July and August 2014 |
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7
Manufacturing Hubs Across Southeast Asia
Vietnam
The state ofmanufacturing inVietnamtoday parallels that of China tenor
moreyearsago,whenlow-wage,low-tech,low-addedvaluemanufacturing
actedas amagnet for FDI into thecountry. AsChinamoves further up the
value chain inmanufacturing,Vietnam is well-poised to pick up the slack.
As a result, Vietnam’s manufacturing sector grew at a compound annual
growth rate of more than 9 percent between 2005 and 2010 and today
accounts for 25 percent of GDP.
SinceVietnam’saccessiontotheWorldTradeOrganizationin2007,foreign
investmentintothecountryhasexceededinvestmentintoIndonesia,the
Philippines,andThailandcombined.AccordingtoDeloitte’sManufacturing
Competitiveness Index, Vietnam is on track to jump eight ranks among
global manufacturers over the next four years, to tenth overall. Growth
in the industry has accelerated in the lead up to 2015, when the ASEAN
EconomicCommunitywillcomeintoeffect,transformingtheten-country
bloc (Vietnam included) into a singlemarket and production base.
On thewhole, themanufacturing industry inVietnam is distinguished by
a high degree of fragmentation and polarization. As of 2009, there were
morethan415,600registeredmanufacturersinthecountry,themajorityof
whicharesmallandmicroenterprisesservingthedomesticmarket.These
are contrasted with large, foreign-invested enterprises manufacturing
almost exclusively for export, with little integration between the two.The
backboneofmanufacturingiscomposedoffiveindustries—agribusiness,
leather, wood processing and products, metal products, and apparel—
which together account for 40 percent of commodity exports.
TheVietnamesegovernmentencouragesmanufacturingthroughspecial
zonesfeaturinglowercorporateincometaxratesandlimited-durationtax
exemptions. Foreign investors in Vietnam also benefit from favorable tax
rates on corporate income (22 percent) and dividends (0 percent), with
plans stated to lower the former to 20 percent by 2016. Wages are at the
lower end of the spectrum across Asia’s manufacturing hubs, at nearly
half thoseof China (and less thanhalfwhenadjusted formandatory social
insurance contributions).
Infrastructure in Vietnam, while surpassing that of the Philippines and
Thailand in terms of coverage, still has room for improvement. A lack
of unifying standards between Vietnam’s private and public education
systems has resulted in a shortage of skilled workers in the country
(nearly 87 percent of the workforce is unskilled). Going forward, Vietnam
faces challenges of curbing the role of state owned enterprises (SOEs) in
the economy and avoiding the trap of low value-added manufacturing.
Recent government reports have emphasized the development of
technology, mechanics, information and communications technology,
and pharmaceuticals.
As of 2009, there were more
than 415,600 registered
manufacturers in the country,
the majority of which are
small and micro enterprises
serving the domestic market.
These are contrasted with large,
foreign-invested enterprises
manufacturing almost exclusively
for export, with little integration
between the two.
Small Factories
Large Factories
The Fragmented State of
Manufacturing in Vietnam
