Can Vietnam Become A New Factory of the World?
Over the last three decades, Asia has come up to beat many American and European countries as a business hub. Through constant investments from many large corporations and companies, the continent has experienced a big boom in both their manufacturing and service industries. Vietnam, once considered among the poorest nations in the Asian continent, has risen as a manufacturing hub for multi-national corporations such as Nike, Intel, Samsung, and Adidas (Lee, 2019). The country’s geographical location in the south of China also gives it an excellent competing advantage because of most of the businesses in China spill over to Vietnam.
The lower operating costs as compared to countries like China make Vietnam the country of choice when investors are considering investment opportunities. The fDi benchmark estimates lower operating costs for Vietnam at 40% in the automotive industry and about 50% in the manufacturing of biotech, pharmaceuticals, and medical products than the operating price in China (Ganne, 2015). Investors are more likely to flood the Vietnam market to reap more significant profits with reduced production costs. The effect is that Vietnam is going to beat most of the countries in Asia as a manufacturing hub.
Cheap labor also plays a crucial role in the decision of investors to move their manufacturing companies to Vietnam. Vietnam has a youth population of about 90 million people (Ganne, 2015). The readily available cheap labor has encouraged companies such as Nike to set up its production in Vietnam. Manufacturing industries require a constant supply of energy as a factor of production to ensure the success of the business. Reduced labor costs translate to reduced overall operational costs, making Vietnam very conducive when considering investment opportunities.
Vietnam specializes in products such as garments, textiles, furniture and packaging, printing, wood products, and hair extensions. Vietnamese hair is considered one of the best qualities in the world, and the US imports about 97% of its clothing from Vietnam (Sourcify, n.d.). All these products have a continually growing market worldwide, creating a potentially sizeable manufacturing market in Vietnam. Although some of the raw material has to be imported to the country to cater to the growing demand, the business environment still favors investors in the manufacturing industry.
Concluding on the reasons why Vietnam might be the new factory in the world, Vietnam has created a favorable business environment to encourage investors. The country has favorable tax and investment terms, allowing both local and international businesses to grow. The conducive business environment, low operational costs, and availability of labor play a vital role in the advancement of the manufacturing industry in Vietnam. Vietnam put itself discreetly as a financial hub into the Asian continent and is rising to create competition for countries such as China, India, North Korea, Philippines, and Bangladesh.