Vietnam, where the garment and electronic sectors still dominate, and manufacturing and labour remain about 50% cheaper than in China, is starting from a less developed industrial base than Thailand. However, HSBC Vietnam’s Head of Wholesale Banking, Stephanie Betant, believes there are early signs that the country is preparing for more advanced production.
There are state-led efforts to improve the manufacturing sector that have focused on creating a more robust regulatory-institutional framework. “One of the things that Vietnam has done very well in the past 10 years is to reform the labour and tax code. That has created a business environment that makes it attractive for foreign manufacturers to build a major hub here,” says Betant. She also points out that even state-owned enterprises now run their own training facilities to upgrade their worker’s skills.
Top-down initiatives have also been supplemented by private enterprise. The entry of Vietnam’s largest conglomerate, Vingroup, into car production is an illustration of an overall trend towards more advanced manufacturing—one that utilises foreign technology and local export credit agency-supported financing. To support this, Vietnam has a sliding scale of investment incentives for new businesses that take into account the size of the investment, the number of employees and the location of the company. Some foreign manufacturers are also investing in more sophisticated production in the country, with Samsung planning to open research and development centres in Hanoi, and Apple reportedly considering a similar move.
Head of International Subsidiary Banking at HSBC Vietnam, Nick Mahon, says these developments foreshadow a gradual evolution from high-volume electronics manufacturing to more highly skilled manufacturing techniques and applications over the next five years.
This will enable Vietnam to stay ahead of the competition from South Asia, move ahead of Malaysia, which has traditionally been a manufacturing hub for MNCs, and continue to be the go-to destination for diversifying production from China. Newer markets like Myanmar and Cambodia can undercut Vietnam on labour costs, but they cannot offer Vietnam’s advantageous geographic location next door to China, or compete with its fast-improving infrastructure, overall ease of doing business and political stability. Vietnam also has a growing number of trade agreements including the restructured Trans-Pacific Partnership, and free trade deals with both the European Union and South Korea, which are vital to the electronics sector.
Both Thailand and Vietnam are already advancing their manufacturing base, processes and skills, but opportunities are rife for new investments to facilitate the process of transition from simply training workers to developing better infrastructure integration.