In reaction to the expected outflow of tech firms from China in 2020, Vietnam formed a special working group to encourage high-tech investments by offering tailored incentives above and above what was needed by law.
Thailand and Vietnam were largely regarded as agricultural nations that competed with one another as big rice exporters throughout the twentieth century.
Both countries are still categorised as middle-income, albeit Thailand has an advantage over Vietnam after moving up to the top tier of the category in 2011. Since 2013, Vietnam has been in the bottom tier.
However, more foreign direct investment has lately come into Vietnam as a result of its attempts to develop positive diplomatic connections with other countries and decrease labor costs. After beginning in the 1990s, US-Vietnamese commerce and diplomacy hit a nadir in May 2016, when President Barack Obama made a state visit to Danang before attending Apec Vietnam 2017.
While Vietnam steadily drifted into the US sphere of influence, Thailand has increasingly gone into China’s, providing Vietnam with a stronger opportunity to gain from the trade war between China and the US.
According to the IMF, Vietnam’s positive growth prognosis in 2022 will defy the region’s weakening trend, with relatively low inflation: an exception to the region’s general norm.
What makes Vietnam so special?
Over the preceding 10 years, Vietnam’s business environment has dramatically improved: the country climbed the World Bank’s Ease of Doing Business Ranking from 98 in 2012 to 70 in 2020, surpassing other rising countries that were equally keen to attract international investment.
Vietnam’s industrial and technology policies have constantly offered the finest incentives for high-tech enterprises, such as lower corporate income tax, lower sales tax, and exemption from paying land rent.
When compared to neighboring countries, Vietnam’s minimum salary of about 27-28 baht per hour is considered poor. Vietnam has a large pool of young engineering talent at a far lower cost than its peers in the area. With almost 40% of college and university graduates concentrating in science and engineering, Vietnam is one of the top ten nations in terms of engineering graduates.
Furthermore, Vietnam has been aggressively completing bilateral trade agreements, which has contributed to the creation of an environment favorable to international investment. Vietnam is one of the most open economies in the world, with 15 free trade agreements, a continually improving business environment, and a generally stable government with stated socioeconomic development objectives.
Between 2010 and 2020, Vietnam’s exports of computers, electronics, and component components surged at an average annual rate of 28.6%, with double-digit growth happening even before the US-China trade war and COVID-19 lockdowns.
In reaction to the expected outflow of tech firms from China in 2020, Vietnam formed a special working group to encourage high-tech investments by offering tailored incentives above and above what was needed by law.
The announcement by Apple that it was in discussions to manufacture its iconic Apple Watches and MacBooks in Vietnam was widely interpreted as a move by global corporations and their major suppliers to diversify their production away from China.
Connecting to global electronics
As a consequence of investments made by DBG Technology, a part of Hong Kong’s DBG Electronics Investment Limited, China’s Xiaomi shifted some of its gadget manufacturing to Vietnam in June 2021.
In 2014, Samsung invested $670 million in a manufacturing plant in the northern province of Bac Ninh. It increased its national investment to $17.3 billion in little over a decade. In a meeting with Vietnam’s Prime Minister Pham Minh Chinh, Samsung Electronics CEO announced an investment of US$850 million to begin manufacturing 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 countries supplying semiconductors to the world’s biggest memory chip producer. Vietnam’s selection over places with more established economies speaks volumes about the country’s expanding importance in the semiconductor value chain.