Vietnam is the unlikely winner of deglobalization – Verdict

Vietnam has come in under the deglobalization radar. A lot of commentary in recent months has focused on deglobalization. Namely, where it will hit the hardest and whether China can survive massive divestment. However, little attention has been paid to the winners of this fallout.  
China has been, arguably, the world’s biggest winner of globalization over recent decades. Since joining the World Trade Organization in 2001, China’s GDP has increased over eleven times, rising from the sixth largest economy in the world to second place, and rapidly closing in on the US. 
However, geopolitical tides have since turned. Both within China and beyond. Via its dual circulation policy, China is investing significantly in advanced technology to ensure that is no longer reliant on key foreign technology. This is most evident in semiconductors. This trend is unsurprising, given that companies are becoming more aware of the risks involved with investing in China—most notably, around its zero-Covid policy. As the cost of labour and land continues to rise, investing in China does not make economic sense for many multinational companies. Several of those staying in China is also mulling a ‘China Plus One’ policy to make sure they hedge their bets. As such, many are considering regional alternatives. 
Enter Vietnam. Several factors explain the country’s perfect position. Geographically, Vietnam sits just south of China, and its access to the South China Seas via large seaports means that products can be exported quickly. Much of the value-added is still made elsewhere, notably in China, where technology and access to a higher-skilled workforce are more abundant. However, Vietnam has positioned itself as a perfect place for final-stage assembly of tech products. Final-stage assembly does not require access to a very highly skilled workforce, and companies can make use of Vietnam’s cheaper costs of labor and land (compared to its neighbors). Thailand and China have seen consistently high levels of investment in manufacturing, leading to higher prices for land to build factories but also rising wages, making them less competitive than their Vietnamese neighbors.    
Vietnam’s demography is also a key factor. With 98 million people, Vietnam is the fifteenth largest nation in the world by population and a large proportion of its population is of working age. Compared to China, Vietnam is a young country, and this is one of the reasons why it was able to justify ending its zero-COVID strategy last autumn. 
Samsung is a key company that has bet heavily on Vietnam. This year, it has invested $920 million into its factories in Vietnam. But it is not just Samsung. Apple and Foxconn have also increased their investments in the country.  
When it comes to deglobalization, one of the most examined industries is the semiconductor industry. As China seeks self-sufficiency and semiconductor firms manage geopolitical risks, opportunities are opening up. Notably, Samsung has announced that it will begin making chips in Vietnam in July 2023, and US chipmaker Synopsys has shifted investment to the country.  
These factors point toward a bright future for Vietnam, a nation historically known for its steadfastness in the face of malign foreign influence, be that from China, France, or the US. Vietnam now faces a much more benign form of foreign influence, through the means of FDI.

source

Leave a Comment