11 August 2026
Executive Summary
Shein’s attempt to build a major alternative manufacturing and logistics base in Vietnam has been sharply scaled back, providing a valuable real-world lesson in the limits of geographic supply-chain diversification.
The retailer originally leased approximately 15 hectares of warehouse space near Ho Chi Minh City and encouraged major Chinese suppliers to establish Vietnamese production.
That footprint has reportedly fallen to around six hectares, with substantial workforce reductions.
The problem was not simply tariffs.
Reuters found that Shein struggled to reproduce in Vietnam the dense network of manufacturers, labour, logistics, rapid replenishment and extremely small production runs underpinning its Chinese operations. Many suppliers that attempted Vietnamese production subsequently returned to China.
Shein had originally expanded toward Vietnam partly to reduce its exposure to US-China trade tensions and changes in customs treatment.
UK Impact
This has an important lesson for UK companies following a “China plus one” or broader supplier-diversification strategy.
Moving the name of the supplier to another country does not necessarily diversify the supply chain.
The new supplier may still depend upon China for:
- Raw materials.
- Machinery.
- Components.
- Specialist labour.
- Packaging.
- Tooling.
- Engineering knowledge.
- Financing.
- Logistics.
- Technical support.
Businesses can therefore spend considerable money relocating production while retaining many of the same underlying dependencies.
Global Impact
Industrial ecosystems take decades to develop.
China’s manufacturing advantage in many sectors is not simply lower cost.
It comes from geographic concentration.
A factory may have dozens of specialist suppliers located only kilometres away, enabling:
- Rapid production changes.
- Small orders.
- Fast replacement of defective components.
- Short tooling lead times.
- Competitive freight.
- Large pools of skilled labour.
Replicating one factory elsewhere is relatively straightforward.
Replicating the ecosystem around the factory is much harder.
This applies not only to clothing but also electronics, automotive production, pharmaceuticals, batteries and industrial equipment.
Our View
Supply-chain diversification should be measured by dependency, not geography.
Businesses should ask:
- Where do tier-two and tier-three suppliers operate?
- Where do raw materials originate?
- Where are replacement parts manufactured?
- Who owns the tooling?
- Where does specialist technical knowledge sit?
- Which ports and logistics providers are shared?
- Can alternative suppliers genuinely increase output quickly?
- Are supposedly different suppliers purchasing from the same manufacturer?
- How long would qualification of a replacement product actually take?
- Does the alternative supplier remain viable once subsidies or tariff advantages disappear?
A map showing suppliers in five different countries can create the illusion of resilience.
If all five depend upon the same upstream industrial ecosystem, the business may still have one supply chain wearing five different addresses.
Risk Indicator: ELEVATED
Disclaimer
The information contained within these Market Alerts is provided for general market awareness and informational purposes only. It does not constitute financial, legal, investment, regulatory or insurance advice. Whilst every effort has been made to ensure accuracy at the time of publication using multiple reputable and independently verified sources, geopolitical events, legislation, regulation and market conditions may change rapidly. Readers should obtain appropriate professional advice before acting upon any information contained herein.
Invictus Risk Solutions LLP – Helping organisations stay ahead of emerging risks through informed insight and independent analysis.