Vietnam Set to be the World’s Manufacturing Hub After Overtaking India and China

Only a few economies, like Vietnam's, have the infrastructure and human resources to serve as a base for Asia's shifting industrial locations.

In the light of the US-China trade war, the manufacturing businesses are on the lookout for the next best option to set up their factories. Only a handful of economies like Vietnam have the infrastructure and human resources to provide such ground for shifting manufacturing destinations in Asia. 

One of the fastest-growing economies, India, had been a promising candidate. However, since 2014, according to Bloomberg the country recorded one of the worst rates of worker participation anywhere in the world. On top of that, the government has signed no free trade agreements in its tenure of eight years and has not given much attention to improving its industrial policy.

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This indeed puts Vietnam on higher ground with its stable political scenario, abundant natural resources, cooperative government, and inexpensive but skilled labor force. This article will dive into various aspects of how Vietnam is overtaking India and China to become the world’s manufacturing hotspot.

Vietnam or India: the world’s Next Manufacturing Hotspot

India is squandering a $28 trillion potential in global commerce by adopting a more nationalistic approach. This inward tendency stems from the notion that a 1.4 billion-people economy can be sustained only by internal demand.

Even before the Covid-19, only around 1% to 2% of India’s population could be classified as middle class, compared to 25% in China. Several well-known economists believe that the overall objective of a “self-reliant economy” is relatively tough to attain for India, according to Bloomberg News.

However, Vietnam is adopting the East Asian Tiger countries’ success formula: open and frictionless trade. The country is gaining a greater market share in international commerce than India, although having a fraction of the population.

“Made in Vietnam” – the Next Manufacturing Hub

Vietnam is popular for being a manufacturing center, particularly for higher-income countries pursuing the “China plus one” approach. This approach is a business strategy in which corporations diversify their investments outside of China to lessen their dependency.

Due to minimal overheads such as buildings, land, and labor, the cost of doing business in Vietnam is modest, primarily for manufacturing. It also includes progressive taxation rules for foreign businesses and rewards for businesses that use or intend to use green energy.

Vietnam has appropriate policies to encourage FDI and puts more emphasis on creating a liberal, impartial environment. It also fosters the assistance of other industries and deeper interaction with existing and future investors by creating the essential circumstances for efficient decentralization of FDI management.

Also, the most appealing quality of conducting business in Vietnam is location and accessibility. With 58.2% of FDI in 2020, Vietnam’s manufacturing and processing industry were the most popular — and for a good reason.

Related Reading: Vietnam Business Opportunities 2022

The country is strategically located, and it has exceptional access to key commerce and freight routes in and out of Southeast Asia and Asia, compared to most of its neighbors. It offers a plethora of international airports, seaports, and rail connections, all of which help with manufacturing and logistics.

Where to Invest – Vietnam as ‘Plus One’

84% of Vietnam’s energy needs are fulfilled from fossil fuels, signifying that there is a lot of room for investment in the renewable energy sector.

Vietnam has gained the reputation of a renewable-energy powerhouse across Southeast Asia, notwithstanding its dependence on fossil fuels, thanks to a mix of cheap tariffs and tax advantages. With more on the way, the country’s grand plan contains a financial component to help the country pivot to a more ecologically friendly path.

The region’s reliance on fossil fuels offers the way to a more sustainable supply mix, but the transition will be tough since it will require striking the right balance between expanding demand and cleaner energy supply without sparking inflation, eroding corporate profitability, or raising consumer costs, according to Carnegie Endowment.

Vietnam Gains Momentum in 2022

According to Fitch Ratings, Vietnam’s recovery from the crippling pandemic and subsequent lockdowns will accelerate in 2022 as domestic demand improves and export performance stays solid. With the recovery gaining traction, growth is predicted to rise to 7.9% in 2022, one of the highest in SEA.

Vietnam’s export sector is expected to remain robust this year, thanks to its cost competitiveness and key trade agreements in place. Moreover, trade analysts are optimistic that in 2022-2023, the export sector will continue its dominance and shall prove to be ground-breaking in catalyzing investments from foreign businesses.   

How Can Cekindo Help?

Relocating your manufacturing company to Vietnam consists of multiple procedures that are time-consuming and overly official. Having company registration professionals, like Cekindo, by your side can save you a great deal of time and provide you with a hassle-free experience. Cekindo provides a wide spectrum of ancillary services related to company registration, like legal consultancy, license and other documents acquisition, tax and accounting, and HR services. 

Let’s start by filling out the form below and talking to one of our professional counselors. 

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Vojtech Zehnalek

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Vojtech Zehnalek, MSc.

Vojtech Zehnalek is designated the Business Expansion Manager and specialises in providing complex advisory to foreign companies expanding to Indonesia. He graduated from Economics and International Trade from the University of Economics in Prague, the Czech Republic, and he also earned a Business Degree at the Vlerick Business School in Belgium.