The LG Electronics factory in Trang Due Industrial Park in Hai Phong City, northern Vietnam. Photo courtesy of LG Vietnam.
Vietnam stands to benefit from its emergence as a global bright spot in electronics production with some index scores exceeding China and India.
Experts attribute this to lower labor costs and better policy incentives.
Jason Yek, Asia country risk senior analyst at market research company Fitch Solutions, told VnExpress that the increased presence of large electronic manufacturers in Vietnam would generate jobs, support exports and improve the country’s electronics supply chain,
The country started 2021 off by awarding a license to a unit of Taiwan’s Foxconn on January 18 to build a $270 million plant capable of producing eight million laptops and tablets annually in the northern province of Bac Giang.
Foxconn, a key supplier for Apple, has so far invested $1.5 billion in Vietnam and plans to raise its investment by $700 million and recruit 10,000 more local workers this year, the government said.
The company, which is said to be moving some iPad and MacBook assembly to Vietnam from China at the request of Apple, is also looking into investing $1.3 billion in the central province of Thanh Hoa.
This was followed by a recent decision of Japanese electronics giant Panasonic to end the production of washing machines and refrigerators in Thailand to consolidate appliance assembly in Vietnam.
Data from U.K. research company Euromonitor International shows 2.8 million refrigerators and 2.27 million washing machines were sold in Vietnam during 2019, compared with 1.92 million and 1.75 million, respectively, in Thailand.
"As urbanization has advanced everywhere in Asia, regional product preferences have grown similar. The Thai market has little room for growth, but labor costs are high, so it was natural to consolidate production," Akio Ota, former president of Panasonic Appliances Vietnam, was quoted by the Nikkei as saying.
In a recent report, the Economist Intelligence Unit (EIU), a division of the U.K.-based Economist Group, gave Vietnam higher index scores than China and India in some categories, highlighting the country as a potential manufacturing hub.
On a scale of 10,Vietnam scored 6 in FDI policy, while both India and China scored 5.5 each.
Vietnam also exceeded both countries in the score of foreign trade and exchange controls, and surpassed India in labor market.
EIU explained that Vietnam’s incentives for international firms for setting up units to manufacture hi-tech products, its pool of low-cost workers and the spate of free trade agreements it has signed place it in an enviable position among Asian peers.
Vietnam’s membership of free trade agreements represents a strong point in its trade relations, reducing export costs, and the country’s low-skilled manufacturing wages will remain competitive for years to come, it added.
Yek of Fitch Solutions also said that favorable labor demographics, relatively low labour costs, and a strong business environment will continue to aid Vietnam’s bid to attract FDI over the medium term.
"Vietnam, not being embroiled in trade disputes with major economies such as the U.S. or Europe, also positions it favorably for exporters seeking to use it as an exports manufacturing hub or in some cases, another manufacturing hub in addition to their Chinese operations so as to diversify their supply chains."
Nguyen Mai, chairman of the Vietnam’s Association of Foreign Invested Enterprises, said the expansion of Foxconn in Vietnam is similar to what South Korean giant Samsung has been doing for nearly 15 years.
Government data shows that Samsung had poured over $17 billion into Vietnam as of mid-2020 to become the largest FDI company in the country. It has two smartphone factories in the northern region and a TV screen production facility in Ho Chi Minh City.
The company is also building its largest mobile research and development center in Southeast Asia in Hanoi.
The expansion of Foxconn in Vietnam increases the possibility that a wave of hi-tech projects will find its way to the country in upcoming years, Mai said.
However, experts have also listed several disadvantages that are slowing down the country’s efforts to attract investment.
Yek said that to achieve the government’s goal of moving up the manufacturing value chain, further improvements are needed in the education and skill levels of the labor force, which is a long-term task.
And while there are ongoing projects to develop the country’s transport and logistics infrastructure, progress has been slow, Yek said. In fact, bottlenecks can appear as the country’s infrastructure capacity fails to keep pace with trade volumes, he added.