Vietnam has emerged as a destination for large tech firms as the trade dispute between the US and China continues to intensify with no end in sight. However, whether and how much Vietnam can take advantage of the shifting FDI flow out of China remains to be seen.

Electronic components are manufactured at the Republic of Korean's Young
Poong Electronics VINA in the northerrn province of Vinh Phuc. (Photo: VNA) 

“I’m afraid it doesn’t look very promising,” said Nguyen Duc Thanh, Director of the Vietnam Institute for Economic and Policy Research (VEPR), commenting on a claim by a former Japanese ambassador to Vietnam that some 20,000 Japanese businesses in China were said to be on the lookout for alternatives.

 Whether they go to Vietnam, India or Indonesia or elsewhere will come down to the country’s business environment and quality of labour force, he said.

 Among ASEAN countries, Malaysia, Indonesia and Thailand are countries with better industrial infrastructure. India enjoys a significant advantage of having English as a common language and a massive young labour force. Vietnam was but one among many options.

 Apple supplier Taiwanese Pegatron, for example, signed a letter of intent to invest in a 1 billion USD factory in Indonesia instead of Vietnam in May. While it’s safe to assume that FDI from tech firms will continue to flow into the country in the short term, major improvements to Vietnam’s legal framework and investment environment must take place to sway the odds in its favour.

 John Chong, CEO of Maybank Kim Eng, said in order to take advantage of the shifting of FDI flow from tech firms, Vietnam must make investments to improve its labour force and infrastructure. In addition, the country’s financial sector must also quickly develop and adapt to make good use of the opportunities for growth.

 In early August, Japanese-Taiwanese Sharp announced the construction of a new factory in southern Binh Duong province. In an earlier development, Korean LG decided to move its cell phone production to Vietnam. According to the Nikkei Asian Review, Apple will also begin trialling its AirPods wireless earphones production in the country in a move to reduce reliance on China.

 Figures released by the Department of Foreign Investment under the Ministry of Planning and Investment showed a surge in foreign direct investment (FDI) in the processing and manufacturing sector with 14.46 billion USD, amounted to 71.5 percent of total FDI into the country during the first seven months of the year.