In recent years, Vietnam has attracted more and more attention as a destination for manufacturing investment.
While the country was already a significant hub, Donald Trump’s tariffs on China in 2017 spurred major investment in Vietnam, as did China’s years-long pursuit of zero-Covid that only recently ended.
In 2018, for example, FDI in Vietnam rose by 9.1% to US$19.1 billion, with processing and manufacturing accounting for 46.7% of that total. In 2021, FDI rose 25.2% after a weak 2020 to US$38.9 billion.
Through the first two months of 2023, FDI hit US$3.1 billion. This was considerably less than the same period in 2022, but this is more a reflection of the global macroeconomic situation, as opposed to Vietnam’s attractiveness.
For example, in March, executives from 52 American corporations including Boeing, Meta, Netflix, and SpaceX visited Vietnam as part of the largest-ever U.S. business mission to the country.
During the visit, US Ambassador to Vietnam Marc Knapper said American businesses have “remarkable” interest in the country, adding that “it really does show the commitment of the U.S. and U.S. companies to this market and to this relationship.”
Meanwhile, a recent survey by the Japan External Trade Organization found that Vietnam is the top country in Southeast Asia for Japanese companies looking to expand.
And ample high-tech manufacturing came online last year, with more on the way.
Suppliers for Apple are moving some Macbook production from China to Vietnam, while AirPods, iPads, and Apple Watches are either already made here or will be in the near future.
Samsung, long the largest foreign investor in Vietnam, plans to increase its investment in the country to US$20 billion and opened a US$220 million R&D center in Hanoi last December.
Another high-profile new investment that signals movement up the value chain was LEGO’s decision to build a US$1 billion carbon-neutral factory in Binh Duong. The company has a manufacturing facility in China that it has expanded multiple times.
“We knew we needed a factory in Southeast Asia, and we evaluated a large number of parameters when deciding where to go,” said Preben Elnef, General Manager of LEGO Manufacturing Vietnam. “Access to shipping facilities, access to skilled labor, and it was important for us to select a country that had ambitions to develop more skilled labor.”
LEGO ultimately found a strong connection with Vietnam on this.
“And on the carbon-neutral side, we were also looking for a country where we felt they were serious when they say that they are ready to change,” he added. “We have not selected the easiest country to be carbon-neutral, and some may claim it’s very difficult for that, but their ambitions and especially Prime Minister Pham Minh Chinh’s commitment at COP26 was a game-changer.”
These difficulties stem from Vietnam’s ongoing reliance on thermal power for much of its electricity supply. The country has made huge strides in installing renewable energy capacity but delayed energy policies have hampered the actual use of solar and wind energy.
Some experts are also concerned that a growing focus on manufacturing, and especially foreign-investment manufacturing, won’t ultimately benefit workers.
Elnef, for his part, is aware of these issues and stressed that LEGO strives to do its part to improve both sustainability and working conditions.
“It’s a learning exercise; so we are selecting construction materials with less embedded carbon, which is a new way of thinking here and has some added costs,” he said. “A lot of companies have reached out and asked how we are doing this, so we hope more do the same.”
Elnef went on: “Of course, we know that we will not change the world because we are carbon-neutral, but if our neighbors do it as well, then it really starts to help.”
When it comes to labor, the heavily digital factory will feature some of the employee comforts currently provided to office workers at LEGO’s headquarters in Denmark.
“We have a special focus on the shop floor workforce, and we think it should be really cool to work for us,” he said. “We are trying something new to attract a workforce to our factory.”
While carbon neutrality is difficult to achieve and far from the standard in Vietnam’s manufacturing sector, LEGO is not alone in attempting to pursue a more sustainable industry.
Pepperl+Fuchs, the German sensor manufacturer, recently inaugurated a sustainable factory in Ho Chi Minh City. The facility received LEED Gold certification and could provide a model for other companies expanding their presence.
Vietnam’s manufacturing growth is not without its challenges, especially given the sector’s dependence on North America and the European Union as export markets. Economic problems in those regions have led to falling demand for consumer goods and large-scale layoffs at some factories.
At the same time, however, Chinese investors are flowing into the country following China’s reopening, with Reuters reporting that Chinese companies inked 45 new investment deals in the first two months of 2023, more than any other country.
Increasingly volatile relations between China and the U.S. and its allies will also ensure that corporations will continue to look beyond their traditional manufacturing hub.
While the question of whether Vietnam could replace China as the ‘world’s factory’ may be hyperbolic given the latter’s much larger population and economy, there is little doubt that the former has firmly established itself on the global manufacturing map.
Writing credit Michael Tatarski
