INTRODUCTION
Rationale of the research
In today's interconnected world, globalization has become an essential trend, driven by advancements in Information Technology (IT) This has enabled Multinational Enterprises (MNEs) to establish fragmented manufacturing processes globally and encourage foreign investments Consequently, the concept of Global Value Chains (GVCs) has emerged, representing a consolidated supply-chain network among various countries for product and service design GVCs are particularly significant for developing nations, as participation in these chains is linked to higher GDP per capita growth, positively influencing the economy, employment, income, and creating developmental opportunities (UNCTAD, 2013).
Vietnam is recognized as one of the most dynamic and rapidly growing economies in the ASEAN region, with a consistent GDP increase over the past decade As the fourth largest investment destination globally and the second for foreign direct investment, Vietnam attracts significant interest from investors, particularly in real estate, infrastructure, and manufacturing sectors However, the challenge of globalization poses risks, including the widening gap between rich and poor nations and the potential for Vietnam to become trapped in the middle-income bracket, reliant on technology and investment from developed countries While traditional export strengths like textiles and agricultural products have been overshadowed by the electronics industry, the manufacturing sector now requires substantial investments and advanced R&D Despite having a plentiful and inexpensive labor force, Vietnam’s manufacturing processes currently offer limited added value.
Understanding global value chains is crucial for Vietnam as it clarifies how benefits, especially income, are distributed among participants in the global economy This insight is vital for policymakers to develop strategies that promote sustainable growth.
Research purpose and questions
In the era of globalization, the electronics manufacturing industry has evolved to incorporate diverse sources rather than being confined to a single country or region While Vietnam's electronics sector has seen significant achievements, these advancements are predominantly driven by foreign enterprises, which account for over 70% of domestic turnover and nearly 90% of export turnover In contrast, local companies play a minimal role, primarily engaging in assembly and providing basic services and components, resulting in limited added value and a lack of competitive edge This study aims to address these challenges and explore potential strategies for enhancing the domestic electronics industry.
1 The capability of Vietnam's electronics industry to participate in the global value chains.
2 The limitations of Vietnam's electronics industry.
This study aims to provide recommendations for enhancing the participation of Vietnam's electronics companies and policymakers in global value chains (GVCs) within the electronic manufacturing sector The paper addresses three key questions to guide this exploration.
1 What activities in the Vietnam electronics industry will be able to develop in the future?
2 How to gain more added value from activities?
3 What should the government and enterprises in the electronics industry do to make Vietnamese electronics industry more effectively involved in the global value chains?
Objectives and scope of research
Research objectives of this project are activities in the global value chains of electronics industry Previous researches mainly analyzed production activities.
However, Pre-production, production and post-production activities are evaluated on this paper so that a general view of Vietnam's electronics industry will be pointed out.
This research focuses on the global value chains within Vietnam's electronics industry, examining the activities of both foreign-invested enterprises and domestic firms from 2010 to 2018.
Structure
Apart from Acknowledge, List of Abbreviations, List of Tables, List of Figures and References, this study will be separated into 5 chapters:
Chapter 2: Literature review and methodology
LITERATURE REVIEW AND METHODOLOGY
Background
Global Value Chains consist of two main components: "Global" and "Value chains." The term "Value chain" was introduced by Michael Porter in his 1985 book, "Competitive Advantage: Creating and Sustaining Superior Performance."
The value chain encompasses a series of activities that transform a product from its initial concept to its final use Key components of the value chain include design, production, marketing, distribution, and post-sale services, which can be executed within a single business or through collaboration among multiple businesses.
Source: Competitive Advantage: Creating and Sustaining Superior
The Value Chain model serves as a strategic management tool by deconstructing an organization's activities into key components This approach allows for a comprehensive understanding of cost drivers and differentiation sources, enabling informed adjustments to enhance overall performance.
