Vietnam dreams of becoming world's next factory. But at what cost?

Created 25 January 2023
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"Do you think Vietnam has the potential to become the world's next factory?"
Workers at a factory of Dai Dung Mechanical Electric JSC in HCMC, July 2021. Photo by VnExpress/An Phuong

A reporter from Singapore recently asked me that question. This wasn't the first time that I heard Vietnam's name being uttered in conversations about this so-called "world factory."

There is information saying Apple has plans to, for the first time ever, move certain MacBook manufacturing activities to Vietnam next year, and Prime Minister Pham Minh Chinh recently suggested Samsung produce chips in Vietnam starting in 2023.

The year 2022 was the year of de-globalization, where nations tried to reduce their interdependence regarding manufacturing and production. One of the main drivers of this shift was the United States, which wanted its businesses, as well as those of its allies, to depend less on China when it comes to manufacturing. During the time of China's strict Covid-19 policies, many countries moved their production out of China.

Vietnam then emerged as potentially the next best thing according to several leading economic media, such as The Economist, Nikkei Asia and Bloomberg. The Economist called Vietnam a winner in the age of de-globalization, while Caixin, a financial magazine in China, also mentioned Vietnam as a potential candidate for the role of "world's factory," in addition to countries like India or Mexico.

It is not hard to see that in the eyes of the world's press, Vietnam is an important link in the global supply chain, and holds the potential to become the next world's factory.

But when we look deeper into this issue, we see that the road leading towards that vision is not so clear-cut. The majority of articles in these esteemed publications regard Vietnam as a "buffer zone," where China and other countries want to move parts of their production to. The Caixin article pointed out that one of the solutions for China during its period of competition with the United States is to turn countries like Vietnam into "buffer zones," where products could be assembled before being shipped elsewhere.

The magazine had numbers to back up its claim, and they aligned well with our own statistics: around 70% of our total trade turnover has to do with businesses with FDI. Major manufacturing hubs in Asia also treat Vietnam as an assembly line. That's why Vietnam imported billions of dollars worth of goods and parts from different countries last year, including China and South Korea.

Workers at a factory of Dai Dung Mechanical Electric JSC in HCMC, July 2021. Photo by VnExpress/An Phuong

Workers at a factory of Dai Dung Mechanical Electric JSC in HCMC, July 2021. Photo by VnExpress/An Phuong

I want to make it clear that being a "buffer zone" is not a bad thing. If we can utilize this opportunity to master technologies and be self-sufficient in production and exports, with the ultimate goal of Vietnamese businesses replacing foreign ones, that would be great.

But in reality, Vietnam's export turnover still relies heavily on foreign firms, and even more so than in the past. Most of the value gained from exports belong to companies with FDI, not domestic ones. The proof? Foreign firms are gradually gaining ground against domestic ones when it comes to the export market.

Which leads to the next question: why?

Earlier last year, I read an article by professor Tran Van Tho on industry. Here's a quote from that article:

"I received a request from the Ministry of Industry and Trade, asking for my opinion on a draft regarding industrial policies. When I looked further into the matter, I was surprised to see that it was the first time that a complete set of policies regarding industry was being made, even though Vietnam had aimed to become a modern industrialized nation by 2045."

There was a clear lack of preparation in Vietnam's agenda for becoming the "world's factory." As such, while I agree with the idea of Vietnam standing a chance to become the world's new factory in the age of de-globalization, I think the actual gains we will have from this role, for both our own production capabilities and our people's income, won't be much. The ones who will have the most to gain will be foreign businesses.

So how can we turn the table in our favor?

In his article, Tho said there would need to be some "miraculous" changes to our industrial policies. And I would like to add that we have to be willing to create a socio-economic environment for those policy changes to happen.

By the end of 2022, our businesses were still pretty much on their own, trying to stay afloat as the numbers of orders dropped globally and as world interest rates were increasing. Meanwhile, many European countries supported their businesses and families by cutting down energy costs and providing tax offsets. Maybe we've been too satisfied with ourselves after looking at figures on growth and exports, and so neglected to deliver a comprehensive strategy for industry.

Vietnam may have reached a growth of 8%, but the people's income has not improved much. It's because most of the added value does not fall into our own hands, but rather goes to others outside the country. Vietnam may become the world's next factory, but the price will be the people's income. I hope we can learn better in 2023 to change the situation.

*Ho Quoc Tuan is a lecturer at the University of Bristol, England.


Source: VNE

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