Vietnam may be quickly outgrowing its role in the global tech industry as the attractive manufacturing sidepiece to China.
The Southeast Asian nation has wisely capitalized on this trend to steadily grow foreign investment inflows and manufacturing capacity for increasingly high-tech gadgets. But it’s hard being your favorite supplier’s favorite supplier. Years of playing the role as the tech sectors’ perpetual “plus one” to China has left infrastructure straining and the labor force struggling to keep up. Multiple leadership shakeups and a prolonged corruption crackdown have also sowed fresh uncertainty for foreign businesses.
Being so dependent on outside investments and tech exports also makes it vulnerable to the ebbs of foreign demand and trade volatility. The World Bank warned last week that Vietnam’s scope for playing a connecting role in supply chains amid global tensions “may be shrinking.”
The country must focus on itself — upskilling the labor force, improving infrastructure and diversifying its economy to move up the value chain. It could start by demanding more from relationships with Big Tech companies.
Earlier this month, the country announced that Meta Platforms Inc. will expand manufacturing of one of the latest, low-cost lines of mixed-reality headsets to Vietnam. The move is expected to create 1,000 jobs and “underscores Vietnam’s growing importance in Meta’s manufacturing ecosystem,” according to the Ministry of Planning and Investment.
As part of the commitment, the Facebook-parent company will also launch a credit-earning Artificial Intelligence literacy course starting next year at the Vietnam National University. The government needs to do more of this and deepen knowledge sharing and training programs for its students, in addition to just luring manufacturing jobs.
Earlier this year, Apple Inc. pledged to increase spending on its Vietnam suppliers, state media reported, with Apple confirming it is expanding commitments by an unspecified amount. The number of suppliers to the iPhone maker operating in Vietnam surged last year — but many of these are Chinese or foreign-invested firms that have simply relocated operations. One way Vietnam could shift the balance is by taking a page from China’s playbook over the course of its decades-long relationship with Apple: entice the company to spend more on research and development and engineering training. The tech industry’s reliance on China’s supply chain ecosystem didn’t happen overnight or through one-off policy levers, it was the result of strategic long-term planning.
Using tech investments to upskill its labor force would help Vietnam to transition to a high-value economy, and simultaneously build long-term resilience in global supply chains for tech companies. Silicon Valley has spent years flirting with Vietnam while still courting China. This would show long-term commitment and deepen the relationship.
Infrastructure is another major hurdle. Power supplies in the north have faced strains as the region emerged as the center of the latest wave of investment. Officials quietly called on Apple supplier Foxconn earlier this year to voluntarily reduce power use by 30% at some of its assembly plants, Reuters reported in May, citing unnamed sources. The request came after outages last year hampered output. Vietnam was ranked 43rd on the World Bank Logistic Performance Index in 2023, down from 39th place in 2018 at the onset of trade tensions between China and the US.
Vietnam’s efforts upgrade its power grid have been stalled in part by political turbulence and the anti-graft campaign, which some UN officials and diplomats say have led to the country struggling to spend even its own public funds, while also scaring away foreign money. The American Chamber of Commerce in Vietnam said the most important factor to improve investments is a fair, transparent, predictable and streamlined regulatory environment. It has been attracting foreign investments by positioning itself as not China, but the opaque battle against graft waged under one-party rule has led some outside observers to draw similarities to its northern neighbor. Others see longer term benefits, but perhaps the “blazing furnace” campaign could do with a little cooling, or at the very least more transparency.
Despite some growing pains, Vietnam has showed remarkable resilience. World Bank data released Oct. 7 shows that investment growth has been declining across most Asian countries — with particularly sharp drops in China, Indonesia and Malaysia — but has been relatively robust in Vietnam. And the government reported an unexpectedly high quarterly GDP growth last week, despite the damage wrought by Typhoon Yagi in September.
Meta has shown this year that it is still betting on Vietnam, as has Apple, while Alphabet Inc.’s Google is reportedly mulling building a hyperscale data center there. The government said Elon Musk’s SpaceX plans to invest $1.5 billion. Nvidia’s CEO Jensen Huang was spotted slurping pho in Hanoi late last year and has reportedly expressed plans to set up a base in Vietnam. Big Tech’s entanglement with the country is still going strong — it’s now up to the government to build on the nation’s “plus one” status and turn this into a mutually beneficial relationship.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Catherine Thorbecke
