High-tech FDI shouldn’t be taken for granted

Viet Nam has emerged as a destination for large tech firms as the trade dispute between the US and China continues to intensify with no end in sight. However, whether and how much Viet Nam can take advantage of the shifting FDI flow out of China remains to be seen.

 

“I’m afraid it doesn’t look very promising,” said Nguyen Duc Thanh, director of the Vietnam Institute for Economic and Policy Research (VEPR), commenting on a claim by a former Japanese ambassador to Viet Nam that some 20,000 Japanese businesses in China were said to be on the lookout for alternatives.

Whether they go to Viet Nam, India or Indonesia or elsewhere will come down to said country’s business environment and quality of labour force, he said.

Among ASEAN countries, Malaysia, Indonesia and Thailand are countries with better industrial infrastructure. India enjoys a significant advantage of having English as a common language and a massive young labour force. Viet Nam was but one among many options.

Apple supplier Taiwanese Pegatron, for example, signed a letter of intent to invest in a $1 billion factory in Indonesia instead of Viet Nam in May. While it’s safe to assume that FDI from tech firms will continue to flow into the country in the short term, major improvements to Viet Nam’s legal framework and investment environment must take place to sway the odds in its favour.

John Chong, CEO of Maybank Kim Eng said in order to take advantage of the shifting of FDI flow from tech firms Viet Nam must make investments to improve its labour force and infrastructure. In addition, the country’s financial sector must also quickly develop and adapt to make good use of the opportunities for growth.

In early August, Japanese-Taiwanese Sharp announced the construction of a new factory in southern Binh Duong Province. In an earlier development, South Korean LG decided to move its cell phone production to Viet Nam. According to the Nikkei Asian Review, Apple will also begin trialling its AirPods wireless earphones production in the country in a move to reduce reliance on China.

Figures released by the Department of Foreign Investment under the Ministry of Planning and Investment showed a surge in foreign direct investment (FDI) in the processing and manufacturing sector with US$14.46 billion, amounted to 71.5 per cent of total FDI into the country during the first seven months of the year.

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