China has always been the biggest tech components supplier and has played a pivotal role in tech giants such as Apple, Samsung, and LG Electronics’ supply chain ecosystems. However, post-COVID-19, there has been a significant shift in many companies’ product line manufacturing, with Vietnam becoming a major manufacturing centre for their products. Additionally, since China is enforcing a zero-Covid policy, there is an opportunity for a Vietnam supply chain hub to evolve.
This shift to the country for manufacturing could also result in increased investment in the Vietnam logistics tech industry. It is already the leading country in Southeast Asia in infrastructure investment, spending 6% of its annual GDP, which is 2.3% higher than the average of the other countries in the region. However, issues remain, such as high costs and inefficiencies requiring technological applications to enhance the logistics sector and increase Vietnam’s competitiveness.
Foreign direct investment (FDI) trends
Tech giant Apple currently manufactures its iPad in Vietnam and is considering producing the first “made in Vietnam” Apple Watch and Macbook. This opens the door for local businesses to collaborate within the Apple products’ supply chain. Additionally, Apple seems willing to develop a “China plus Vietnam” model, demonstrating that the country has the potential to profit from the US-China trade tensions.
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Multinational companies like Samsung have worked with local companies since 2013, but the US-China trade tensions and the pandemic-induced supply chain issues are accelerating the move to collaboration. Vietnam has attempted to strategically position itself to benefit from these developments. Specifically, Apple has increased its supply-chain ecosystem to 21 suppliers in Vietnam, up from 14 in 2018. This number is higher than the situation in Thailand (only 15 suppliers) and India (9 suppliers). This decision also creates opportunities for Vietnam to participate more significantly in the general global value chain.
It has been almost four decades since Vietnam first implemented the “Doi Moi” policy to open up the economy. “Vietnam affirms our consistent policy of not choosing a closed economy, but instead staying steadfast to the direction of Doi Moi (renewal), building an independent, self-reliant economy in combination with proactive and active international integration”, – said PM Pham Minh Chinh.
This policy change indicates Vietnam’s wishes to be a good friend, a trusted partner, and a responsible member of the international community. It wants to be prepared to contribute to addressing regional and global challenges on the mission to make the world a peaceful, cooperative, and sustainable planet. It is clear that Vietnam is open to FDI, and government regulations concerning investments have become increasingly favourable for potential international partners.
In 2021, Vietnam exported USD 125 billion worth of goods, with USD 50.8 billion worth coming from the electronics, computers, and computer parts sectors. This sector accounted for more than 40% of Vietnam’s total export value, up from 5% 20 years ago. FDI in the manufacturing industry and real estate markets also shows considerably increased figures, with USD 245 billion and USD 65 billion, respectively, amounting to 75% of the total accumulated committed capital. As of December 2021, Vietnam’s Ministry of Planning and Investment (MPI) reported USD 19.74 billion worth of FDI projects value in Vietnam with mentionable names like LG, LEGO Group, Samsung and other large manufacturers. However, this is a slight decrease compared to the same period in 2020.
Technology and legislation changes
In the battle against infrastructure deficiencies, LogTechHub, a leading software provider for freight forwarding, transportation, warehouse, courier express parcel, and other logistic services, has launched an Excellence Freight Management System. The system is a multi-services, multi-currencies logistics software to address existing challenges that logistics companies face in the digital transformation process.
To show support for the digitisation process, on February 22, 2021, the Prime Minister authorised an amendment to the roadmap for development to allow research and improvement to logistic services in Vietnam by 2025. The action plan acts in the spirit of welcoming foreign investment and the entry of international players to Vietnam’s economic territory.
Vietnam also provides a skilled but inexpensive workforce meaning lower labour costs, and has a promising investment in infrastructure. The EU-Vietnam free trade agreement in 2019 is also a stepping-stone for a potential Vietnam supply chain hub to become a critical cog in global logistics. The political-economic stability in the country is also a key component for foreign businesses to consider when making collaborative decisions on investing in Vietnam.
The government has shown an intention to invest significantly in the Vietnam logistics tech industry and has honed the art of balancing socialism and capitalism for many years. It is now using its diplomatic strength to build robust global relationships with key countries, which will help Vietnam’s logistics landscape develop even further.