Other BriefingsBuilding a Vietnam+1 Manufacturing Strategy with Cambodia
Rising production costs, competition for industrial land, and pressure on labor availability are encouraging manufacturers in Vietnam to consider distributing selected production activities across a second market.
Cambodia is emerging as a practical option for manufacturers pursuing this Vietnam+1 strategy. Its shared border with Vietnam, lower-cost production potential, expanding Special Economic Zone (SEZ) network, and growing manufacturing base can support selected production and processing activities while companies retain more supplier-intensive and higher-value operations in Vietnam.
Why are manufacturers considering a Vietnam+1 strategy?
Vietnam’s manufacturing sector has moved significantly beyond its traditional concentration in labor-intensive industries. Electronics, machinery, automotive components, and other higher-value industries now operate alongside major textile, garment, footwear, and furniture manufacturing industries.
As Vietnam’s manufacturing base has expanded and diversified, pressure on labor and industrial land has also increased in established production areas. Rising wages can make labor-intensive stages of production more expensive, while manufacturers in several industries remain dependent on imported raw materials and intermediate goods. In textiles, garments, and leather, China accounted for 58.9 percent of Vietnam’s imports of industry inputs in 2025.
Why Cambodia?
Cambodia’s proximity to Vietnam makes it particularly relevant to this model. The countries share a land border, allowing raw materials, components, semi-finished goods, and finished products to move between production locations.
Bilateral trade reached a record US$11.33 billion in 2025. During the first eight months of 2026, trade reached nearly US$8.67 billion, up 8.4 percent year on year. These figures do not demonstrate that companies are already operating formal Vietnam+1 production models, but they show the scale of commercial links between the two markets.
As of July 2026, Cambodia had 39 operating SEZs hosting 1,122 investment projects with total investment capital of US$14.6 billion and about 260,000 employees. Many are located near airports, seaports, and international borders.
The Bavet–Moc Bai border crossing provides a direct logistics connection between Cambodia and southern Vietnam. It forms part of the Southern Economic Corridor linking Phnom Penh with Ho Chi Minh City, while ongoing improvements at Bavet are intended to reduce waiting times and improve cross-border customs operations.
Cambodia’s manufacturing base is also diversifying beyond garments and footwear. Non-garment manufacturing exports increased 37.3 percent year on year during the first eight months of 2026, compared with 16.8 percent growth in 2025.
How does a Vietnam+1 strategy work in practice?
Building a Vietnam+1 strategy starts by identifying which production stages need Vietnam’s deeper industrial ecosystem and which can be moved competitively to Cambodia. Vietnam can retain processes requiring deeper supplier networks, skilled workers, engineering capabilities, or complex assembly, while suitable activities are placed in Cambodia.
Garments and textiles
Vietnam’s textile and garment exports, including industry inputs, reached US$47.1 billion in 2025. The industry remains dependent on imported materials, with China supplying 58.9 percent of Vietnam’s textile, garment, and leather input imports during the year.
Vietnam’s imports of textile, garment, and leather inputs from Cambodia increased by 30.5 percent in 2025, although Cambodia accounted for only 0.4 percent of Vietnam’s total imports in this category. During the first eight months of 2026, Vietnam also exported US$314.6 million in textile and footwear raw materials and accessories to Cambodia.
These two-way flows create scope for manufacturers to allocate labor-intensive production to Cambodia while retaining sourcing, technical operations, and higher-value processing in Vietnam.
Cambodia remains a small source of Vietnam’s textile inputs, making its role one of selective diversification rather than replacing Vietnam’s established supply base.
Electronics and automotive components
Cambodia’s SEZs already host automotive and electronics manufacturing, creating scope for component production or assembly that does not require the supplier depth or technical capabilities available in Vietnam. More complex or supplier-intensive processes can remain within established Vietnamese industrial clusters.
Agriculture, food processing, and resource-based manufacturing
Cambodia offers a different role for manufacturers dependent on agricultural and natural-resource inputs. During the first eight months of 2026, Vietnam imported almost US$1.77 billion of cashew nuts and US$537 million of rubber from Cambodia.
Vietnamese businesses have also increasingly shifted from exporting Cambodian agricultural materials to Vietnam for processing toward establishing factories and processing materials locally in Cambodia.
Cambodia approved its Agri-Food Industrial Park Framework on May 29, 2026, to attract private investment, promote value-added processing, strengthen agricultural value chains, and improve export competitiveness. By August 2026, the Council for the Development of Cambodia was presenting investment opportunities under the framework to agro-industrial investors and development partners.
This creates scope for processing to take place closer to Cambodian raw materials while other manufacturing, packaging, or distribution functions remain connected to Vietnam.
Is Cambodia the right Vietnam+1 destination for your business?
Cambodia makes the strongest case as a Vietnam+1 location where manufacturers can move a clearly defined stage of production that benefits from lower costs, additional capacity, or access to Cambodian raw materials. Activities requiring specialized suppliers, advanced supporting industries, or highly skilled technical workers may remain better suited to Vietnam.
The economics also depend on how goods move between the two countries. Savings on labor or land can narrow if materials and components must repeatedly cross the border, making Cambodian locations with efficient connections to Vietnam more suitable for an integrated production model.
Customs treatment and rules of origin can also affect how production is allocated. Cambodia and Vietnam are both ASEAN members, but preferential tariff treatment under the ASEAN Trade in Goods Agreement (ATIGA) depends on meeting the applicable origin requirements. Dividing production between the two countries can also affect whether finished goods qualify for preferential treatment under agreements covering their final export markets.
Build your Vietnam+1 manufacturing strategy with Dezan Shira & Associates
Dezan Shira & Associates advises foreign investors on manufacturing and supply chain strategies across Vietnam, Cambodia, and the wider ASEAN region. Our teams can support market selection, investment structuring, corporate establishment, tax and customs planning, and ongoing compliance for businesses developing multi-country manufacturing operations.
For assistance with assessing or establishing a Vietnam+1 manufacturing structure, contact our ASEAN advisory team.
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