Why this is important to Wisconsin businesses: This trend is especially prominent in electronics manufacturing.
Vietnam has become a new favorite destination for investment by advanced manufacturers, and is emerging as an alternative to manufacturing products in China. To sustain this growth, the Vietnamese government recently approved a plan to transform Vietnam into a modern industrial country by 2030. The government is targeting Vietnam’s industrial sector to contribute 40 percent to national GDP by 2030, of which the targeted share of the processing and manufacturing industry will be 30 percent.
Vietnam's success in building a significant industrial base has been brought about by a confluence of factors: a stable political climate, a government that has been dynamic in implementing reforms such as incentives and economic liberalization, and a large and youthful population that constitutes a low-cost labor pool. Vietnam has a population of 93 million, with half under the age of 30. The country’s monthly minimum wage is $175, compared to China's $317. Moreover, the recently signed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is expected to further lift investment and trade in the country.
Vietnam’s impressive export growth is largely driven by foreign direct investment (FDI). According to the General Statistics Office, in 2017 the value of Vietnam’s exports was estimated at $214 billion, a year-over-year increase of 21 percent. The majority of these exports (72 percent) originated from foreign investments. Moreover, as a testament to the country’s bullish outlook, in 2017 Vietnam attracted over $35 billion in FDI, an increase of 44 percent over 2016, with a large amount of this FDI going into the processing, manufacturing and property sectors.
As Vietnam industrializes, growth in the country’s manufacturing sector is leading to strong demand for industrial machinery and equipment, technology, and consulting and management services. In particular, the electronics, food and beverage processing, and furniture sectors have been identified as having significant demand for machinery and solutions for automation, energy efficiency, quality and safety enhancement, and overall cost efficiency. The key drivers of this demand include:
- Electronics and computer products are mainly produced with imported inputs; however, local added value is increasing.
- The food processing sector accounts for a sizeable proportion of Vietnam’s industrial output. In general, Vietnam is dependent on imported food processing machinery. Vietnam’s main food and beverage products include beer and other beverages, milk, vegetable oil, pastries and cigarettes.
- Furniture is an important export sector for Vietnam, as the country is one of the top 10 wooden furniture producers in the world. Many of Vietnam's furniture manufacturers are using outdated machinery, thus there is growing demand for improving and upgrading production lines.
Vietnam’s electronics industry is also worth mentioning, since it is growing rapidly. Demand for automation solutions will continue to rise as foreign firms transform their operations from assembly to producing most of their spare parts in Vietnam. A growing number of high-tech electronics manufacturers have already established production in the country, including several global tech giants:
- Samsung is a game-changer for Vietnam. Aside from manufacturing and assembly, Samsung’s operations in Vietnam focus on research and development. Since it began its operations in 2014, Samsung's capital and revenue have grown to $5 billion and $20 billion respectively. What’s more, Samsung has become Vietnam's largest exporter, accounting for 25 percent of Vietnam's exports in 2017.
- Intel built its world's biggest testing and assembly facility in Vietnam, with $1 billion in FDI.
- Japanese electronics giant Canon now makes more than 50 percent of its computer printers in a complex of plants in Vietnam.
- Other multinational companies that have established facilities in Vietnam include LG, Panasonic and Microsoft.
While foreign-owned firms tend to bring in their own supply chain from their home country, for Vietnamese-owned companies, the best approach is to build relationships and educate them about the importance of keeping up with international standards in terms of safety, quality and productivity.