Raphael Kaplinsky and Mike Morris (2002) in “A Handbook for Value Chain Research” define the value chain as the complete set of activities required to bring a product or service from its initial conception to final disposal They categorize value chains into two types: Simple value chains and Extended value chains Each product represents the culmination of various activities that enhance its value, with stages including material supply, production, processing, and distribution, all contributing to the overall value addition of the product.
Source: Handbook for value chain (2002)
Every business leverages its unique strengths to engage in the value chain by focusing on specialization at each stage This approach effectively delineates the various phases of the enterprise's supply process Raw materials are transformed through the company's production methods, resulting in finished products that are then delivered to consumers.
Value chains in the real world are significantly more intricate, featuring multiple links and forming part of a broader value system as defined by Porter This value system encompasses not only the firm's own value chain but also the suppliers that provide essential inputs, each with their own value chains Once the firm produces its products, they traverse through the distributors' value chains before reaching the customers, illustrating the interconnectedness of all components within the value system.
Gereffi, Gary & Fernandez-Stark, Karina (2016) in ii Global Value Chain Analysis: A Primer, 2nd Edition'” shows that participating in such activities likes
Design and marketing services, representing pre- and post-production intangibles, generate greater economic value compared to traditional manufacturing activities As a result, high-value activities are increasingly concentrated in these service areas, prompting host countries to implement effective workforce development strategies to meet the local demand for these essential services.
Figure 2.3 Smile Curve of High-Value Activities in Global Value Chains
Pre-Production Production: Tangible Post-Production
Source: Global Value Chain Analysis: A Primer, 2nd Edition (2016)
Therefore, developed countries often participate in Production Intangible and Post-Production Intangible while developing countries participate in Production stage
According to a 2014 report by the OECD, WTO, and World Bank Group, the benefits of participating in Global Value Chains (GVCs) are not guaranteed and can differ significantly based on a country's position in the value chain Developed countries often focus on high-end activities such as research and development, brand building, and marketing, while developing nations may face challenges and risks associated with joining GVCs.
Rich countries often express concern over the decline of domestic manufacturing as producers shift to lower-cost facilities abroad In contrast, developing nations typically concentrate on low-end, tangible production activities like manufacturing and assembly However, they may face challenges in engaging in jobs outside their specialization, preventing them from fully capitalizing on potential advantages This situation can result in their economies becoming entrenched at the lower end of Global Value Chains (GVCs), often referred to as the "Smile Curve."
2.1.3 The global value chains participation
The rise of Global Value Chains (GVCs) is a significant aspect of global integration, allowing value chains to operate within specific geographic areas or across multiple countries Sakshi Aggarwal's work, "Smile Curve and its linkages with Global Value Chains," highlights various perspectives from economic and political literature on this phenomenon Key concepts include fragmentation (Jones and Kierzkowski, 1990), offshore sourcing (Arndt, 1997), external orientation (Campa and Goldberg, 1997), disintegration of production (Feenstra, 1998), vertical specialization (Hummels et al., 2001; Yi, 2003), outsourcing (Grossman and Helpman, 2002a,b), vertical production networks (Hanson et al., 2003), trade in tasks (Grossman and Rossi-Hansberg, 2008), and the second great unbundling (Baldwin, 2011) These frameworks collectively illustrate the complexities and dynamics of GVCs in the modern economy.
Due to the specialization in various stages of the value chain, no single enterprise can dominate the entire process Companies leverage their strengths to effectively integrate into the value chain For instance, Company X, based in Canada, conducts its R&D in the United States, manufactures in China with components sourced from India, markets its products in the European common market, and provides after-sales service from Thailand Each region focuses on a specific task, achieving higher efficiency than if one company managed all functions This exemplifies the essence of a true global value chain.
