[18 Feb 2021] — Vietnam is set to become the next manufacturing hub in Asia, beating its regional competitors as its economy managed to grow 2.9 per cent in 2020 and is forecast to grow 6.5-7 per cent in 2021.
Vietnam has seen a stronger recovery than regional countries such as Thailand, Indonesia, and the Philippines as it has a well-developed basic public health system, a strong central government, and a proactive containment strategy for COVID-19 based on comprehensive testing, tracing, and quarantining – on top of experience in handling pandemics like the 2003 SARS outbreak.
The trade dispute between the United States and China has had a cascading effect on Vietnam with its exporters seeing increasing demand for their products, especially in electronics, agriculture, and garments and textiles. The country has emerged as a complimentary investment destination to China for investors benefitting from its “plus one” strategy which has been accelerated by supply chain resilience and trade disputes.
The Vietnamese government in recent years has substantially invested in building the country’s network of ports, airports, and highways, which helps to move goods and materials to factories and finished products to export locations. The government has also been working hard in creating favourable conditions, which have paid off as these have encouraged foreign investors to expand their manufacturing bases more substantially. The government has also signed and ratified several free trade agreements which either will or already have helped lower export tariffs and promote Vietnamese players in the global marketplace.
We have seen not only labour-intensive sectors like textiles and footwear relocating to Vietnam but the more tech-focused companies such as Foxconn, LG, and Samsung choose Vietnam as their manufacturing hubs.
The South Korean tech giant Samsung, with its factories in the northern provinces of Thai Nguyen and Bac Ninh, and in Ho Chi Minh City, and a research and development (R&D) centre under construction in Hanoi – representing altogether $17 billion of investments and 160,000 Vietnamese workers – is a good example for Vietnam’s attraction. The country has become one of the biggest investment destinations for South Korean companies, if not the biggest, outside of their home country.
Several of the world’s largest technology corporations plan to expand their production chains to Vietnam after the pandemic, according to the Ministry of Industry and Trade.
Japan’s Panasonic is planning to move a production line for refrigerators and large-capacity washing machines from Thailand to Vietnam to improve cost efficiency.
Through its key contractor Foxconn, US tech giant Apple expanded production of its AirPods in Vietnam to four million units in the second quarter of 2020, equivalent to 30 per cent of global production. Apple appears to have shifted part of its production from China to Vietnam.
Qualcomm, the world’s biggest supplier of phone chips, offers potential tech transfers. Last June the company launched an R&D centre in Hanoi, its largest in Southeast Asia outside Singapore.
The relocation of companies and factories from China to Vietnam, coupled with the influx of foreign investment, has also pushed the expansion of several industrial zones (IZs) as demand for new factories, warehouses, and industrial land increased dramatically. It is expected that the country’s 260 operating IZs, with another 75 being under construction, will benefit from the rising demand.
One of the country’s largest conglomerates, Vingroup, has jumped onto the industrial land bandwagon by announcing a plan to pour over $400 million into the development of an IZ in the northern port city of Haiphong, seeking to host suppliers for its automaking business.
Haiphong is one of the biggest industrial hubs in Vietnam with significant projects such as DEEP C IZs. As such, the northeastern province of Quang Ninh is emerging as an industrial coastal province and is expected to provide a large amount of industrial land in the future, with the two economic zones (EZ) of Quang Yen and Van Don becoming a growth engine promoting investment for the province. DEEP C is further developing an industrial complex associated with a seaport in Quang Yen EZ to make full use of geographical advantages and utilise the channel to the Lach Huyen deep-sea port complex.
Warburg Pincus, a leading global private equity firm and Becamex, a pioneering developer of large-scale industrial townships in the southern province of Binh Duong, have used $200 million to develop several IZs across the country, focusing on ready-built factories and built-to-suit solutions.
Other local IZ developers, such as KBC, with its operations in the northern provinces of Bac Ninh, Bac Giang, and Haiphong, and Sonadezi, a company primarily developing IZs in the southern province of Dong Nai, are also investing aggressively to meet the rising demand in several sectors.
Although Vietnam’s infrastructure is expanding rapidly, the development is still far below the needs of the country’s economic and social growth. Additional investments are needed for roads, air, railways, waterways, and urban-public transport. Ports are running at overcapacity, and every day, traffic jams in large cities are the norm; with Ho Chi Minh City and Hanoi needing significant investments in roads and airports.
Additionally, investment in education could raise skill levels of the workforce as part of initiatives to increase productivity. A higher-skilled workforce could attract manufacturers exploring Industry 4.0 technologies and help to move the country up the value chain into more productive and higher-earning areas.
Both the government and the business community are embracing Industry 4.0, with developments such as e-government offering national portals and reforms. E-commerce is now firmly established and fintech is beginning to take off. Health tech and education tech will both be adding further legs to Industry 4.0, and the startup and tech scene is beginning to bloom. The government is aware of these needs and is working to address them with greater progress. As a new leadership is about to come this year, and many expect that it will work closely with the business community, many investors both local and foreign are confident in the progress of the country – Vietnam Investment Review.