Moving Up The Value Chain

Despite the pandemic, Viet Nam’s total export turnover increased by 21% year on year (YoY) to reach US$212 billion. Of this, high-value products such as electronics and phones saw large increases; phones and their parts had the highest export turnover of US$35.7 billion, accounting for 16.8% of the export total and a 13% YoY growth. Computers and electronics had a turnover of US$31.3 billion, accounting for a 15.8% share. What is clear is how Viet Nam’s key export products have changed as textiles only had 10% of the total export value and footwear had 6%. 

FDI also shows Viet Nam’s manufacturing potential and the move from low- to high-value manufacturing. In 2021, the manufacturing and processing sector had 53.4% (up 16.4% YoY) of total FDI, equivalent to US$11.83 billion. Much like the export values, newly registered manufacturing FDI in 2021 demonstrated Viet Nam’s manufacturing transformation; electrical equipment accounted for 19.2% and computers and electronics had 17.1%. Low-value products had a smaller share; for example, paper and paper products accounted for 14.6%, rubber and plastic products had a 13.5% share while apparel, food products and textiles each had less than 4%.

Mr John Campbell, Manager of Industrial Services, Savills Vietnam explained: “Over the last 20 years, Viet Nam has become one of the most popular manufacturing hubs in Asia, thanks to its stable growth, export-driven economy, increase in FTAs, young dynamic workforce, investment incentives, and strategic location.”

“Despite a challenging 2021, Viet Nam’s transition from low skilled and labour-intensive industries to high value-added industries continues. Low-value industries are beginning to set up elsewhere in Southeast Asia as Viet Nam no longer offers the same incentives, and these industries struggle to source affordable labour and land in Viet Nam. However, foreign and high value-added investors remain bullish on Viet Nam’s long-term growth.”

North versus South Key Economic Zone

In Viet Nam, different regions focus on different types of industries. While the South receives more investment in ‘traditional’ industries such as textiles, food and beverage processing, and wood and paper manufacturing. Northern Viet Nam has more in high-value sectors like electronic, electrical, and automotive manufacturing.

In 9M/2021, Northern Viet Nam had the most newly registered manufacturing FDI, reaching US$3.9 billion or 72.9% of the national total. High-value manufacturing received the most attention with electrical equipment accounting for 18% and computers and electronics accounting for 16%. Four of the five largest investments in the North Key Economic Zone (NKEZ) were in high-value-added industries, such as Jinko Solar’s US$498 million investment or Foxconn Technology’s US$270 million investment.

Southern Viet Nam received 19.4% of newly registered manufacturing FDI in 9M/2021, most of which came from more traditional industries. Two of the largest investments were in the food and beverage industry with IDL Coffee Holdings investing US$78 million and CPV Foods investing US$36 million. Top Sport Textiles made a US$48 million investment in a facility in Tay Ninh.

Industry 4.0

Smarter manufacturing solutions are increasingly popular globally and Viet Nam is no exception. With an increase in high-value manufacturing, there are increasing opportunities for manufacturers to improve their capabilities by implementing new technologies like artificial intelligence (AI) or 3D printing. According to the Central Institute for Economic Management (CIEM), manufacturing could see a 16% growth in 4.0 strategies by 2030 if SMEs start implementing medium-level technologies. Forecasts also suggest that new technology could help the sector grow an additional US$7-14 billion.

Mr Matthew Powell, Director of Savills Hanoi, commented: “Many companies want to implement smarter manufacturing solutions in order to meet the increasing demands from customers who want to produce high-value outputs. In line with this, real estate developers are having to think about how they can utilise and provide properties that meet these increasingly technology-focused demands.”

Vingroup has started using 1,200 ABB robots in some of its welding processes, and local ready-built factory (RBF) developer, KTG Industrial JSC has started building 4.0 RBFs in Dong Nai Province. Its “Industry 4.0 Factory” will integrate ready-built industrial properties with 4.0 technologies.