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Cost not all

Released at: 11:41, 29/06/2015

Cost not all

Mr. Michael Sieburg, Associate Partner based in Ho Chi Minh City of Solidiance, a corporate strategy consulting firm with a focus on Asia Pacific, tells VET about the country's potential for manufacturers.

by Doanh Doanh

It’s been said that Vietnam has emerged as a new manufacturing powerhouse. Do you think so?

What is interesting about Vietnam’s manufacturing sector over recent years is the emergence of a surging electronics sector.

Vietnam has long been a strong base for the garment and footwear industries but over the past five years the leading manufacturing export has shifted from textiles and footwear to electronics, especially mobile phones.

Samsung has been a strong contributor to this, of course, but Nokia, LG, Panasonic, and Intel, among others, have all made and continue to make sizable investments here.

What are the main reasons behind such investments?

Vietnam, of course, offers a cost advantage compared to many of its neighbors, including China and many in ASEAN, with relatively low labor costs, low if rising electricity tariffs, and varying degrees of incentives, and also rapidly improving transport infrastructure.

Plus, Vietnam is a nice place to live, so that is a draw for expatriate management staff, especially from Japan and South Korea.

Which sectors are attractive to manufacturers in Vietnam and why?

Vietnam remains attractive to (relatively) labor-intensive, low-cost manufacturing in garments and footwear but less so in the traditional manufacturing hubs in and around Hanoi and Ho Chi Minh City, whose industrial suburbs are becoming increasingly attractive to electronics manufacturers.

So I would say that it depends on where you look in Vietnam as to what sectors are attractive. Industrial zones near Hanoi and Ho Chi Minh City might be pricing out new garment manufacturers but electronics manufacturers are happy to take their place.

Besides the opportunities, what are the challenges for manufacturers in Vietnam?

Productivity can be a challenge, especially in higher-skilled manufacturing, so continued skills development will be key to Vietnam not getting stuck with the “low cost” label.

Being low cost might be nice for short-term investment attraction but for the longer term Vietnam should aim to climb up the value chain so that it draws investment as a result of its high skills and innovation. It’s a process to get there but will be key to continued economic growth and development. I believe it will happen.

 

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