Discusses the transformation of Vietnam’s manufacturing sector from a low-cost labour hub to a high-value technologically driven powerhouse.
FREMONT, CA: Over the last decade, Vietnam's robust growth has been anchored by its thriving manufacturing sector, contributing over 20 per cent to its GDP. This sector played a pivotal role in its economic resilience, maintaining a positive GDP growth rate of 2.6 per cent despite the COVID-19 pandemic and sustaining an eight per cent growth rate later.
Vietnam's appeal to international investors, particularly in labour-intensive manufacturing, is driven by factors like cost-effective labour, export-friendly infrastructure, and its strategic location along major trade routes. Government initiatives, including tax incentives and tailored industrial zones, have further solidified its attractiveness. The country remains an enticing destination for diversifying supply chains, supported by the numerous trade advantages it has forged, including membership in the World Trade Organisation and the Association of Southeast Asian Nations, along with 15 free trade agreements with partners worldwide. Key partnerships like the EU–Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership have helped reduce trade tariffs, enhancing trade value.
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Five Domains Leaders Can Prioritise
Simplify Process Optimisation with Proven Digital Tools and Analytics
In Vietnam's labour-intensive manufacturing landscape, leveraging digital tools and analytics can address persistent challenges like workforce attendance, high turnover, and skill mismatches. By making even modest investments, the potential benefits are substantial.
Organisations can consider options such as employing sensors and performance management software for real-time data analysis, implementing dynamic scheduling systems, and utilising on-station digital screens and mobile apps for autonomous learning. Advanced analytics can optimise asset and labour utilisation through demand-and-supply planning, maintenance prediction, and scheduling.
Selectively Invest in Upgrades for flexible automation
In Vietnam, the decision to invest in automation in manufacturing can be challenging, as cost savings on labour may not always justify the required capital expenditure. The adoption and ROI of automation vary across sectors and value chain steps, with automotive companies more readily embracing robotics than garment manufacturers, where automating sewing remains a significant challenge. However, as labour costs increase and the focus shifts to higher-value products, automation becomes a more compelling proposition. For instance, in the apparel industry, automation could reduce labour time by 40 to 70 per cent, enhancing the cost-competitiveness of traditionally higher-cost locations like developed countries and their neighbours. Mass-market apparel companies are transitioning from low-cost outsourcing to demand-driven sourcing and production, prioritising speed and agility.
Build Supply Chain Resilience
Global supply chain vulnerabilities have left their mark on Vietnamese companies, especially those reliant on imported materials for key exports. To address this, Vietnamese executives should focus on two key strategies. First, deploying digital tools for supply chain planning enhances visibility and resilience, ensuring business continuity under pressure. Second, building a regional supplier ecosystem in Southeast Asia can reduce long-term vulnerabilities through nearshoring and strategic collaboration with local authorities for supply chain localisation.
Invest in Upskilling Talent
Securing skilled labour is crucial with the rising sophistication of manufacturing and the emphasis on process excellence, digitisation, and automation. Manufacturers in Vietnam should prioritise talent acquisition, retention, and development. This involves creating onboarding and training programs and reinforcing capability-building efforts, often with process excellence and automation initiatives. Hybrid learning, blending digital modules and on-the-job training, can be particularly effective.
Strategise the Transformation
As indicated by just 20 per cent of surveyed organisations, successful transformations hinge on value-backed plans prioritising high-impact use cases, well-communicated structured roadmaps spanning various domains, and a rigorous project review cadence to ensure progress and effectiveness.
The manufacturing landscape's resilience and adaptability have been evident, further solidifying Vietnam's position as a pivotal player in global manufacturing. This evolution emphasises a strategic pivot towards quality and productivity over cost alone.
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