Vietnam as a low-cost manufacturing center received some attention in the early 2000s but was quickly overshadowed by the popularity of China. Although a number of economies are vying to be the next hub of high-tech, a report from Frost & Sullivan says Vietnam's demographic is highly favorable for the electronics industry.
“Vietnam's electronics industry is nascent and characterized by import dependence and the existence of foreign firms in the market,” according to the report. “These firms account for significant proportions of trade. Vietnam's accession to the World Trade Organization (WTO) is a positive environment for electronics trade and domestic manufacturing. Additionally, a favorable demographic structure is enabling the growth of the electronics industry.”
The Vietnamese government's vision for 2020 includes setting up IT parks, establishing an electronics association, and developing human capital. “Resilient to the economic recession, the Vietnamese economy is poised to experience steady growth in the long term,” Frost & Sullivan reports.
Unfortunately, Vietnam is picking a bad time to reemerge as a technology hub. High-tech has traditionally gravitated to low-cost areas and has helped economies develop. Now, highly developed economies are also making bids to attract industry, hoping to offset some of the economic instability that has hit regions including the US, Europe, and Japan in recent years. With London making a big play as a high-tech hub, Vietnam will have to come up with a considerable amount of incentive to attract electronics investments.(See: UK Wants Its Own High-Tech City in London – Will It Fly?)
And, through no fault of its own, Vietnam may continue to suffer by comparison to China. Vietnam's salaries weren't as competitive as China's when the offshoring revolution first began. If China's wages increase as predicted, this might level the playing field. (See: Five Sources of Risk in 2011.)
But geographically, Vietnam faces the same logistics challenges as China — namely, cost and distance. While wages are higher in the UK and Europe, they have closer proximity to most major markets for high-tech goods. The UK has a well established infrastructure; Vietnam's is still under development. The Vietnamese government will have to invest a lot upfront in roads and transportation alone.
Frost & Sullivan points out that semiconductor demand in the region is on the upswing and there are plans for the construction of front-end fabs in Vietnam. Demand for consumer electronics such as mobile handsets, audio-video, and gaming devices is expected to increase. Additionally, Frost & Sullivan says the country has favorable environmental policies: “Burgeoning electronics demand, and immense potential for manufacturing of semiconductors, circuits, and consumer durable are likely to pave the way for a well-developed electronics industry in Vietnam,” according to the report.
Even with a growing appetite for electronics goods, Vietnam's market is much smaller than China's was when offshoring first began. Tech companies will need a compelling reason to invest in Southeast Asia, and too many developed regions are in the bidding war to attract the electronics industry to their shores. If there are enough benefits to offset higher wages, the UK, Eastern Europe, Mexico, and South America are still good candidates for high-tech investment.