Western buyers rushing to move production often fail to verify their Vietnam factory properly, leading to expensive scams. The “China Plus One” strategy is booming. Everyone wants to move production to Vietnam to avoid US tariffs. But there is a dirty secret in the industry that few sourcing agents talk about: The Shell Factory.
As a developer and consultant based in Hanoi, I see this constantly. A Western buyer thinks they are hiring a Vietnamese factory. In reality, they are hiring a warehouse in Bac Ninh that imports finished goods from Guangxi, China, swaps the label to “Made in Vietnam,” and ships it to California.
If you get caught doing this, US Customs can seize your goods and fine you millions for Transshipment Fraud.
Here is my technical guide on how to debug your supply chain and spot a “Shell” factory before you sign the contract.
1. The “Investment Registration Certificate” (IRC) Check
This is the most powerful “developer” test you can do without leaving your desk.
In Vietnam, every legitimate manufacturing company with foreign ownership (which most Chinese factories are) must have an IRC (Investment Registration Certificate). This document lists exactly what they are allowed to do.
- The Shell: Their business license only lists “Trading” (Thương mại) or “Logistics,” not “Manufacturing” (Sản xuất).
- The Test: Ask them to send a scan of their ERC (Enterprise Registration Certificate).
- How to Verify: Go to the Vietnamese National Business Registration Portal. Enter their Tax ID.
- Insider Tip: If their “Registered Capital” is under $50,000 USD, they are likely just a trading office, not a factory with expensive machinery.
2. The “Electricity Bill” Audit
When I visit factories near Hanoi for clients, this is the first thing I look at. You can fake a website. You can fake a showroom. You cannot fake physics.
Real manufacturing consumes massive amounts of power. Injection molding machines, SMT lines, and conveyors eat electricity.
- The Shell: They have a 5,000 sqm warehouse but their electricity bill is equal to a residential home. This means the machines are turned off and only used for “show” when buyers visit.
- The Test: Ask for their last 3 months of EVN (Vietnam Electricity) bills. If the usage is flat or suspiciously low, they aren’t making your product—they are just unpacking it.
3. The “Box-in-a-Box” Symptom
I recently inspected a facility in the VSIP Industrial Park (Bac Ninh) that claimed to manufacture vacuum cleaners.
When I walked the floor, I saw workers frantically ripping open cardboard boxes with Chinese characters, taking out the units, and putting them into new boxes that said “Made in Vietnam.”
- The Shell: You see piles of discarded packaging with Chinese tracking labels (often from Taobao or 1688) in the corner of the warehouse.
- The Reality: Legitimate “Substantial Transformation” rules require that a significant change to the product happens in Vietnam. Simply repacking is illegal.
4. The Worker-to-Output Ratio
As a software engineer, I love data consistency.
If a factory claims to produce 50,000 units per month but you only see 20 workers on the assembly line, the math doesn’t compile.
- The Calculation:
- Ask for their daily output capacity.
- Count the workers on the line during a video call or visit.
- Example: If a worker takes 10 minutes to assemble a unit, 20 workers can only make ~960 units a day. If they promise 5,000/day, the other 4,000 are coming from China.
5. The “Guangxi Speed” Trap
Vietnam shares a border with China. Trucks from Shenzhen can reach Hanoi in about 1-2 days.
- The Shell: You ask for a sample. They say, “Sure, we can have it to you in 3 days.”
- The Problem: If they were truly manufacturing a custom sample, it would take weeks to set up the molds and source materials. A 3-day turnaround usually means they are just ordering it from a stock warehouse in Southern China and driving it across the border at the Lang Son gate.
Conclusion: Trust, But Verify
Vietnam is an incredible place to manufacture. The engineering talent in Hanoi is top-tier, and the costs are competitive. But “Gold” and “Brass” often look the same from a distance.
Don’t rely on Alibaba photos.
Do the math on their production capacity.
Check the Business License.
Ask for the utility bills.
How do I check if a Vietnamese company is legitimate?
You can verify their status on the National Business Registration Portal using their Tax ID. Look for the “Manufacturing” code in their business lines.
What is a “Shell Factory” in Vietnam?
A shell factory is a facility that imports finished goods from China, relabels them as “Made in Vietnam,” and illegally re-exports them to avoid tariffs.
Leave a Reply