Figure 2.4 Global value chains of manufacturing
Source: Asia-Pacific Trade and Investment Report (2015)
Faezeh Raei and Anna Ignatenko (2019) in “Global Value Chains: What are the Benefits and Why Do Countries Participate?” has measured the participation of
Global Value Chains (GVCs) across 189 countries demonstrate a positive correlation between GVC-related transactions and increases in per capita income and labor productivity Developing country firms, initially positioned at the lower end of GVCs, can leverage international expansion to ascend to higher value-added roles, guided by the structure of the value chain The growing global engagement of these firms highlights their developmental progress and internationalization efforts Notably, UNCTAD (2013) reported that the share of developing countries in value-added trade rose significantly from 20% in 1990 to over 40% in 2013.
This literature examines global value chains (GVCs) established between a technologically less advanced, low-wage country in the South and a high-tech, high-wage country in the North The contrasting characteristics of these nations create profitable offshoring opportunities by leveraging Northern technology alongside Southern labor costs The primary sources of gains from this arrangement stem from the effective integration of advanced technologies with lower wage structures.
The 'North' experiences productivity enhancements similar to technological advancements, driven by reduced costs and heightened specialization Conversely, the 'South' benefits from technology upgrades and greater specialization, resulting in favorable terms of trade and beneficial spillover effects.
Nguyen Hoang Anh's 2008 study on "Researching Global Value Chains and Capabilities of Vietnamese Electronics Industry Enterprises" explores various participation strategies for businesses in the international commodity production system, particularly in the electronics sector Companies can engage in production through four distinct methods, depending on their production capacity and strategic access to the value chain.
Previous researches on global value chains in electronics industry
This study investigates the role of the electronics industry in global value chains, focusing on the factors contributing to the sector's fragmentation across different countries and the added value generated by each activity within these chains It provides an overview of the history of the global electronics industry and examines the operational dynamics of this sector Key topics reviewed include the evolution of electronics manufacturing, the impact of globalization, and the strategic importance of innovation and technology in enhancing competitiveness.
2.2.1 The electronics global value chains a/ SK Routray (2016) - History of Electronics
The electronics industry has evolved into a foundational sector that supports various other industries, primarily driven by the significant role of semiconductors These crucial components have led to the development of numerous convenient products that enhance daily life, resulting in a manufacturing boom of electronic devices Key products such as televisions, computers, cellphones, and laptops, along with essential internet infrastructure, all stem from advancements in electronics hardware, showcasing its profound impact on society.
Between the 1920s and 1940s, the semiconductor industry witnessed significant advancements, highlighted by Philo Farnsworth's groundbreaking demonstration of electronic television in 1928 This innovation spurred the global adoption of radio and television, making them staple electronic devices in households worldwide During the 1930s and 1940s, major companies in the United States, such as General Electric, Motorola, and Emerson, along with Japanese firms like Sony, Sanyo, and National, emerged as key players in television production, expanding their operations internationally to enhance trade and distribution.
The evolution of the semiconductor industry marked a significant shift from bulky and heavy devices reliant on vacuum tubes and large capacitors to more compact electronic devices For four decades, vacuum tubes were the standard amplifying devices until the invention of the transistor by researchers at Bell Labs in 1947, led by William Shockley This breakthrough allowed semiconductor devices to replace traditional electric circuits, paving the way for advancements in electronics In the early years, semiconductors gained widespread popularity in the US market, enhancing products like televisions, radios, and telephones Notably, the development of semiconductors transformed computers, which once occupied entire rooms and consumed excessive electricity, into smaller, more efficient machines.
Between the 1950s and 1970s, the introduction of integrated circuits revolutionized technology, allowing numerous resistors to be interconnected on compact silicon chips This innovation led to the widespread use of integrated circuits in various applications, including airplanes, toys, refrigerators, and washing machines.
In 1969, the invention of a finger-sized chip enabled the separation of complex circuit boards, leading to the creation of microprocessors that revolutionized electronic circuits within two decades The personal computer emerged in 1975 with the Altair 8800 Rapid advancements in science and technology have significantly shortened research time, culminating in the development of dynamic random-access memory and laser CDs, which allow for quick data recording.
