Vietnam is emerging as an ideal venue for such big international groups Samsung, Intel and LG thanks to its lower-cost labour, geographic location and strong retail market with a population of over 90 million people, radio The Voice of Vietnam (VOV) reported on July 29.

A decade ago, Vietnam played only a minor role in the global electronic supply chain. However last year, according to statistics by the International Trade Centre (ITC), the country’s gross revenue from electronic exports exploded to 38 billion USD.

Although the modest revenue may at first blush seem to pale in significance to China’s revenue of 560 billion USD, it has helped on the one hand get Vietnam ranked among the top 12 electronic exporters in the world.

On the other hand, it demonstrates that the Southeast Asian nation is an economically viable alternative to China in the eyes of the electronics manufacturers in the global marketplace and that the country is fully capable of competing in the international arena.

In fact, many electronic producers are openly expressing their fondness for the Vietnamese market due to less favourable macroeconomic conditions in China, such as aging population and rising labour costs.

Although leading market analysts predict China will continue to be the world’s leading producer of electronics, they say the country is no longer the top venue and Vietnam offers competitive advantages in lower-cost manufacturing and assembling.

Other Southeast Asian countries, including Indonesia, Thailand and the Philippines, are also competing head on with China by providing numerous other incentives.

This has resulted in many large electronic businesses shifting their investment trend towards these emerging and promising markets, particularly Vietnam, which is said to have achieved the highest electronic export growth in the world.

Currently, Samsung is one of the largest investors in Vietnam. The firm has invested tens of billions of USD in smartphone plants. Intel and LG have also poured almost 1 billion USD into the domestic electronic industry, which has also been the recipient of hundreds of millions of USD from other foreign companies.

Foreign companies say Vietnam has a more convenient geographical position than other Southeast Asian nations. They also cite as pluses Vietnam’s proximity to China which allows them to better utilize preexisting supply chains and the fact that Vietnam faces fewer natural disasters.

Growing domestic demand also entices manufacturers. “Many electronics manufacturers seek more than low-cost labour when they choose a location for production. They also look for countries that can emerge as large domestic markets. Vietnam seems to have all the right ingredients for that to happen,” said Glenn Maguire, chief economist for the Asia-Pacific region at ANZ Bank.

Maguire believes that Vietnam offers other advantages as well, including a good electrical supply and improving transport infrastructure. The country also appears stable politically. The recent spate of anti-China riots generated dramatic headlines and caused concerns among many investors, but their actual impact was limited and the situation cooled down quickly.

Cheap workers, however, remain the primary attraction for many electronics manufacturers. Those in Vietnam command some of the lowest wages in the region. Only people in Cambodia, Laos, and Myanmar earn less, but those countries lack many of Vietnam’s other advantages.

Booming electronics production will help lift Vietnam’s economy, but questions remain about how evenly benefits will be spread. Right now, most factories focus on relatively low-value production and assembly work. Although setting up and running those factories require skilled managers, technicians, and engineers, most workers will be stuck on an assembly line screwing things together for the foreseeable future.

Long-term growth depends on whether Vietnam can ultimately move up the productivity value chain and create more skilled jobs. The influx of foreign electronics manufacturers gives the country a unique opportunity to absorb foreign technology and expertise. It also provides capital to fund much-needed improvements in infrastructure and education.

If Vietnam can continue to develop its tech talent at home, a new generation of skilled workers will allow the country to export progressively higher-value products. It will also expand the base of high-income professionals, fueling greater demand at home for those same goods. If that doesn’t happen, however, the country will probably attract new investments only until cheaper locations emerge somewhere else.-VNA