Vietnam’s electronics export growth has been among the world’s fastest for the past ten years, with total revenue reaching US$84 billion in 2018. But such growth is primarily driven by foreign-invested enterprises, which account for 95% of total exports, while the capacity of domestic firms remains limited.
Heavy reliance on FDI
China is the currently the world’s largest electronics exporter, with annual revenue at nearly US$700 billion, but export growth during the 2010-2018 period averaged at 6% only due to the relocation of manufacturing to nearby countries.
The Republic of Korea was the number two exporter during the said period, although average growth was just 1%, while some countries in the region such as Malaysia posted negative growth. Indonesia and India also witnessed a slowdown in average growth.
In the meantime, the growth of Vietnam’s electronics exports during the 2010-2018 period reached 50%, the highest in the world. Vietnam is now the 12th largest electronics exporter in the world and 3rd in ASEAN. Exports of telecoms equipment grew 62% while electronic parts and computers increased by 42% and 19%, respectively. Consumer appliances and other electronics also posted respective growth of 35% and 39%.
But according to the Ministry of Industry and Trade, such impressive growth was a result of major investment from multinational corporations, especially those from Japan and the Republic of Korea.
In contrast, the capacity of domestic firms in the field remains limited with their quality and appearance having yet to meet the market’s high requirements. Many popular domestic companies are slowing down or losing their brands and account for a tiny market share. Despite some emerging names such as BPhone, Vsmart and Viettel, the domestic consumer electronics market is still dominated by foreign brands.
Furthermore, the rate of local content in the electronics industry is fairly low at 5-10%. The majority of electronic products on the market are imported as completely built units or assembled from imported parts. Local supporting industry companies, albeit taking part in the supply chain, are only able to fulfil low-value and low-technology orders.
Focus on R&D
In order to address the challenges facing Vietnam’s electronics industry, experts have recommended formulating a plan to create an electronics industry with higher added value. For now, Vietnamese companies only specialise in assembly and simple processing without any progress in more complex manufacturing processes.
Most Vietnamese companies are reliant on importing main equipment and parts. The country also has no research institutes or experts on machine parts and key technologies. Therefore, Vietnam needs to form research & development (R&D) centres, not only for hardware but also for software.
R&D support policies can be implemented through focusing on software R&D, supporting research cooperation between companies, large firms as well as small and medium-sized enterprises (SMEs). SMEs can create ecosystems and innovation networks through software education and training, and can activate networks and expand specialist forums.
These activities can be initiated by government agencies independently or in cooperation with other agencies. In that way, a sustainable corporate ecosystem with continuous innovation can be established. The government will play an important role in promoting and creating initiatives, providing technology and management with assistance from universities and experts in the field.
Vietnam’s electronics industry needs to change from simple manufacturing and assembly to higher-value manufacturing with a focus on main devices and parts. To realise these plans, the first thing is improving labour productivity through technological innovations. It is also necessary to create the conditions for start-up companies and SMEs to take part in technical innovations because they will be the ones establishing relations with large firms which possess the foundations for further innovation and development. The cooperation policy between large firms and SMEs also needs to be strengthened.
On the other hand, it is necessary to promote products with high added value such as monitors, semiconductors and electronic parts. It will take significant resources as well as 10-20 years to manufacture products with a long lifespan like these, but it will help create high-salary jobs and boost economic growth.
Continuous investment is needed to improve capacity as well as scientific and technological level of the industry. If Vietnam wants to have an electronic industry with high added value, it must have a long-term support strategy.