20.08.2021, 07:57

Why the electronics industry of Vietnam appeals to foreign investors?

Why the electronics industry of Vietnam appeals to foreign investors?

Vietnam’s electronics industry is still growing despite the negative impact of the COVID-19 pandemic. In recent years, Vietnam has implemented some trade agreements with other countries and flexible policies to attract foreign investors and this would open opportunities for entrepreneurs as the industry plays an important role in Vietnam’s economy.

To take advantage of these opportunities, it is important for investors and entrepreneurs to understand the recent developments. Before the COVID-19 pandemic, Vietnam was an ideal place to do business in this sector due to the US-China trade war and rising manufacturing costs in China. It was estimated Vietnam is one of the key electronics exporters ranking 12th place in the world.

Related: Vietnam as a attractive destination to giant electronics companies

There has been a steady increase in exports of an average of $12 billion per year rising from $47.3 billion to $96.9 billion in 2019. The import of electronic products has nearly doubled between 2015 and 2019.

Vietnam’s electronics industry is diverse. In 2019, China was the Vietnam’s top export destination accounting for 19.3 per cent, following the US (18.2 per cent) and South Korea (9.1 per cent) and Vietnam’s export commodities are mobile phones, televisions, cameras (41 per cent), electrical apparatus (18.2 per cent), and electronic integrated circuits and micro assemblies (11.9 per cent). Vietnam bought electrical machinery and components from China (33 per cent), South Korea (31 per cent), Japan (7.99 per cent) and the US (6.52 per cent).

Foreign Investment and companies play a crucial role in Vietnam’s electronics industry. It was reported that LG’s smartphone production division has completely move its production plants from South Korea to Vietnam. In a similar move, both Apple and Nintendo have moved their product plants partly to Vietnam.

As discussed about the Regional Comprehensive Economic Partnership before, the new trade agreement will help lower tariffs on trade and boost the country’s economy appealing to foreign investors. In addition, Vietnam has signed a free trade agreement with EU and this agreement will gradually reduce most tariffs, regulatory barriers, and red tape which should create opportunities for both sides to do business.

Investors can enjoy reduced tariffs due to these above free trade agreements. In addition, the Vietnamese government will provide incentive scheme implementing a 30 per cent corporate income tax (CIT) cut for certain business and companies working in the high-tech sector as well as in high-tech and specific industrial zones, and underdeveloped socio-economic regions.

Vietnam has reported a third wave of the COVID-19 pandemic and that resulted in lockdowns, restrictions and disruption to supply chains and businesses shutdown. Despite the negative impact on Vietnam’s economy, plenty of foreign investors choose Vietnam as a top destination to set up their electronics production bases. According to a recent report from Fitch Solutions, Vietnam’s consumer electronics industry will increase in 2021 due to “the global vaccine rollout and stronger external demand for important export industries”. The industry will continue to accelerate due to “a combination of purchasing power, demographic and economic modernisation trends that gives Vietnam one of the stronger regional outlooks, with vendors set to tap into an expanding middle class and flow of first-time buyers”.

It was reported by a local newspaper Vietnam Plus, most of foreign investors have chosen the northern provinces to set up their production plants and Samsung has already invested over $17.5 billion in Vietnam, accounting for more than 20 per cent of Vietnam’s total export turnover through its main products of high-end mobile phones and electronic components. The giant electronic company has employed more than 170,000 to work at its production plants in industrial parks in Bac Ninh and Thai Nguyen provinces, and plans to expand further investment in the country. Significant, Panasonic has also relocated its refrigerator and washing machine factory from Thailand to Vietnam, proving that the country was the main electronics manufacturing hub in the region.

It was noted that Vietnam’s economic outlook was stabilized before reporting a third wave of the COVID-19 pandemic. On August 11, the new Vietnamese Prime Minister Pham Minh Chinh reminded businesses to avoid “any disruptions in the supply chain while regulations on goods circulation are strictly observed and it was time to focus on combating the pandemic because a successful fight against the COVID-19 would promote socio-economic development and facilitate socio-economic recovery”. There is still room for Vietnam’s economy to grow and it is expected to grow between 3.5-4 per cent this year depending on how quickly Vietnam control the COVID-19 pandemic.

Given recent significant developments of the Vietnam’s electronic industry, Vietnam is the main electronics manufacturing hub in the region that will appeal to investors and entrepreneurs and it is never too late to make the most of Vietnam’s potential market. The COVID-19 pandemic has returned and negatively impacted on the Vietnam’s growth economy. That required investors and entrepreneurs to take a careful approach and give clear understanding of the industry before investing any future projects.

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