The speed and pace of evolution can be beyond measure. There are long-term tectonic shifts beginning to emerge and impacting across regions. Based on HSBC Global Research, there are key drivers of these long-term trends reshaping societies, economies, and markets, and sending out ripples far and wide. Just to pick out a few, demographics is an obvious driver, as population trends will affect global and regional economies in the decades to come more profoundly than ever.

Working age populations are shrinking and productivity shifts towards further automation will present challenges. Additionally, young digital natives and others from emerging markets will become future consumers. Population change will also dictate the destiny of future cities as well as future transport. Climate change is an emerging trend yet perhaps carries the most weight in terms of driving a long-term shift in future trends. This driver digs into changing the fundamentals of the different economies as an energy transition away from hydrocarbon power towards clean energy becomes an obligation and not an option. Disruptive technology will be the final driver and have a resounding impact across global trends reshaping the world, from automation to energy transition and future cities, consumers, and transport.

Regional effect

Demographic change is unfolding and accelerating, with India set to take over China as the most populous nation on earth. North Asia is facing sharp declines in population and a concurrent rise in aging, while ASEAN moves on as a young and growing population with a rising urbanization rate and rapidly-growing middle-class. Population declines and aging societies are prompting the speeding up of automation for better manufacturing processes. The number of industrial robots installed in factories across China outpaced the rest of the world combined in 2021.

Disruptive technology is led by growing investment in AI creating demand for high performance chips, modules, high bandwidth memory, and high density DRAM on the back of a need for advanced computing and storage infrastructure such as cloud and servers. Smart farming, for example, addresses the vulnerability of supply chains. HSBC believes that global AgTech will grow by a compound annual growth rate (CAGR) of 15-20 per cent to 2030. Alibaba, JD, and Tencent already provide blockchain services to farmers in Asia.

Asian governments are keen to achieve their energy transition. Ninety-six per cent of the energy capacity added in 2023 in India was green energy. China’s five major coal power producers are now the world’s largest investors in renewables, and the country has become the dominant player in the photovoltaic (PV) industry, processing 90 per cent of wafers, cells, and modules globally. Renewable capacity in ASEAN is expected to double between 2020 and 2025.

The future consumers will largely be Asian consumers. By 2030, the top 10 largest consumer market globally will be composed of six Asian markets: China, India, Indonesia, Japan, Bangladesh, and Vietnam. This will be driven by a growing middle-class and result in rising demand for homecare products.

Asia’s future transport will be led by electric vehicles (EVs) and component makers across the region. China commands 60 per cent of the global EV market and is the most scalable, taking over 50 per cent of global EV battery share and 80 per cent of global EV battery recycling capacity. South Korean battery makers and recyclers have joined Taiwanese EV component makers to form a North Asia supply chain. India has been slow but is steadily catching up.

Key rapid changes

For almost four decades, since the opening up of its market via the “Doi Moi” reforms in 1986, Vietnam has characteristically and resiliently built a strongly recognized brand. The country has transformed into an export-led economy, with exports to the US growing five-fold over the last decade, fueled by a progressive regulatory stance to promote and attract FDI as an important engine of growth and contributor of over 70 per cent of exports, and the country has strategically executed over 15 free trade agreements (FTA) offering a favorable export platform allowing exporters to access the world, including 15 of the G20 markets. It has also established a solid supply chain ecosystem around the manufacturing and processing space, finding its way up the value chain and positioning itself today as one of the most preferred alternative investment destinations riding the “China+1” wave.

The key themes and trends reshaping Asia have strong relevance to Vietnam’s growth story today.

Demographics remain one of the country’s fortes. Its population of 100 million is young, entrepreneurial, and tech-savvy, while its workforce participation rate stands at over 73 per cent and its urbanization rate has grown to 38 per cent as a result. The country’s average annual working age population continues to rise by an estimated 0.4 per cent a year, unlike China, Japan, Thailand, and Singapore, which are posting declines.

