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Vietnam manufacturing tech hub: Strengths and challenges

By VentureOutsource.com Staff

Vietnam is the world’s fifth fastest growing economy. The Southeast Asian nation is divided into the following regions: Vietnam Northwest, Northeast (Ha Noi City – capital), Red River Delta (Hai Phong City), North-Central Coast, South Central Coast (Da Nang City), Central Highlands, Southeast (Ho Chi Minh City), Mekong River Delta (Can Tho City). Vietnam also has three key economic zones, North, Central and South.

Vietnam is benefitting from added tariff pressures between the United States and China. Tariffs are causing some EMS manufacturing capacity to exit China but high value add components like semiconductors logic/memory, optical and LCD/OLED are unlikely to leave anytime soon.

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Some advantages for companies to consider locating or establishing manufacturing operations in Vietnam:

  • Manufacturing labor costs 1/3 of China
  • Young, available workforce*
  • Inexpensive electricity
  • Proximity to existing supply chains/logistics hub (Guangdong, Singapore). Located centrally among ASEAN members, Vietnam also has a long coastline providing direct access to major shipping lanes and South China Sea
  • Numerous free trade agreements (FTA)
  • Government tax incentives for business that can include preferential tax rate of 10% to 17% with 2 to 4 years of tax exemption and up to 50% reduction of another 4 years
  • Available real estate for industrial parks development

*Vietnam has 55 million people among working age, with an average 31 years of age. For more on Vietnam’s population visit the General Statistics Office of Vietnam here.

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Vietnam population

Some challenges companies may face when considering Vietnam for manufacturing operations:

  • Low labor skills available if high-end manufacturing is required
  • Infrastructure in Vietnam is under-developed. Although the nation has robust infrastructure spending ~6.3% of GDP (on average) over the past 5 years more than twice the average in ASEAN
  • Vietnam government is selective regarding FDI policy (against low value add, high-pollution industries)
  • Dealing with local government can be tedious

Additionally, and important to Vietnam fiscal stimulation and infrastructure investments, Vietnam has an external debt of slightly over 48% v the 50% cap imposed by its National Assembly. One solution Vietnam is considering is pushing out bond maturity. This can be risky.

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Vietnam and ASEAN free trade agreements (FTA)

Vietnam is a member of Association of Southeast Asian Nations (ASEAN) comprising of 10 Southeast Asia nations. Collectively, ASEAN promotes intergovernmental cooperation and facilitates economic growth for members natiuons which include Indonesia, Thailand, Singapore, Malaysia, Philippines, Vietnam, Brunei, Cambodia, Myanmar (Burma), Laos.

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As a result of being a member of ASEAN, Vietnam also benefits from trade agreements ASEAN signs with other government bodies, such as:

  • ASEAN FTA was first formed in 1967 with six member countries – Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand – and subsequently saw the addition of Cambodia, Laos, Myanmar and Vietnam.
  • ASEAN-Australia-New Zealand FTA (AANZFTA)
  • ASEAN-India (AIFTA)
  • ASEAN JAPAN Comprehensive Economic Partnership (AJCEP)
  • ASEAN Korea (AKFTA)

Additionally, Vietnam has many other free trade agreements the nation has signed independent of ASEAN benefits.

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