Because of low wages, a skilled manufacturing workforce, its strategic location and a domestic market of almost 90 million, Vietnam is attracting more foreign direct investment (FDI) from large companies such as Intel, LG and Samsung and is starting to become a more appealing destination than usual favorites such as China and Indonesia.
According to data by the International Trade Center (ITC), Vietnam’s revenue from electronics exports amounted to US$38 billion. While this may seem like a low number compared to China’s US$560 billion, it has let the country climb the ranks into one of the world’s top 12 electronic producers and exporters.
In fact, despite the prediction by market analysts that China will continue to be the world’s largest exporter of electronics for at least several decades, many global manufacturing companies have decided to base their factories in Vietnam instead, citing an aging population and rising labor costs among their reasons. Samsung’s largest mobile phone factory, for example, is currently under construction in Vietnam’s northern province of Thai Nguyen and is slated for completion in 2015 at a cost of US$3.2 billion.
Along with Vietnam, other ASEAN (Association of Southeast Asian Nations) member countries such as Thailand, Malaysia and the Philippines are offering their own incentives to lure manufacturers away from China. The result has been many companies shifting their investment toward other Asian markets, and especially Vietnam which currently has among the highest exportation growth in the world.
Foreign businesses say that Vietnam has a more convenient geographic location that other Southeast Asian countries. Its eastern shoreline allows faster shipment to the U.S., Japan and Korea, and its border with China makes existing supply chains easier to maintain.
However, low wages are still the main draw for most manufacturers. Vietnamese factory workers are paid among the lowest in the region and only Myanmar, Laos and Cambodian employees make less, but these nations do not have some of Vietnam’s other advantages.
Whether Vietnam can continue to grow at a fast pace will depend on if the country will be able create more skilled jobs and manufacture higher-valued products. If Vietnam continues to invest in education, infrastructure and research, it will grow well into the future. If not, the country will only attract FDI until its neighbors are able to eventually out-compete Vietnam on cost and value.