Vietnam at a glance: Steaming as before

Vietnam's export-led growth model is undoubtedly a key driver. 

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When thinking of Vietnam’s impressive development story, its export-led growth model is undoubtedly a key driver. Within two decades, Vietnam has successfully transformed into a rising global manufacturing base. The process has intensified during the US-China trade tensions, when Vietnam’s exports have seen a sharp lift.

Since COVID-19, the country has seen some ups and downs in its external engine. One of the first Asian countries to be hit in early 2020, Vietnam emerged strongly from the pandemic before suffering from severe local supply chain disruptions due to prolonged lockdowns in the summer of 2021. That said, in HSBC’s view, as the Omicron risk fades, Vietnam continues to benefit from its grand re-opening strategy: more migrant workers return to the cities, alleviating labor shortages in factories, which are seeing strong export orders.

Vietnam began as a low-value-added textile and footwear exporter, but has since proven its ability to climb the value chain, becoming a key manufacturing hub for tech products (though still low-value-added in the electronics space).Despite a four-month lockdown in Ho Chi Minh City (HCMC) and its surrounding areas last year, the tech supply chain in the north was relatively insulated. Electronics exports reached a record of USD108 billion in 2021, equivalent to 32% of its total exports. Yet, it was only slightly less than $1 billion in 2000, accounting for 5.5% of total exports.

As widely known, much of the tech success is thanks to Samsung’s multi-year FDI in Vietnam, pouring investment of around USD18bn in the past two decades. Samsung now has six factories and one R&D centre, including two phone factories in the north, producing half of Samsung’s smartphones. This has undoubtedly raised Vietnam’s global smartphone share.

Although mainland China remains in a dominant position with 50% of the global share, Vietnam has gained 13% of the world’s share, rising rapidly to be the second largest smartphone exporter (Chart 3). While 2021 data is not yet available, it is fair to assume that Vietnam is more likely to gain a greater share in 2021, given Samsung’s stellar performance. Samsung Vietnam posted a 14% increase in its 2021 revenue, largely thanks to foldable smartphone sales, which quadrupled in 2021.

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In addition to Samsung’s smartphones, what else? While China produces 70% of the world’s finished computers, Vietnam’s global share of laptops has been increasing, replacing Malaysia as the main producer in ASEAN. Meanwhile, it has also emerged as a rising supplier of processor/controller chips (though the ones assembled by Vietnam are relatively lower value chips used in a wide range of electronic products).

HSBC said this is partly driven by Intel’s USD 1 billion investment in a chip assembly and testing facility in Vietnam since 2006. Between June 2019 and December 2020, Intel poured an additional USD 475 million into its Vietnam plant to manufacture 5G products and core processors. The expansion may well explain why Vietnam’s processed exports doubled their global share in five years, reaching 6% in 2020.

"There is a domino effect: the success of Samsung and Intel has led to other tech giants accelerating their supply chain diversions to Vietnam. While the process was partially disrupted by the pandemic, tech FDI interests remain resilient, given Vietnam’s sound macroeconomic fundamentals, favourable FDI policies, and labour cost effectiveness. Not only traditional players like Samsung, who continue to pour additional investment into the business, but also Apple-related suppliers have gradually established their footprint. HSBC said the three main Apple assemblers, Foxconn, Luxshare, and Goertek, have announced huge investment plans to ramp up their production capacity and boost local employment", HSBC's analysts said.