Vietnam becomes a winner in growing global electronics supply chain

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Samsung procured components from 29 local companies for its production needs.

Vietnam has been a long-term beneficiary given its rising integration with the global electronics supply chain, experts said.

According to analysts from financial information services provider Fitch Group, Vietnam is an important production base for major international electronics vendors, such as Samsung, Microsoft and LG. Samsung alone has invested more than US$17.3 billion in the Southeast Asian nation since 2007, and accounted for a quarter of the country’s total export revenue in 2018.

 Samsung’s entrance into Vietnam also preceded considerable technology transfers to local suppliers. Last year, the group procured components from 29 Vietnamese companies for its production needs, up from four in 2014.

 Besides, data from the Ministry of Industry and Trade also showed that Vietnam currently has about 1,800 supporting firms, of which about 300 participate in multinational companies' supply chains.

 “The new know-how obtained by these local companies has allowed them to supply components to other local original equipment manufacturers,” Fitch analysts said, citing local conglomerate Vingroup as an example. Vingroup announced plans to begin production of handsets in December 2018 through the establishment of domestic manufacturing facilities, further boosting the local electronics sector.

 “Matching trends in electronics and machinery exports and import growth reflect Vietnam’s intermediate position in the global electronics supply chain; electronics and machinery accounted for 40 percent of both Vietnam’s imports and exports in 2018, suggesting the importance of manufacturing to Vietnam’s economy,” the analysts said.

 However, experts said, the country’s high economic openness, representing as much as 195 percent of GDP, means that possible tariffs levied by the US on Vietnamese exports would weigh excessively on the economy. The US government has already sought to implement tariffs of over 400 percent on South Korean and Taiwanese steel re-exported through Vietnam, and tariffs impacting Vietnamese goods such as electronics would have detrimental effects on the domestic manufacturing sector.

 Higher targets

According to Vo Tri Thanh, director of the Institute for Brand and Competitiveness Strategy, both domestic businesses and lawmakers have so far become well aware that joining a supply chain needs not only to cut costs but also increase productivity and competitiveness.

It’s necessary now to apply a digital shift which naturally means digitization and super-connection which help connect physical production, service, goods, and distribution.

Meanwhile, Prime Minister Nguyen Xuan Phuc admitted although Vietnam has gained initial success in global supply chains, Vietnamese businesses have mainly joined these chains in fields such as assembling or product packaging, which are lower in value and lack sustainability in supply chains.

Facing that fact, Phuc said, Vietnam needs to move to a higher position in global value chains and strengthen the connectivity between Vietnamese and FDI businesses. Vietnam is implementing policies to link domestic and foreign businesses.

The government has so far also pledged to support businesses and development and reduce business conditions and logistical costs.
Vietnamese businesses have improved their management capacity and expertise and pursued long-term visions. They now focus on improving product quality and increasing the application of IT to link production networks and supply chains to enhance their competitiveness.

Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry, said that the chamber will work closely with the government to realize the goal of moving to a higher position in the global chain, adding VCCI has the Business Information Center which supports businesses to digitize their management and trading.

Besides, Vietnam has a stable political environment with high economic potential, an abundant workforce, the best-trained and youngest labor structure in ASEAN, and ever-greater participation in free trade agreements.

All of these factors are helping Vietnam participate more deeply in the global supply chain.