Vietnam's electronics sector is becoming a force in Asia. Whileelectronics exports from Asia rose by 17 percent between 2010-14,Vietnam's contribution ballooned by about 10 times, according toSingapore-based DBS group research.
The country has leapfroggedthe Philippines and Thailand and will likely overtake Singapore tobecome the fifth largest electronics exporter in the region over thenext two years.
The electronics cluster has grown rapidly inrecent years. Electronics exports have expanded by 78 percent per yearfor the past four years, reaching 35 billion USD in 2014. Electronicsaccounted for 23 percent of all exports in 2014, up from a mere 5percent in 2010. Electronics are now a key driver of the economy,accounting for 23.4 percent of GDP last year, up from just 5.2 percentin 2010.
Vietnam's electronics boom started after 2010 due to aconfluence of factors. Faced with weak global demand and persistent costpressure, many manufacturers were searching for cheaper locations fromwhich to produce.
In addition, competition was intensifying,making the need to restructure the supply chain even more compelling.Vietnam's pro-foreign direct investment policies, a weaker currency, andcompetitive labour force all added more development fuel to the sectorin subsequent years.
Its electronics cluster largely benefitedfrom the structural shift in the regional electronics supply chain, asthe influx of foreign electronics manufacturers enabled the transfer oftechnology and skills. So much so that it has now captured market sharesfrom many of its regional peers.
The rise of Vietnam'selectronics cluster is due in part to the structural shift in regionalelectronics supply chain. Vietnam has captured market share from many ofits regional peers. In a process seen over and over in Asia, earlierplayers saw incomes and wages rise, opening the door for lower costproducers. Vietnam is the latest new kid on the block.
Forexample, after year of rapid growth, wages in China are now about threetimes higher than in Vietnam. This has led to margin compression,forcing manufactures to relocate their production bases.
Beyondthe cost advantage, geography plays a role. Vietnam's proximity to Chinamakes it easier to integrate into existing supply chains. A growingmiddle class supporting domestic demand has further strengthenedVietnam's overall attractive for global manufactures.
FDI intoVietnam's manufacturing sector has picked up sharply in recent years.This has not been limited to low end labour-intensive manufacturing.Increasingly, high tech electronics producers are establishing apresence in the country.
Intel, LG, Panasonic and Microsoft areamong the global tech giants to have expanded in the country in recentyears, making a shift away from China. This trend is likely to persist.Korean electronics giant Samsung Electronics, for example, announcedlate last week, plans to invest 3 billion USD in a new smartphonefactory, alongside its existing 2 billion USD factory.
Bright prospects
Inthe longer term, the Government expects electronics exports to reach 40billion USD by 2017. Growth of a seemingly modest five percent a yearwould achieve that target.
Nonetheless, the longer-termsustainability of the industry will depend on whether Vietnam can raiseproductivity and move up the value chain. The country will also need todevelop its own talent pool to sustain the trend.
Otherwise,electronics will only migrate to cheaper locations once wages start torise. Indeed, Indonesia, Cambodia, Laos, and Myanmar all representcompetitive alternatives for global manufacturers.-VNA
The country has leapfroggedthe Philippines and Thailand and will likely overtake Singapore tobecome the fifth largest electronics exporter in the region over thenext two years.
The electronics cluster has grown rapidly inrecent years. Electronics exports have expanded by 78 percent per yearfor the past four years, reaching 35 billion USD in 2014. Electronicsaccounted for 23 percent of all exports in 2014, up from a mere 5percent in 2010. Electronics are now a key driver of the economy,accounting for 23.4 percent of GDP last year, up from just 5.2 percentin 2010.
Vietnam's electronics boom started after 2010 due to aconfluence of factors. Faced with weak global demand and persistent costpressure, many manufacturers were searching for cheaper locations fromwhich to produce.
In addition, competition was intensifying,making the need to restructure the supply chain even more compelling.Vietnam's pro-foreign direct investment policies, a weaker currency, andcompetitive labour force all added more development fuel to the sectorin subsequent years.
Its electronics cluster largely benefitedfrom the structural shift in the regional electronics supply chain, asthe influx of foreign electronics manufacturers enabled the transfer oftechnology and skills. So much so that it has now captured market sharesfrom many of its regional peers.
The rise of Vietnam'selectronics cluster is due in part to the structural shift in regionalelectronics supply chain. Vietnam has captured market share from many ofits regional peers. In a process seen over and over in Asia, earlierplayers saw incomes and wages rise, opening the door for lower costproducers. Vietnam is the latest new kid on the block.
Forexample, after year of rapid growth, wages in China are now about threetimes higher than in Vietnam. This has led to margin compression,forcing manufactures to relocate their production bases.
Beyondthe cost advantage, geography plays a role. Vietnam's proximity to Chinamakes it easier to integrate into existing supply chains. A growingmiddle class supporting domestic demand has further strengthenedVietnam's overall attractive for global manufactures.
FDI intoVietnam's manufacturing sector has picked up sharply in recent years.This has not been limited to low end labour-intensive manufacturing.Increasingly, high tech electronics producers are establishing apresence in the country.
Intel, LG, Panasonic and Microsoft areamong the global tech giants to have expanded in the country in recentyears, making a shift away from China. This trend is likely to persist.Korean electronics giant Samsung Electronics, for example, announcedlate last week, plans to invest 3 billion USD in a new smartphonefactory, alongside its existing 2 billion USD factory.
Bright prospects
Inthe longer term, the Government expects electronics exports to reach 40billion USD by 2017. Growth of a seemingly modest five percent a yearwould achieve that target.
Nonetheless, the longer-termsustainability of the industry will depend on whether Vietnam can raiseproductivity and move up the value chain. The country will also need todevelop its own talent pool to sustain the trend.
Otherwise,electronics will only migrate to cheaper locations once wages start torise. Indeed, Indonesia, Cambodia, Laos, and Myanmar all representcompetitive alternatives for global manufacturers.-VNA
