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Vietnam’s Rise As Electronics Production Powerhouse

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Vietnam’s Rise As Electronics Production Powerhouse

Electronic, information and telecommunication technologies are given priority as part of Vietnam’s industrial development strategy period 2025-2035.

Source: Pexels

Vietnam’s electronics industry is one of the fastest-growing and most crucial industries in the country. As large electronic manufacturers shift their focus to Vietnam, the country is becoming a major player on the global electronics stage.

The country’s implementation of key trade agreements, strong demographic tailwinds and supportive government policies have attracted investors and opened an unprecedented number of opportunities to boost trade volume.

In an interview with VnExpress, Asia country risk senior analyst at Fitch Solutions Jason Yek said that the increased presence of large electronic manufacturers in Vietnam would generate more jobs, support exports and improve the country’s electronics supply chain.

“Vietnam, not being embroiled in trade disputes with major economies such as the US 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.”

Major electronic manufacturers are moving production in Vietnam. Source: Pexels
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Off to a great start

On January 18, Vietnam awarded a license to a unit of Taiwan’s Foxconn to build a $270 million plant capable of producing eight million laptops and tablets annually. The plant, which will be developed by Fukang Technology, will be located in the northern province of Bac Giang.

So far, Foxconn has already invested $1.5 billion in Vietnam and plans to raise its investment by $700 million and recruit 10,000 more local workers this year.

Foxconn is moving some iPad and MacBook assembly to the country from China, where it operates 12 factories across nine cities, at the request of Apple Inc. to diversify production and minimize the impact of China-US trade tensions.

Japanese electronics giant Panasonic also ended its production of washing machines and refrigerators in Thailand and transferred production in Vietnam.

Euromonitor, a UK research company, said 2.8 million refrigerators and 2.27 million washing machines were sold in Vietnam in 2019. Thailand, meanwhile, only sold 1.92 million and 1.75 million, respectively.

“There used to be popular appliances unique to each country, so our approach was to use local production,” said Akio Ota, former president of Panasonic Appliances in Vietnam. “But 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.”

In June 2020, LG’s smartphone production has moved entirely from South Korea to Hai Phong. Nintendo also transferred a part of its Switch Lite game console to Vietnam.

Samsung, on the other hand, has already poured over $17 billion into Vietnam as of mid-2020, becoming the largest FDI company in the country. Samsung owns two smartphone factories up in the north, and a TV screen production facility in Ho Chi Minh City.

A rising powerhouse

Vietnam has climbed the ranks as the key electronics exporter from 47th place in 2001 to 12th place in 2019, according to Vietnam Briefing. Mobile phone exports were also ranked second worldwide, with a value of over $50 billion in 2019.

In 2019, electronic industry exports amounted to 36 percent of total exports from Vietnam, increasing by 1.15 percent compared to 2018.  Imports accounted for 30 percent of total import flow, increasing by 2.01 percent from 2018. Of this, sales of electronics from Vietnam also went up by 12.1 percent, compared to 2018.

With Vietnam’s electronics industry mainly dominated by multinational companies, the export share accounted for over 90 % of total exports and covered 80 % of the domestic market demand from 2016 to 2019.

Exports are constantly increasing by an average of $12 billion per year, a significant jump from $47.3 billion in 2015 to $96.9 billion in 2019.

And the numbers are expected to go higher. Electronic, information and telecommunication technologies are given priority by the Vietnamese government as part of its industrial development strategy period 2025-2035.

With designated industrial clusters and zones already established, companies can take advantage of the great infrastructure and facilities, as well as corporate income tax (CIT) breaks. Just in September last year, the government implemented a 30 % CIT cut for certain businesses with revenues not exceeding the VND 200 billion ($8.8 million) threshold in 2020. This ensures equal subsidy for businesses that exert their efforts to retain employees amidst the economic impact of COVID-19.

Vietnam has high advantage in terms of labor cost and quality compared to the rest of the region. Source: Pexels
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Period of “golden population”

According to a study by the United Nations Fund for Population Activities, Vietnam is in the period of its “golden population” from 2010 to 2040. From labor cost to labor quality and demographic structure, Vietnam has a fairly high advantage compared to the rest of the region.

Although Vietnam’s minimum wage has grown in the past years – between $132 and $190 in 2019 – it’s still considerably lower than Thailand ($316), Indonesia ($260), Malaysia ($247), China ($365), Singapore (1,300) and South Korea ($1,167).

Vietnamese engineers and IT experts also have higher qualifications. In fact, at Samsung Vietnam, 10 % of its software is developed by Vietnamese IT engineers.

To meet the skills needed for junior staff, the government has launched supportive programs to train workers to support the demand for intra-Asean labor.

 

 

 

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