Next for Your Consideration: Vietnam

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.

8 comments on “Next for Your Consideration: Vietnam

  1. maou_villaflores
    November 16, 2010

    Vietnam is following the path of HK, Singapore, Taiwan and South Korea. I agree  to you Barbara that Vietnam has a lot of things to focus in order to compete. I went to Vietnam last March, I would say the government is really working hard in infrastructure and IT. The young people of Vietnam is really eager to learn the english language, for them they see it as a competitive edge once they look for work. Some of the IT and electronic companies already moved to Vietnam for cheaper labor cost. Intel closed their operations in the Philippines 2-4 years ago and moved it to Vietnam – since labor cost is much cheaper with less labor issues.

  2. Mydesign
    November 16, 2010

    When we considering the potential growth of the electronic industry, apart from Vietnam surely we have to consider other countries like Taiwan, Malaysia, Korea etc. In this countries,  the availability of skilled manpower is very high and Labour cost is also very less. The economic growths of these countries are near about 10-15% annually & their markets are opened for globalization. The only thing is industry is not exploring these resources effectively.

  3. Hawk
    November 16, 2010

    I don't disagree about Vietnam's potentials. The country is being positioned by many as an alternative manufacturing center to China. However, Vietnam remains an unknown to many in the West with regard to its viability as a manufacturing location. For now, many in the high-tech world will not really treat Vietnam the way they treat China. It will therefore continue to contend with other Asian locations for the next few years and I don't see it matching China's heft in the market.

  4. elctrnx_lyf
    November 16, 2010

    May be the vietnam should invite the great leaders of Foxconn and request them to build electronic manufacturing factories all over the country. Foxconn is number one EMS company leading all other EMS companies in big margin in terms of gross profit margin.

  5. bolaji ojo
    November 16, 2010

    Barbara, Vietnam probably won't grow into a major rival to China in the electronics supply chain but it is well positioned to get some of the overflow from China as well as benefit from any disruptions at its much bigger Asian rival. This is already noticeable from the action of some major players in China. Foxconn, for instance, is probably the biggest private sector employer today in China and most of its production is for the electronics industry. Yet, Foxconn is at the moment building one of its mega manufacturing cities in Vietnam to “spread the risk.”

    Earlier this year, there were reports Foxconn had plans to invest up to $5 billion in Vietnam. The company may accelerate this move, following the problems it has had in recent months in China. This won't necessarily mean Vietnam will be the new China but it will definitely get a piece of the action.

  6. Barbara Jorgensen
    November 16, 2010

    I read today that Foxconn has a facility in Vietnam and there is a labor shortage there. Hadn't expected to hear that–maybe they will expand

  7. Anna Young
    November 16, 2010

    Barbara, I was about to point out availability of workers as a major headache for companies interested in manufacturing products in Vietnam. The country has the land and is updating its infrastructure to support manufacturers, both local and foreign, but it may not be able to find the workers they need to run their operations.

    The slightest hint of labor shortages could hurt Vietnam at a time it needs to let investors know they will get China-style low-cost wages and adequate supply of workers.

  8. AnalyzeThis
    November 16, 2010

    The slightest hint of labor shortages could hurt Vietnam at a time it needs to let investors know they will get China-style low-cost wages and adequate supply of workers.

    Absolutely agree with this… to me, that's a very bad sign that there are ALREADY labor shortage issues.

    Anyhow, I personally don't foresee Vietnam emerging as a power-player. I don't believe they are capable of providing the incentives, infrastructure, and labor force that places like China were able to supply in the past.

    Besides, I think when looking for alternative places for investment, Mexico and South America are far more attractive at the moment. Why not attempt to exit Southeast Asia entirely and potentially worry about fewer logistical issues long-term?

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