Giant global electronics companies including Samsung
, Panasonic and Intel have either moved their production facilities from neighboring countries to Vietnam or expanded operations here.
Samsung Electronics has shifted its smartphone plant from China to Vietnam while Microsoft did the same with its Nokia phone facility in 2014. LG Electronics in March 2015 announced a plan to relocate its television production line from Thailand here. Other phone producers such as France’s Archos and Taiwan’s Compal have mulled over coming to Vietnam after the signing of the landmark Trans-Pacific Partnership.
They have invested up to $10 billion in setting up factories in the country so far, according to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment.
Data of the General Statistics Office showed that electronics has become Vietnam’s largest export staple since 2013, with the exports of the sector having exceeded $30 billion.
In the first ten months of this year, Vietnam reaped $38.5 billion from exporting computers, electronic devices, phones and spare parts, of which $38.18 billion came from foreign-invested enterprises (FIEs), according to data of the General Department of Vietnam Customs.
Samsung’s ambitious expansion in Vietnam has demonstrated the allure of Vietnam’s electronics industry. The firm has registered to pour a combined $14.5 billion into Vietnam to date.
While the South Korean firm’s $2.5 billion factory in the northern province of Bac Ninh makes feature phones, its $2-billion plant in the neighboring province of Thai Nguyen is churning out smartphones, laptops, smart TVs and medical equipment.
As part of its expansive strategy, Samsung earlier this year erected a $1-billion plant in Ho Chi Minh City, which focuses on research and development and the production of high-end TV brands.
Samsung’s sizable projects have enacted the spillover effect by prompting other foreign investors to rush to the nearby areas to set up satellite facilities worth hundreds of millions of U.S. dollars after the plant in Thai Nguyen came into operation last year, the FIA said.
The attractiveness of the Vietnamese electronics industry is the combination of the rapid growth of the sector at the global as well as regional level, tax cuts under FTA commitments and the nation’s participation in large-scale trade blocs such as the ASEAN Economic Community and the TPP, according to the FIA.
By the end of 2014, Vietnam had seen the fastest growth rate in export revenue and foreign market share among ASEAN exporters, making it the third and 12th biggest electronics exporter in the region and the world, respectively.
However, Vietnam is facing a number of challenges in attracting FDI into the electronics industry. They are the low level of development of the sector, which may pose difficulties in meeting the rule of origin in the AEC and TPP, the modest insertion of local firms into the global supply chain.
Samsung Electronics Vietnam has recently said out of the 80 satellite suppliers of components and accessories for the firm, Vietnamese firms provide less than 10% of the total, particularly in simple processes like printing and packaging.
Another threat is the competition of neighboring countries in FDI attraction. Investors may move their bases out of Vietnam when the preferential treatment period ends, the agency noted.
Associate Professor Nguyen Thanh Thu at the University of Economics Ho Chi Minh City has told local media that domestic firms can hardly join foreign investors’ supply chains due to their weak capacity.
FIEs, even those from South Korea and Japan, are not interested in inviting Vietnamese providers to join their hi-tech supply chain, and they usually favor other suppliers.