Vietnam likely to benefit from worldwide shift in production capacity

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Southeast Asia, particularly Vietnam, can expect to see a wide-scale divergence of supply chains coming its way, HSBC says in a report.

It said countries where infrastructure and production networks are already in place, like Vietnam, are likely to be the main beneficiaries of a shift in production capacity.

“However, Vietnam will have to do more to capture a large-scale move.”

With trade tensions and rising production costs affecting other markets, supply chains have been shifting to Southeast Asia because of the region’s growing economies and consumer markets.

Pham Hong Hai, CEO of HSBC Vietnam, said changes in global trade were causing businesses to revisit their supply chain investment and capacity strategies, but this has yet to convert into wide-scale shifts to Southeast Asia.

“Businesses have to ask themselves many questions about local capacity available, skilled employees and consideration of building new facilities or starting partnerships with existing local players. Shifts in supply chains have been a multi-year phenomenon due to structural changes in production technology, labor costs and emerging consumer markets.”

Hai said over the past decade, ASEAN and Vietnam have been perceived as a strong production option for multinationals, given its role within existing supply chains, growing consumer base, and strong trade and investment ties.

With China moving up the technological curve, its lower-value production has been shifting to lower-cost markets.

The HSBC report said that China-based Guizhou Tyres has expanded plans for its previously announced tyre plant in Vietnam, increasing the investment to nearly $500 million.

“Samsung has also shifted more of its electronic equipment production to Vietnam, and now assembles about half of its phones in the country.”

Across Europe, firms like British household appliances manufacturer Dyson are forging ahead with Southeast Asian investment to cater to the local consumer market while retaining existing production facilities for exports elsewhere, it added.

Vietnam’s registered FDI, which includes newly-registered capital, capital supplements and stake acquisitions, reached $16.74 billion during January-May, the highest in the period since 2015. This was an increase of almost 70 percent year-on-year, according to the Ministry of Planning and Investment.

Manufacturing accounted for 71.8 percent of all registered FDI, followed by real estate at 8.2 percent and wholesale and retail at 5.2 percent.

Disbursed FDI in the five months was estimated at $7.3 billion, up 7.8 percent year-on-year.

The country’s registered FDI last year was down 1.2 percent from a year earlier to $35.46 billion. Disbursement reached a record $19 billion, a year-on-year rise of 9 percent.

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