Vietnam could fall behind other Asian countries in attracting shifting investment from China because of supporting industry inadequacies, experts say.

Nguyen Mai, chairman of Vietnam’s Association of Foreign Invested Enterprises (VAFIE), said that although Vietnam has become an investment spotlight because of its success in containing the coronavirus, it is only one of several investment destinations in Asia and other countries with competitive factors are speeding up in the capital attraction race.

In April, India reportedly reached out to more than 1,000 companies in the U.S. through overseas missions to offer incentives for manufacturers seeking to shift from China.

It has prioritized medical equipment suppliers, food processing units, textiles, leather and auto part makers. Indian officials have told U.S. companies that land and skilled labor costs in India are more competitive than the U.S. or Japan.

"India is a bigger market than Vietnam or Cambodia so it should be a bigger draw for investors looking to move operations out of China," Ajay Sahai, director general and chief executive officer of the Federation of Indian Exporters, told Bloomberg.

Other Southeast Asian countries have also been active. Thailand announced a package of incentives in September last year, including a 50 percent tax cut for companies to relocate production from China. Companies that invest at least a billion baht ($32.7 million) by 2021 will be eligible to benefit from the incentives.

Malaysia plans to offer a billion ringgit ($238 million) worth of incentives for five years starting this year for multinational firms in high-end technology and manufacturing.

Not all manufacturing can be easily outsourced from China to Vietnam, Stephen Wyatt, country head of real estate market research firm Jones Lang LaSalle (JLL) Vietnam, said in a recent report on industrial land prices in Vietnam.

He said that there was more skilled labor in China than in Vietnam, and a large percentage of China’s manufacturing is to serve its domestic market, which is bigger in scale than Vietnam.

Other experts also said that the scale of Vietnam’s manufacturing businesses was too small to attract large amounts of foreign capital.

Truong Chi Binh, deputy chairwoman of the Vietnam Association for Supporting Industries (VASI), said that most manufacturers in supporting industries in Vietnam have less than 200 employees each and use low-tech machinery.

Therefore, they can only produce a limited number of small parts, and few can make clusters, while multinationals require the ability to take on large orders, she said.

Furthermore, even if Vietnamese companies could meet global quality standards, they might still fail to offer more competitive prices than Chinese manufacturers, she said, adding that other countries offer more incentives to the supporting industries than Vietnam.

Binh said that industrial clusters need to be established to complete the supply chain, and more support programs should boost the number of startups in the supporting industry.

Mai of VAFIE said that to gain advantages in the foreign direct investment race, Vietnam needs to simplify administrative procedures and shorten the time taken to greenlight a project.

Positive Covid-19 fallout

But several experts also expressed confidence that Vietnam will benefit from the shifting trend out of China because of its early and effective response to the Covid-19 pandemic, taking drastic measures to contain the spread of the virus.

There have been many reports of major companies choosing Vietnam as its next manufacturing hub. Apple has been looking for managers and engineers in Hanoi and Ho Chi Minh City. It has been reported that the company will start producing 3-4 million wireless earphones (AirPods) in the country this quarter.

Google is also set to begin production of its low-cost smartphones with Vietnamese partners this year, while Microsoft is scheduled to produce notebooks and desktop computers in the northern region in the second quarter.

Source: VNExpress – 13^th May 2020

Image by Michal Jarmoluk from Pixabay