in the same or different industries are using similar resources, effectively managing those resources becomes even more critical to a firm's competitive advantage (Sirmon et al., 2008). Perhaps more importantly, propositions 2 and 3 suggest that although such shortages may be inevitable, the ability to effectively cope with them by managing supply chain assets more effectively than others creates an opportunity to increase competitiveness.

The potential for logistics and other supply chain capacity problems should be obvious; however, the movement of manufacturing from China to Vietnam reveals that they are not. As Markman et al. (2009) point out, competitive blind spots evolve. Even when there is no product rivalry, mobile and versatile resources such as many types of unskilled and entry-level labor and transportation capacity, can cause new and unexpected firms to compete in factor-markets. Domestic examples presented in the following section further support that supply chain services are subject to FMR.
---Journal of Supply Chain Management Jan-2013