December 12, 2022
Manufacturing -
Why manufacturing in Vietnam is a great choice for electronics | OneLink Holdings
Discover why manufacturing in Vietnam makes sense, how you can reduce costs by up to 35%, and what the future holds for this booming region.
As the world increasingly goes digital, the demand for electronics has never been higher. Businesses need to be able to produce these products quickly and efficiently to stay ahead of the competition, which is why more and more factories are being set up in Vietnam. They have become the home to multinationals like Samsung, Intel, Foxconn, and LG. In 2021, the export of phones and components reached US$57.54 billion, which was up by 12.4% over 2020. Computers and electronic products had an export revenue of US$51 billion, which also experienced an increase of 14% from the previous year. Vietnam climbed from the 47th position in global ranking in 2001 to the 10th position in 2020 for the export of electronics globally.
While the electronics market is dominated by global manufacturers, domestic companies have begun improving on their competitiveness in the market, holding a 5-10% market share. Vietnam currently focuses on the midstream production, which involves the assembly of finished and sub-assembled products to be exported. The upstream production involves the designing and production of sub-components while downstream production involves the sales and distribution, which is done outside of Vietnam.
Where are electronics manufactured?
Electronics manufactured as consumer goods are mostly produced in the Northern Provinces, near the well-known city of Hanoi (Bac Ninh, Bac Giang, Hai Phong). Intel, who manufacture processors and electronic chips invests heavily in the South of Vietnam; in the city of Ho Chi Minh City.
Here are some of the reasons why setting up business in Vietnam is a great choice for electronics.
Cost-effective labour
One of the main reasons manufacturing in Vietnam is a great choice for electronics is because of the cost-effective labour. In Vietnam, the average manufacturing worker earns around $150 per month, which is significantly lower than in other countries such as China ($410) and Thailand ($650). This lower wage allows businesses to manufacture their products at a lower cost, which is generally passed on to the consumer.
Young and educated workforce
The young and educated workforce in Vietnam allows for a greater ability to produce high quality products. According to the World Bank, over 60% of the Vietnamese population is under the age of 35. The average Vietnamese worker is 27 years old and has completed 9 years of schooling. This makes Vietnam one of the youngest countries in Southeast Asia. Additionally, the literacy rate in Vietnam is over 90%. This means that there is a large pool of educated workers to choose from when setting up your electronics manufacturing facility in Vietnam. By having a young and educated workforce they can quickly learn new skills and adapt to new technologies. As a result, Vietnam can produce high-quality electronic products at a lower cost than many other countries.
Lower risk of disruptions
Another reason to manufacture in Vietnam is that there is a lower risk of disruptions. This is because Vietnam is not as reliant on overseas markets as other countries are. This diversification means that if there are disruptions in one market, it will not have as much of an effect on Vietnam’s economy as it would on other economies. Vietnam has a relatively stable political environment, which helps to create a more predictable business environment. As a result, companies that manufacture electronics in Vietnam can be more confident that their operations will not be disrupted by political instability or trade disputes.
Higher quality standards
Businesses can expect higher quality standards when manufacturing in Vietnam. This is because Vietnamese factories must adhere to international standards to export their products. Vietnamese workers are known for their attention to detail and commitment to quality, which further enhances the reputation of Vietnamese-manufactured electronics. As a result, businesses can be confident that their products will meet or exceed the quality standards of their customers.
Tax incentives
There are several tax incentives for businesses looking to manufacture electronics in Vietnam. Not only can investors take advantage of reduced tariffs, but the Vietnamese government also provides corporate income tax (CIT) incentives. The two main incentives offered to both local and foreign investors are the preferential tax rates (reduced tax rates) and tax holidays (tax exempted for a certain period or the lifetime of the project). Other incentives offered include customs duty incentive policies and land rental exemption policies. To establish what CIT incentives apply to your business, the sector, location, and size of the investment is used.
To qualify for the preferential tax rates in the technology-related sectors, goods cannot be produced domestically or must meet the EU quality standards to be taxed at 10% for 15 years. Within the 15 years, firms will also receive a tax holiday for the first 4 years, with a 50% reduction in the CIT rate (10%) for the remaining 9 years.
Government reforms
Electronics, information, and telecommunication technologies are among the top 10 priority sectors approved by the Vietnamese government for the industrial development strategy period 2025-2035. This development strategy is aiming to encourage the private economic sector and foreign investment sector. In the years leading up to 2025, they have prioritized the development of computer equipment, phones, and accessories. After 2025, the development of software, digital content, information technology services and medical electronics will be the priority.
Free Trade Agreements
Vietnam has negotiated and become part of 27 free trade agreements; with the most recent agreements being the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), EU-Vietnam FTA (EVFTA), UK-Vietnam FTA (UKVFTA), and the Regional Comprehensive Economic Partnership (RCEP). These free trade agreements will help Vietnam advance its economy and production network.
Manufacturing in Vietnam is a great choice for electronics due to the cost-effective labour, lower risk of disruptions, higher quality standards and generous tax and government incentives on offer. When businesses choose to manufacture in Vietnam, they can be confident that they are making a decision that will benefit their bottom line and their customers.
If you are looking for a manufacturing partner that can help your business thrive, please get in touch with OneLink Holdings. Our team of experts will work closely with you to understand your specific needs and requirements, and then create a customized solution that will help your business reach new levels of success.
Written By
One Link Holding team
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