Foreign electronics giants have been scaling up their presence in Vietnam over the past decade, turning the Southeast Asian country into a global manufacturing hub, while local peers are struggling to stay afloat.
Vietnam has seen a restless inflow of investment from South Korea, especially in the electronics industry, with Samsung and LG
being the top players.
Samsung alone has invested up to $15 billion in Vietnam to date, making itself the champion in terms of foreign investment in the Southeast Asian country. Its sizable investments have made Vietnam one of the world’s biggest suppliers of smartphones and displays.
As a demonstration of its long-term commitment, the South Korean group has won approval to build a $300-million research & development (R&D) center in the capital city of Hanoi. The facility is slated for operation in January 2020 and will employ 4,000 laborers.
It is employing more than 100,000 Vietnamese workers and has attracted a large number of foreign suppliers into Vietnam. The number of Vietnam-based suppliers for Samsung has risen sharply to 190 currently from several dozens a year earlier.
Samsung Electronics Vietnam (SEV) produces between 40% and 50% of its smartphones at its two factories located in two Vietnamese provinces of Bac Ninh and Thai Nguyen.
SEV raked in around $30 billion from export in 2015, accounting for nearly one fifth of the country’s total export turnover in that year.
“SEV recorded a combined trade surplus of $21.5 billion over the last three years, including $3.9 billion in 2013, $6.5 billion in 2014 and $11.1 billion in 2015, contributing greatly to Vietnam’s macroeconomic stability,” Nguyen Van Giau, former head of the National Assembly’s Economic Committee, said in March 2016.
Other South Korean Giants Follow Suit
Following Samsung, LG Electronics Inc., South Korea’s No.2 tech giant, has quickly bolstered its investment in Vietnam. Its electronic components arm LG Innotek Co. Ltd. has received a license for its $550-million camera module factory in Vietnam’s northern port city of Hai Phong.
This will be the third project invested by LG Group in Hai Phong, bringing total investment by LG Group in the city to $3.55 billion.
Meanwhile, South Korea-based Seoul Semiconductor Co., Ltd in August received a license to invest $300 million in a plant to produce semiconductors and light-emitting diodes (LEDs) in Ha Nam province in northern Vietnam.
Seoul-based LED manufacturer Lumens Co. will begin operating its factory in September located in the southern province of Binh Duong which is currently under construction.
Lumens currently produces LEDs that are used for various products ranging from televisions to smartphones. The company also works with Samsung Electronics.
These large-scale investments have enabled South Korea to stay firm as the largest direct investor in Vietnam, with nearly $5.6 billion in the first nine months of this year, leaving its runner-up, Singapore, far behind with $1.85 billion.
Low Labor Cost
According to insiders, Vietnam stands out as an attractive investment destination as a monthly minimum wage is about 59% that of China. Also, the Southeast Asian country has a population of over 90 million and 60% are in their 30s or younger.
“Vietnam was chosen because it will help us meet the global demand for LEDs and secure competitiveness in production costs,” a Seoul Semiconductor official was quoted by Yonhap as saying.
“Vietnam has a very good investment condition as labor cost is very cheap and 54 million is a labor population,” said Park Byung-book, chief of the Korea Trade-Investment Promotion Agency’s (KOTRA) branch office in Hanoi.
“Tech firms are increasingly making inroads into Vietnam, which used to be favored by textile or sewing firms in the past,” Park added.
The Vietnamese government is making various efforts to lure more South Korean investments, according to KOTRA.
Meanwhile, with a young population and the middle class set to double by 2030, Vietnam is a consumer market with huge potential for foreign companies.
Domestic Firms Losing Ground
The Vietnamese electronics industry is being absolutely dominated by foreign-invested enterprises (FIEs). Vietnam has only one company on the list of the 100 largest ones in this industry, which is considered vital to its economy.
FIEs have chosen Vietnam as an investment destination because of the country’s abundant and cheap labor force, said Rene Robert, an expert from the International Labor Organization (ILO) in Bangkok, at a workshop in Hanoi on September 29. Women account for nearly 80% of the workforce in this industry.
In comparison with FIEs, Vietnamese companies are smaller in scale and weaker in the global supply chain. Local firms employ 24 workers on average, compared to nearly 630 at FIEs.
Pham Minh Huan, deputy minister of the labor ministry, said at the workshop that FIEs, including Samsung, employ mainly low-cost and low-skilled laborers. This is the lowest phase of the global electronics value chain.
“Vietnamese electronics companies are becoming smaller and weaker than foreign players. Foreign firms are tending to acquire local peers in the electronics industry and this phenomenon is spreading to the garment and textile sector. This matter needs consideration,” Deputy Minister Huan noted.
Vietnam’s electronics industry finds itself in a dilemma as it cannot compete with the automation trend in developed countries as well as low labor cost in emerging economies such as Laos, Myanmar and Bangladesh, said Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry.