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Moving up the global value chain: how Vietnam outpaced Thailand
During the 20th century, Thailand and Vietnam were primarily seen as agrarian societies that competed with one another as major rice exporters.
Both nations are still currently classified as middle-income, albeit Thailand has an edge over Vietnam after moving up to the highest tier of the category in 2011. Vietnam has stayed in the bottom tier since 2013.
But recently more foreign direct investment poured into Vietnam thanks to its efforts to forge friendly diplomatic ties with other nations and lower labor costs. After resuming in the 1990s, US and Vietnamese trade and diplomacy reached a pinnacle in May 2016 when President Barack Obama paid a state visit before attending Apec Vietnam 2017 in Danang.
While Vietnam has gradually shifted into the US’ sphere of influence, Thailand has increasingly shifted into China’s, giving Vietnam a better angle to benefit from the trade war between China and the US.
In 2022 Vietnam’s upbeat growth outlook is bucking the slowing trend elsewhere in Asia, with relatively subdued inflation : an exception to the general rule in the region, according to the IMF.
Why Vietnam ?
Over the previous ten years, the business climate has improved significantly in Vietnam: the country climbed the Ease of Doing Business Ranking of the World Bank from position 98 in 2012 to position 70 in 2020, outpacing other emerging nations that were just as eager to attract foreign investment.
Vietnam’s industrial and technological policies have consistently provided the best incentives for high-tech projects, including a reduction in corporate income tax, a reduction in sales tax, and an exemption from paying land rent.
When compared to its surrounding nations, Vietnam’s minimum wage of around 27–28 baht per hour is thought to be low. Vietnam has a pool of youthful engineering talent at a considerably cheaper cost than its nearby neighbors in the region. Vietnam is one of the top 10 countries with the most engineering graduates, with over 40% of college and university grads specializing in science and engineering.
Additionally, Vietnam has been actively concluding bilateral trade agreements, which has helped to create an environment that is conducive to foreign investors. With 15 free trade agreements, a constantly improving business climate, and a relatively stable government with defined socioeconomic development plans, Vietnam also boasts one of the most open economies in the world.
Exports of computers, electronics, and component parts from Vietnam increased at an average annual rate of 28.6% between 2010 and 2020, with double-digit growth occurring even in the years before the US-China trade war and COVID-19 lockdowns.
In response to the exodus of tech companies from China in 2020, Vietnam set up a special working group to entice high-tech investments by providing customized incentives above and beyond what was required by law.
News that Apple was in talks to produce its renowned Apple Watches and MacBooks in Vietnam were widely seen as a strategy by multinational firms and their key suppliers to diversify their manufacturing away from China.
Wiring into global electronics
In June 2021, China’s Xiaomi relocated some of its device manufacture to Vietnam as a result of investments made by DBG Technology, a branch of Hong Kong’s DBG Electronics Investment Limited.
In 2014, Samsung spent US$670 million in a manufacturing facility in the province of Bac Ninh in the country’s north. In just over a decade, it raised its national investment to US$17.3 billion. In a meeting with Pham Minh Chinh, the prime minister of Vietnam, Samsung Electronics CEO announced an investment of US$850 million to start producing semiconductor components in Thai Nguyen province on August 5, 2022.
With this investment, Vietnam will join South Korea, China, and the United States as one of just four nations that supply semiconductors to the largest memory chip manufacturer in the world. The fact that Vietnam was chosen over areas with more developed economies says a lot about the country’s growing significance in the semiconductor value chain.
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