Vietnam adapting to meet export demands

Vietnam has benefited from China’s rising manufacturing costs as well as its geographic location and preferential tax and investment policies. As such, the country witnessed 5.4% economic growth in 2013 and 5.2% economic growth in 2012.

Exports have greatly contributed to the country’s economic growth. In 2013, exports increased over 15%. In fact, two-thirds of total export turnover in 2013 were attributed to foreign companies.

Indeed, foreign companies are moving into the country at a quick pace. The apparel manufacturing industry alone has experienced strong growth with fabric and garment exports increasing almost 22% in January. High-tech manufacturers are also expanding into Vietnam – Intel, LG Electronics, Nokia and Samsung for example. In fact, Samsung is building a facility in the country that will produce 120m handsets a year by 2015.

Logistics providers as well are experiencing good growth particularly foreign providers thanks to the government opening the sector up to foreign competition in January. However, this has resulted in a decline in market share for the estimated 1,000 plus domestic providers now estimated with a quarter of the total market share for logistics services. As such, Don Xuan Quang, chairman of the Vietnam Logistics Business Association expects foreign logistics competition to increase this year and encourages domestic providers to adapt by either upgrading their operations or cooperate with other firms in terms of capital and IT infrastructure to cover specific areas in logistics and also to perhaps specialize in different areas of the supply chain.

Infrastructure is adapting to these demands as well. In some cases these adaptations are occurring a bit too quickly and with not enough thought on these projects’ overall impact on Vietnam. For example, according to a World Bank report, Vietnam’s overcapacity of ports may undermine the country’s ability to attract more higher-value manufacturing that demands efficient transportation systems.

Vietnam, with a coastline of about 3,400 kilometers (2,100 miles) has ambitions to compete with Singapore and Hong Kong. As a result, the government has built far more ports than perhaps it currently needs. And still, the government wants to build even more ports which the World Bank expressed concerned that Vietnam seems to be emphasizing “quantity over quality.”

Meanwhile, road infrastructure remains a concern. However, according to recent reports, First Pacific Co Ltd and Metro Pacific Investments Corp are looking at about $1bn worth of road projects in Vietnam. One project includes a new four-lane expressway that will pass through the Dong Nai and Binh Thuan provinces, that is expected to save time and distance between Ho Chi Minh City and nearby provinces. The second project involves a second toll road in the north of Ho Chi Minh.

Lots of progress has indeed been made in Vietnam thanks to the country’s willingness to adapt to the changing economic environment. However, perhaps a more national strategic focus on its infrastructure plan, particularly ports, is needed so that it can continue to attract diverse manufacturing.