Home » Is the Vietnam Miracle Really A Better Bargain?
One of the countries often overlooked in favour of China is Vietnam. However, this move can be short sighted as Vietnam is also benefiting from a surging economy and their very own rising manufacturing industry. Experts had placed the country second in their estimates for the global top performers in terms of GDP growth, losing out only to India.
This article will take a closer look at Vietnam and the potential that is waiting there. Furthermore, we will also discuss the challenges the country faces as well as in the context of the manufacturing industry.
Currently Vietnam is still a relatively poor country. From a manufacturing perspective, this shows potential. With wages being extremely low, Vietnam can provide a cost effective alternative to other Asian countries.
Furthermore, the country of Vietnam is quite long and has over 3,000km of coast. With the country being thin, this means the majority of factories are located extremely close to the shoreline. This creates a shorter amount of time between goods rolling off the production line onto the ship to sail across the ocean to you.
Many international companies are seeing the potential that lies in Vietnam. In 2014, a record $14.5billion was invested into the country by foreign firms. The Vietnamese government recognizes the importance in attracting outside investment, and as of a result created a favourable business climate. This comes in the form of favourable tax rates, special manufacturing zones and an overall cheaper labour cost.
In 2007 Vietnam became a member of the World Trade Organization. This means that the country will adhere to certain guidelines and rules when it comes to trade. From a company viewpoint, this should add security and help increase level of confidence.
Samsung is one of the leading companies who have invested into Vietnam, with an estimated 70% of their smartphones being made within the country. Many other large companies have also set up manufacturing factories to serve the foreign market.
Relative to other South East Asian countries, Vietnam is politically stable. There have been high profile protests across the country, and the internet can be restricted. However, there is no severe amount of political unrest and the government believes there should be a focus on continuity and slow changes. 2016 is an election year for the country, which may mean a change in leadership and direction.
Prior to the global financial crisis in 2008, Vietnam was seeing similar levels of growth. However, this became unhinged with the crisis and many companies and individuals were left with high levels of debt. Lessons appear to have been learnt though, with the government setting out strategies to avoid a reoccurrence.
As with most developing countries, (and plenty of developed ones too!), there are several disadvantages. Infrastructure is still an area that needs to be improved. The country does aim to invest further into infrastructure, and coverage is better than in similar competing countries like Pakistan.
Unfortunately, the country does not have a strong education sector. There is a strong divide between the private and public education systems, with the failings resulting in a largely uneducated and unskilled workforce. It is estimated 87% of the country is comprised of unskilled workers, meaning highly specialised products may be best made elsewhere.
Overall, Vietnam does certainly offer a lot of potential. On the other hand, the problems may outweigh the benefits. The faith shown by large companies like Samsung however suggests that there is a strong future within the country, and with a growing economy, expect Vietnam to hit the headlines more in the years to come.