Vietnam’s Rise in the Value Chain

Amid the US-China trade tensions and the COVID-19 pandemic, Vietnam outperformed South Korea to become the United States’ sixth-largest trade partner by import value in 2022. The central reason behind this success is Vietnam’s rise in the value chain. This shift marks a significant transformation in Vietnam’s economy, with its major exports to the US increasingly being high-tech products instead of traditional textiles, shoewear and garments​​.

Vietnam’s progression in the supply chain is partly attributed to its role as a neutral manufacturing hub amidst the US-China rivalry. This neutrality has attracted significant foreign direct investment (FDI) from tech giants, including Apple’s shift of production away from China and Amkor Technology’s $1.6 billion investment in a semiconductor factory. Additionally, Vietnam is welcoming back companies like Huawei, which had faced restrictions in other markets.

Vietnam’s journey up the value chain began over the past two decades, with its total exports growing exponentially, reaching around USD 283 billion in 2020. Since joining ASEAN in 1995, Vietnam’s exports have diversified and become more sophisticated. A turning point was the year of 2013, when the share of machinery, transport, and equipment exports surpassed traditional manufactured and primary products. The aggressive pursuit of free trade arrangements and strong FDI inflows, with the presence of multinational companies, facilitated Vietnam’s specialization as a final assembly hub using foreign-sourced inputs. The continuous progress has enabled Vietnam to credibly position itself as an alternative production location during the COVID-19 pandemic and demonstrate readiness to deliver in the midst of US-China trade tensions.

The country’s growth in the export of high-tech goods has been remarkable, with these products accounting for 42% of Vietnamese exports in 2020, a significant increase from 13% in 2010. This growth positions Vietnam potentially as the fourth-largest exporter of high-tech goods globally, behind only China, Taiwan, and Germany​​. 

However, challenges remain. While foreign companies, particularly Chinese and Taiwanese firms, have been involved in Vietnam’s rise in the tech sector, the country still heavily relies on foreign innovation. Approximately 70% of Vietnam’s total export value is driven and captured by foreign companies, highlighting a dependency that Vietnam needs to address to advance its own domestic tech sector​​.

There are bright spots on the horizon. Current FDI inflows, especially from fintech companies, are providing Vietnam with the opportunity to lessen its reliance on foreign innovation inputs. The Vietnamese government could mirror strategies used by other countries to attract investment in research and development and foster deeper collaborations with universities and students, much like Apple’s engagement in China​​.

Vietnam’s successful management of the Covid-19 pandemic has aided its reputation as a safe and investment-friendly destination, positioning it among the fastest-growing economies in the coming decade.

Despite the challenges, Vietnam is laying the groundwork for an innovation ecosystem, establishing itself as a formidable power in high-tech exports​​. A positive example of domestic companies that are transforming the country already today is the @FPT Corporation. This aspiring Vietnamese IT company is serving corporate clients with IT services and softare products for digilitalization, AI and cloud computing. Since its foundation in 1999, it has grown to 1.9 bn USD revenue and 40,000 employees.

While the road ahead includes challenges like reducing dependency on foreign innovation and developing a robust domestic tech industry, examples like FPT suggests it is well on its way to becoming a key player in the global economic landscape.