Rising up the global value chain: How Vietnam outsold Thailand

In the 20th century, Thailand and Vietnam were primarily seen as agrarian societies competing with each other as major rice exporters.

Although Thailand has overtaken Vietnam since rising to the top of the category in 2011, both countries are currently still classified as middle-income. Vietnam has remained at a low level since 2013.

But recently, more foreign direct investment has flowed into Vietnam thanks to efforts to build friendly diplomatic relations with other nations and lower labor costs. After recovery in the 1990s, US-Vietnamese trade and diplomacy peaked in May 2016 during a state visit by President Barack Obama before attending Apec Vietnam 2017 in Danang.

While Vietnam has gradually moved into the US sphere of influence, Thailand has increasingly moved into China’s sphere of influence, giving Vietnam a better angle to take advantage of the trade war between China and the US.

Vietnam’s optimistic growth forecast for 2022 bucks the slowdown elsewhere in Asia with relatively low inflation: an exception to the general rule in the region, according to the IMF.

Why Vietnam?

Over the past decade, Vietnam’s business environment has improved significantly: the country has risen from 98th in 2012 to 70th in 2020 in the World Bank’s Ease of Doing Business ranking, outpacing other developing countries seeking to engage. foreign investment.

Vietnam’s industrial and technology policies have consistently provided the best incentives for high-tech projects, including corporate income tax reductions, sales tax reductions and land lease payment exemptions.

Compared to surrounding countries, Vietnam’s minimum wage is thought to be low at 27-28 baht per hour. Vietnam has young engineering talent at a much lower cost than its immediate neighbors in the region. Vietnam is one of the top 10 countries with the highest number of engineering graduates, with more than 40% of college and university graduates majoring in science and engineering.

In addition, Vietnam is actively concluding bilateral trade agreements, which helps to create a favorable environment for foreign investors. With 15 free trade agreements, an ever-improving business environment, and a relatively stable government with defined socio-economic development plans, Vietnam also has one of the most open economies in the world.

Exports of computers, electronics and components from Vietnam grew at an average annual rate of 28.6% between 2010 and 2020, with double-digit growth even in the years before the US-China trade war and COVID-19 lockdowns.

In response to tech companies pulling out of China in 2020, Vietnam created a special task force to attract high-tech investment by providing individual incentives above and beyond what is required by law.

News that Apple is in talks to manufacture its popular Apple Watches and MacBooks in Vietnam has been seen by multinational firms and their key suppliers as a strategy to shift production away from China.

Wires to global electronics

In June 2021, China’s Xiaomi moved part of its device production to Vietnam as a result of investments made by DBG Technology, a subsidiary of Hong Kong’s DBG Electronics Investment Limited.

In 2014, Samsung spent $670 million on a manufacturing facility in the northern province of Bac Ninh. In just over ten years, it has increased its national investment to US$17.3 billion. In a meeting with Vietnam’s Prime Minister Pham Minh Chinh, the CEO of Samsung Electronics announced on August 5, 2022 that it will invest 850 million US dollars to start the production of semiconductor components in Tay Nguyen province.

With this investment, Vietnam will join South Korea, China and the United States as one of four countries supplying semiconductors to the world’s largest memory chip maker. The selection of Vietnam for areas with more developed economies speaks volumes about the country’s growing importance in the semiconductor value chain.