Tremendous potential in Vietnam’s supporting industries

Small- and medium-sized enterprises (SMEs) in supporting industries can benefit from multinational groups’ China plus-one strategies that include Vietnam, wrote Filippo Bortoletti, Country Director of the Dezan Shira & Associates Vietnam.

In his recent article published on Vietnam Briefing, Bortoletti said in the past 15 years, Vietnam has seen lots of changes, from the manufacturing boom through watching a vibrant emerging start-up sector gain its legs.

The emergence of the China plus-one paradigm has seen supply chain restructuring and risk diversification strategies implemented at large. Meanwhile, Vietnam has also opened up to greater foreign investment, thereby taking advantage of these trends to transform itself into a regional manufacturing hub, he wrote.

According to him, while the “China plus-one” trend has prompted large corporations like Samsung and Nike to relocate their operations to Vietnam, the move of SMEs has been less widely recognised.

Often following their leading multinational customers, these SMEs have also been drawn to Vietnam thanks to the country’s favourable business environment.

Although these SMEs may not operate in as glamorous industries as mobile phones and laptops, they play a crucial role in any economy, including Vietnam’s. In fact, SMEs in Vietnam facilitate technology transfers and provide skills training that can be even broader than that offered by larger organisations, highlighting their importance to the country’s economic development.

SMEs often operate in a sector crucial for the sustainable development of Vietnam’s manufacturing sector: supporting industries. Vietnam has acknowledged in recent years the importance of being not just one part of the global supply chain but rather of being a key part of these increasingly complex structures.

In this light, the Government has instituted tax breaks and incentives for supporting industries looking to establish themselves in Vietnam.

SMEs, whether they are new to the region or following the well-trodden path from China into Vietnam, stand to benefit significantly from utilising these incentives, he said.

The official said Vietnam’s headway into developing supporting industries and longer in-country supply chains has been slow. In 2022, Vietnam’s localisation rate was only around 36%, a fraction of its key competitors India and China. But for SMEs looking to diversify into Vietnam, this is only a minor challenge.

Vietnam has become a highly integrated player within Asia in recent years, thanks in part to its participation in various free trade agreements. The country has signed agreements with its Southeast Asian neighbours as well as bilateral and multilateral deals with countries around the world, helping to facilitate trade and investment flows across the region and beyond.

As a result, sourcing components and shipping them to Vietnam for assembly, or shipping parts and components from Vietnam elsewhere for assembly, is increasingly becoming cheaper and easier.

Furthermore, there is impetus for change across the economy.

Forums and seminars promoting Vietnam as a supporting industry destination are becoming more and more commonplace. The issues facing development of Vietnam’s supporting industries are also front and centre at these events.

A number of big manufacturers are expanding the footprint of their supporting industries in Vietnam. Samsung, for example, has opened a 200 million USD research and development centre in Hanoi.

With a vast coastline connecting the burgeoning nation via a series of ports to the rest of the world, Vietnam is in a very convenient location. It’s not just the Pacific access either.

One of China’s southern neighbours, Vietnam as a China plus-one destination is a great option. Components and parts for a broad range of manufacturers are already crossing the border, in both directions, every day to the tune of hundreds of millions of dollars.

Right now, there is tremendous potential for SMEs in supporting industries, particularly in Vietnam, the author concluded.