With many advantages in labor and infrastructure, as well as making good use of trade agreements, Vietnam is considered an important production base in the global supply chain.
Meet the global production supply chain
According to Ms. Hang Dang, General Director of Vietnam’s CBRE,Vietnam has recently been recognized as an important production base in the global production supply chain. Infrastructure continues to develop throughout the country andVietnam has also become a member of many bilateral and multilateral trade agreements.
Increasing costs at traditional production sites like China gave Vietnam the opportunity to attract big corporations from around the world. Vietnam has therefore transformed quickly from a small production site to a large and successful one.
According to CBRE, Vietnam will maintain its rising position of an Asian manufacturing economy. However, Vietnam cannot rest on its immediate laurelsasmany countrieswill also seize the opportunity from China's rising production costs and recent geopolitical tensions.
According to the analysis, China's position is shifting to a higher stage in the global economy. China is becoming less and less dependent on exports. Commercial disputes with the United States will only accelerate this process.
This is good news for developing markets of Asia, especially South East Asia. Vietnam is believed to be the main beneficiary from this shift from China.
There are many factors to maintain Vietnam's important position in the global production supply chain. Specifically, land rental costs in Vietnam are more competitive, trade barriers are fewer, connecting directly to the supply chain andinfrastructure are improved and industrial support policies with other factors are ensuring a solid foundation for the current success of Vietnam's manufacturing industry.
According to CBRE, 2019 continues to be a profitable year for Vietnam. Industrial land prices were US$ 180 per m2in some major cities of China, while industrial land prices of Vietnam fell to US$ 100-140 per m2. This is clearly an attractive advantage for potential manufacturers.
Moreover, the average rent of industrial land increases moderately by 5-8% per year in Vietnam. Rents of industrial parks in Vietnamare increasing, especially strategic regions and places close to key infrastructure,
Competitive labor cost is the main attraction for corporations to keep an eye on Vietnam. The annual salary of workers in Vietnam is very low. Skilled workers in Vietnam are a very attractive choice when their salaries are only one-third of Chinese skilled workers.
Vietnam also has a strategic geographical position, adding more value in comparison with neighboringASEAN countries such as Indonesia and the Philippines.
Make good use of FTAs
Policy makers in Vietnam have made an important contribution by helping giveproducers’better access to major export markets by participating in bilateral and multilateral trade agreements (FTAs).
It is very important to continue these policies for Vietnam's development, the policy makers and the business communitiesall agree. Vietnam hasachieved many bilateral and multilateral free trade agreements.
Currently, Vietnam has had 5 trade agreements in ASEAN. 6 other commitments signed between ASEAN and its partners: China, South Korea, Japan, India, Australia and New Zealand, alongside 4 other bilateral free trade agreements.
These treaties have eliminated tariffs among the member states. In other words, the agreements will help foreign producers to organize production in Vietnam. In addition, production corporations in Vietnam will have tax advantages when exporting to the markets that belong to the signed treaties.
The positive fundamentals of the economy such as GDP growth, foreign direct investment attraction and low and stable inflation have become the main factors that reinforce the competitive position of Vietnam.However,policies andinstitutional reforms of the Governmentare necessary to strengthen the manufacturing industry in the long term.
The Government continues to invest heavily in infrastructure. According to a forecast of the Asian Development Bank (ADB), Vietnam is outperforming all other Asian countries on infrastructure spending budgets per percentage of GDP, except China. This has helped to form new highways, international standard seaports and more modern airports to support needs of industry now and for the future.
In recent statistics from CBRE, the number of factories in Vietnam in Apple's supplier list increased from 16 in 2015 to 22 in 2018, and all are FDI companies. In this trend, last year,Samsung Electronics Co., Ltd announced to stop operating their mobile phone factories in China. Currently, 29 Vietnamese companies are Samsung's distributorsType 1.The localization rate has increased from 34% of the total production value in 2014 to 57% in 2017. This activity has a great reputation for Vietnam's positionas a leading commodity industry market.
Source: VCN
Key words: Vietnam, considered, an important production base, global supply chain