Vietnam’s domestic consumption market is also poised to become among the world’s top 10 largest outsizing markets, joining the UK, Germany, Thailand, and Turkey by 2030. E-commerce has doubled, from $8 billion in 2018 to over $16 billion in 2022, with forecasts from the Vietnam E-Business Index putting the total beyond $20 billion in 2024. Vietnam has also seen the highest percentage change in the number of adults with wealth of over $250,000, outpacing most Asian economies. It is on the path to being the future consumer.

When it comes to disruptive technology, robust FDI-led growth in the economy enables Vietnam to benefit more than others. ASEAN FDI accounts for 13 per cent of the total, and Vietnam’s own FDI has been consistently high over the last decade, accounting for 4-10 per cent of GDP. This has prompted the country to naturally grow into a global manufacturing hub for electronics products. Looking back to the year 2000, electronics exports were a mere 5 per cent of total exports, whereas today these account for over 30 per cent. While Indonesia and Thailand lead the race in EVs, HSBC believes that Vietnam ranks third as a destination for investment in EV supply chains based on supply chain dynamics and domestic market opportunities.

In semiconductors, Singapore is clearly the highest up the value chain while Malaysia is an advanced packaging and testing hub and Thailand is an exporter of key PCB and IC components. Vietnam, on the other hand, has been the beneficiary of trade diversion. Taiwanese and South Korean electronics makers have relocated to Vietnam, while Intel and Amkor have contributed to expanding back-end assembly and testing facilities. This will also aid in Vietnam’s future city roadmap.

Energy transition remains at the heart of the Vietnamese Government’s ongoing priorities. Vietnam’s energy consumption growth is accelerating, fueled by a growing and sizable population, strong GDP growth, a burgeoning industrial sector, and the approved Power Development Plan VIII (PDP8) offering a comprehensive roadmap to complete the transition journey. Vietnam continues to be a favorable destination for investments in renewables. Challenges abound, however, and Vietnam will require $14 billion of investment annually to achieve its 2050 net-zero emissions commitment, but it is clearly on the right path. Themes related to future city and future transport will be byproducts of Vietnam’s energy transition.

Vietnam is well-positioned and favorably placed to align with the future trends shaping Asia and has much to benefit from the forces of change.

This is a blessing but at the same time requires intense focus and a steadfast stance. The speed of change is indeed rapid, and navigating it effectively requires clear foresight to proactively recognize and remove barriers. For Vietnam, the quality of resources and workplace productivity require ongoing improvements. It still ranks behind all ASEAN markets in workplace productivity, with output per hour worked at a low 9.7 compared to 10-26 in its ASEAN neighbors. The minimum wage remains 48 per cent of the figure in China, 60 per cent of Malaysia’s, and 83 per cent of India’s. English proficiency is behind China, Malaysia, the Philippines, and Singapore, but ahead of Thailand and Indonesia.

Vietnam’s logistics performance index also lags behind China, Malaysia, and Thailand, with gaps shown in logistics capacity, delivery time, and traceability, etc. Logistics infrastructure falls short of meeting international standards, and road transport commands a 74 per cent share of overall transport means while the demand is actually skewed towards sea transport.

To accommodate changing trends and make them advantages for Vietnam, regulations and administrative procedures need to be further streamlined and be more pro investor. Regulatory navigation continues to be a critical consideration for investors looking to newly invest in Vietnam. According to the latest HSBC Global Connections survey, regulatory developments are among the top two challenges for foreign enterprises operating in Vietnam, with 30 per cent of surveyed companies pointing to challenges in adapting to rapidly-changing regulations and policies within the market.

Long term trends

Vietnam is currently on the heels of the trend setters but is positioned favorably compared to neighboring Asian countries. With the right dose of strategy, policies, and drive mixed in a cauldron of strong fundamentals, it will be no surprise if Vietnam becomes the next gamechanger in Asia in the years to come. Keep your eyes on the road, read the overarching changes in the landscape, and hold on to the steering wheel!