The manufacturing sector in Vietnam has developed strongly in recent years. How do you view its potential?

Vietnam has seen its GDP grow by an average of 6.5 per cent per annum over the last 30 years, much of this due to the contribution from manufacturing. A key part of this is manufacturing for export, powered by significant flows of FDI. This has been enabled by a competitively-priced workforce and 15 free trade agreements Vietnam has entered into, making it one of the most open economies in the world. Another key factor is growth in the domestic market.

Many large foreign manufacturers, such as Foxconn, Quanta, Samsung, and Honda, have been growing their operations in Vietnam. Why are foreign investors expanding their activities in the country’s manufacturing sector?

There has been a trend towards “China plus one” strategies over the last few years, which is where global manufacturers look to diversify some or all of their manufacturing away from China. Globally, some manufacturers are refining their supply chains even further, with some bringing production back “onshore” to their home country or “near-shore” to a neighboring company, such as Mexico for US manufacturers.

Lastly, there is a third category, of “friend-shoring”, where countries that are deemed to be less of a geopolitical threat have been attracting more investment from manufacturers. Vietnam is seen as a friendly shore by these Asian manufacturers.

What difficulties are both domestic and foreign manufacturing enterprises still facing in Vietnam?

In addition to some red tape and paperwork, there is the current issue of disruption to electricity supplies. Vietnam has done a good job in developing industrial manufacturing hubs, but is facing slow investment in grid upgrades, and needs to bring more and cleaner electricity generation on line. Climate change and the impact of El Nino are a concern in this regard. Long-term, Vietnam can be an exporter of electricity to the region, but in the meantime is facing shortages.

What should Vietnam do to support its manufacturing sector?

Clearer policies, greater incentives for creating a lower carbon footprint, and technical training and support for institutions providing management training for mid-level and senior-level executives. An acceleration of public investment in infrastructure would boost growth in the sector.

What are your thoughts on the development of Vietnam’s manufacturing sector in the future?

The long-term looks very bright. Vietnam has a real possibility of being a major part of the world’s supply chain for many years. This will continue to lift the wealth and well-being of its population, and will further accelerate the growth and modernization of the economy as a whole.