TFG pointed out overarching themes behind the reasons why Viet Nam is more attractive to investors than the ASEAN-4 countries namely Indonesia, Malaysia, Thailand, and the Philippines. These are lower labor costs, simpler supply chain integration, better free trade access, and relative political stability.
While not the lowest in Southeast Asia, Vietnam’s average monthly wage is around a third lower than wages in the ASEAN-4 nations, according to data from the National Wages and Productivity Commission. For manufacturers whose labour costs are 20-30 per cent of the total gross sales value of their finished goods, low wages can lead to a significant business advantage.
Low wages are the top reason why Asia grew to become the world’s manufacturing hub in the latter half of the twentieth century and they are a large reason why so much manufacturing has moved to Viet Nam in the last decade, TFG noted.
Better free trade access
Being able to easily produce goods at a low cost is not the end of the story – businesses must also be able to sell these goods to customers and this often involves keeping prices low. Relative to a lot of other Southeast Asian countries, Vietnam makes it very easy to sell domestically produced goods in other countries without unnecessary added costs. This is because the country is party to 15 different free trade agreements that encompass more than 50 countries around the world.
Most notably, these include the EU-Viet Nam Free Trade Agreement (EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP), and the UK-Viet Nam Free Trade Agreement (UKVFTA). For manufacturers, this means that a good produced in Viet Nam can be sold to other markets – including many wealthier western markets – without needing to pay prohibitively expensive tariffs along the way.
Incorporating Vietnamese producers into supply chains is relatively straightforward both upstream and downstream, according to TFG. As Vietnam shares a border with China unlike the ASEAN-4, the common border makes it easier for Vietnamese manufacturers to integrate into China’s vast network, reducing friction by eliminating the need for component parts to pass through multiple countries—potentially eliminating tariffs along the way, a Vietnamese newspaper reported.
As the Government continues to strike free trade agreements around the world and invest in domestic transportation and communication infrastructure, Viet Nam’s prominence as a rising manufacturing center seems poised to continue to grow./.
