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Why Manufacturing is Driving Vietnam’s Growth
As global businesses seek to diversify, increase resiliency and connectivity of their supply chains and decrease reliance on a single country, Vietnam has become a top destination for investment in manufacturing due to its strategic location and advantages in shipping, competitive labor, and production costs.
Compared to other Southeast Asian countries, Vietnam stands out with international airports seaports, and rail links facilitating production flow and transportation.
In 2020, the manufacturing and processing sector continued to take the lead in the country’s foreign direct investment (FDI), making up 58.2 percent of the total. With its contribution, Vietnam’s economy is forecast to regain momentum and reach GDP growth of 6 to 6.5 percent in 2022.
In 2020-2021, due to COVID-19, the manufacturing sector endured significant supply chain disruptions. Temporary business closures, transportation difficulties, and staff shortages all contributed to a reduction in manufacturing output in Vietnam.
Meanwhile, the pandemic hindered manufacturing industries due to an increase in input prices, raw material shortages, lack of shipping capacity, and transportation issues.
However, following the easing of lockdown restrictions, business activity in Vietnam has been busy again with consumer confidence gradually recovering.
According to a report by IHS Markit, Vietnam’s manufacturing purchasing managers’ index (PMI) increased to 52.2 in November from 52.1 in October, attributed largely to higher new orders and government incentives. A score of 50 or more means an expansion in manufacturing.
The manufacturing industry is driven by several key factors. Firstly, Vietnam is touted as a low-cost manufacturer with competitive labor costs. On average, Vietnam’s labor costs are half as much as China’s labor costs at US$2.99 (VND 68.000) per hour compared to US$6.50 (VND 148.000) per hour respectively. This contributes to Vietnam’s increasing position as a more cost-effective alternative to its regional counterparts.
Secondly, Vietnam has a relatively large, well-educated labor force, making it an attractive hub for production. In addition, the government has provided various vocational education and training sessions to equip the workforce.
With the current labor shortage and lack of skilled workers in specific industries such as IT, the government has put additional strategies and programs in place.
This article was first published by VietnamBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected].
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