Breakthrough Opportunities for Electronics Industry

Over the past decade, electronics exports have accounted for over 30% of Vietnam's total export value, leading the manufacturing and processing industries

World-leading position yet still at the "bottom of the curve"

Ms. Do Thi Thuy Huong, Vice President of the Vietnam Association of Supporting Industries (VASI), said Vietnam witnessed a decline in electronics exports in 2023 but saw a recovery in the first quarter of 2024. The electronics industry accounted for over 30% of the country's total export value and brought in a trade surplus of US$4.2 billion.

Imports in Vietnam continue to be heavily reliant on China, as China remains a major global supplier of production inputs. Consequently, Vietnam largely exports raw materials while importing refined materials from abroad.

In fact, Vietnam's processing and manufacturing industry maintains a significant position in the global market. According to statistics, Vietnam is currently the fifth largest exporter of computers and electronic components and the second largest exporter of telephones and components in the world.

However, in the "smiling curve" of the global supply chain, Vietnam's electronics industry, as well as its manufacturing sector in general, remains positioned at the "bottom" of the curve. This indicates a focus primarily on parts production rather than engaging in higher-value-added stages such as procurement logistics and distribution logistics. Regarding the effect of the connection between supply chains with domestic electronics businesses in Vietnam, Huong said that the supply chain is relatively well invested but strong in manufacturing components and clusters. Electronics investment is involved in most supporting industries, component manufacturing and finished product manufacturing. In particular, component manufacturing accounts for a larger proportion. Finished product manufacturing accounts for a small share but the investment capital for it is huge.

Outsourced electronics manufacturing in Vietnam is currently led by top-class brands and manufacturers. Today, several major brands have suppliers in Vietnam, including Apple, Canon, LG, Samsung, Microsoft, Google, Panasonic, and Xiaomi. Notably, Samsung, LG, and Canon have established their own factories in the country. LG and Canon have even set up the world's largest laser printer and inkjet printer factories near Hanoi. Moreover, there are also tier 1 outsourcing suppliers for major brands, including large contract manufacturers like Foxconn and Jabil and semiconductor chip manufacturers such as Intel.

Vietnam's emergence as an important manufacturing location in the global supply chain is also demonstrated by the large investment by leading suppliers such as Foxconn and Pegatron. This development means that Vietnam is increasingly integrating more deeply into the global supply chain.

The profit of the electronics industry in the final assembling process in Vietnam is about 5-10%. This means that despite the large export volume, economic benefits from Vietnam's participation in the global electronics supply chain are relatively small.

Notably, the connectivity of domestic Vietnamese companies with major brands remains weak and passive. They are always in a disadvantaged position in negotiating orders and prices. Many government policies have not yet been closely linked to businesses.

Vietnam has been successful in attracting FDI and forming supply chains thanks to its legal framework and foreign investment policies for electronics development and other factors although there are still many challenges. Some previous advantages are becoming current challenges. For instance, the labor force in Vietnam is no longer as abundant as before, and new-generation free trade agreements are increasing pressure for greener and cleaner production practices. Additionally, major export markets like the US and the EU are enforcing stricter regulations, creating barriers for businesses. While the shift toward green and clean production represents an opportunity for well-prepared companies, it poses a challenge for small and medium-sized enterprises (SMEs) in Vietnam, which may lack the resources to adapt.

Flexibly transforming business models and products

Challenges and difficulties in the electronics industry force insiders to work hard to find effective solutions to address them. Huong said, to grow stronger and enter more strongly and deeply into the global supply chain, businesses always need to see all problems and cut costs (in an effort to maintain employees, especially key personnel). In particular, it is necessary to rely on action platforms such as risk/uncertainty management, promptly process information, build response scenarios together with corporate strategy, understand and use risk-off tools and know how to protect rights by law in dispute resolution.

Businesses can research plans for business model transformation, have new ways of interaction with insiders, customers and the market and can set up a "quick response room" to handle emerging issues quickly, she said. Or they can transform products and meet market demand (like essential goods and small orders), linked to consumer trends. Besides, they need to have flexible approaches to markets and partners and further tap the domestic market; promote business connectivity, adopt deferred payment, share orders, and barter goods.

Businesses must capitalize on opportunities and support from the government, trade associations, international agencies, and projects to enhance their capacities. It is important to stay abreast of global trends such as digital transformation, green transformation, and the circular economy, driven by consumer demands, international commitments, and policies on green practices and ESG (Environmental, Social, and Governance) standards set by developed countries.