Vietnam, an alternative to China at a crossroads

September 7, 2023

Vietnam has stood out as a popular alternative for the United States seeking to reduce its dependence on China, but its shortage of highly skilled labor and overburdened infrastructure limit its potential.

President Joe Biden is heading to the capital Hanoi on Sunday for a quick visit, amid heightened economic cooperation between the two once-enemies countries.

Samsung, Foxconn… Vietnam has become a popular destination for some of the world’s largest companies, sensitive to the tensions between Beijing and Washington which are pushing them to diversify their production chains.

But in an industrial zone of the port city of Haiphong (north), Ko Tae-yeon touched a limit in Vietnamese growth, expected at 6.3% in 2023 by the World Bank.

“I foresee a shortage of highly qualified labor,” explains the general director of Heesung Electronics Vietnam, which produces dashboard components for South Korea’s LG.

“Foreign investors are turning to high-tech industries, but the number of schools that train engineers is very low,” he laments.

Joe Biden is expected in Hanoi to strengthen economic and technological ties with Vietnam, seen as a key partner in reducing American dependence on China for manufacturing products and essential components.

But “if Vietnam wants to continue to attract all these investments, to create opportunities for wealth and growth, the country must move upmarket,” warns Adam Sitkoff, an official at the American Chamber of Commerce in Hanoi.

Only 11 percent of the nation’s workforce is considered highly skilled, according to the Department of Labor.

In Ho Chi Minh City alone, the economic capital of the south of the country, there is a shortage of 165,000 qualified workers for the second half of the year, according to the city authorities.

These problems add to infrastructure unsuitable for the development of the country of 100 million inhabitants, between crowded roads and power cuts at the height of demand in the dry season.

Regionally, transportation costs are highest in Vietnam, which has relatively few highways, a World Bank report in August pointed out.

The country also suffered power cuts in May and June, when electricity demand soared due to the heat wave. These outages cost the country nearly $1.4 billion, according to the institution.

Companies in northern Vietnam have reported losses of up to 10% of their turnover.

“It was a blow to the reputation” of the country, remarked Sitkoff. “But it was predictable. Vietnam does not have the necessary means to support this growth.”

Vietnam attracted some $18 billion in foreign investment in the first eight months of 2023, 8% more than the same period last year, according to the Hanoi-based Foreign Investment Agency .

In June, Foxconn, a key supplier to Apple, announced a program to produce equipment for charging electric cars at a factory in the North.

Samsung Electronics, the country’s largest foreign investor, opened a $220 million research and development center last year, its largest in Southeast Asia.

The commitment of these behemoths has put pressure on Vietnam, recognizes Nguyen Anh Tuan, deputy director general of the Agency for Foreign Investments.

“How can we take advantage of these opportunities?” he asks.

The country is focusing on training a more qualified workforce, particularly in new technologies, semiconductors and energy, by facilitating admission procedures, while remaining competitive in the region, he said. he.

“We are no longer seeking to provide cheap labor,” explains the manager, while young Vietnamese aspire to better pay in a country where the average salary is around $300 per month.

The question of costs remains central for the future.

For the moment, “Vietnam remains very competitive,” assures Matt Kantrud, general manager of Northstar Precision, an automotive subcontractor, which is building a second factory (at $40 million) in Vietnam – the only country where the company is established, with China.