The laserdisc, introduced three years ago, offers rapid data retrieval and a greater storage capacity compared to earlier disks During this period, the United States, Japan, and Europe emerged as leaders in computer science, continuing their research and development efforts However, certain electronics hardware manufacturing processes have shifted to China, Taiwan, and Korea, while the design, research, and complex production stages remain in developed nations with skilled labor and robust infrastructure Ultimately, assembly operations are conducted in developing countries.
In the 1980s and 1990s, the emergence of microchips and wireless devices revolutionized technology, with innovations like DVD players, HDTVs, and personal computers enhancing global information exchange and business opportunities Industries such as finance, banking, science, and military relied heavily on accurate and constant information flow, leading to the mass production of computers The introduction of 2G mobile phones in Finland in 1991, which included messaging capabilities, further facilitated convenient communication.
In the 2000s and 2010s, the smartphone revolution began with Nokia's 2002 release of a mobile phone featuring advanced imaging functions This era saw a surge in demand for entertainment-driven electronic devices, leading to the launch of HD-resolution products like the Xbox, PlayStation, and portable music players from Sony and Apple in 2006 The pivotal moment came when Apple introduced the first iPhone, showcasing a touch screen design and compact, integrated features for photography and web browsing Smartphones evolved into essential tools, seamlessly combining the functionalities of mobile phones, computers, and cameras, while boasting increasingly powerful processors and rapid internet connectivity, significantly enhancing everyday life.
In conclusion, the relentless pursuit of more convenient, faster, and powerful electronic devices drives continuous technological advancements and product innovations This surge in technology leads to increased production of electronic devices, prompting manufacturing companies to adopt the Global Value Chains (GVCs) theory Companies focus on high-value activities such as Research & Development, Design, Marketing, and Distribution, while lower value-added production is often outsourced to developing nations Nevertheless, with strategic development and investment in higher value chains, developed countries can potentially elevate themselves beyond low-value production roles.
Innovation in the electronics industry is transforming global manufacturing, making it a crucial element in the future of global value chains and Industry 4.0 The integration of the electronics hardware value chain with the information and communication technology (ICT) services sector highlights its dynamic nature Automation and servicification driven by big data and the Internet of Things (IoT) are facilitated by the advancement of electronic components and robust ICT infrastructure While all industries will experience the effects of Industry 4.0, the electronics sector is not only affected but also plays a pivotal role in enabling these transformative trends.
The electronics global value chains (GVCs) encompass various stages, including raw materials, components, subassemblies, and final product assembly tailored for diverse market segments Key activities within this value chain, such as research, product development, design, marketing, and after-sales services, significantly enhance the value of final products Notably, new product development, circuitry and semiconductor design, and software creation are highly profitable activities predominantly managed by leading firms and component suppliers, often remaining in domestic markets rather than being outsourced.
Figure 2.6 Map of the electronics GVCs
Source: Korea and the Electronics Global Value Chain (2017)
2.2.2 Fragmentation of global value chains’ activities a/ F Stone, Susan & Mikic, Mia & Agyeben (2015) - Asia-Pacific Trade and Investment Report 2015: Supporting Participation in Value Chain.
The level of fragmentation in production, as noted by Jones and Kierzkowski (2001), hinges on balancing lower production costs with higher trade expenses By situating production stages in countries with cheaper production, firms can reduce marginal costs, although they may face increased fixed and variable costs associated with managing multiple locations Key motivations for this strategy include entering new markets and securing strategic inputs In the context of Global Value Chains (GVCs), backward linkages involve importing intermediate goods for exports, while forward linkages pertain to exporting inputs for use by other countries Efficient backward linkages depend on firms accessing optimal inputs from domestic or international sources, while forward linkages require connections to downstream producers or consumers Fragmented production is not exclusively international; it can also be regionally concentrated, as countries tend to source intermediates from nearby nations to minimize transportation costs Regional integration agreements can help reduce trade costs within a region, particularly when they encompass liberalization of services, investment provisions, intellectual property rights, and regulatory harmonization, thereby enhancing the efficiency of cross-border production.
The growth of Global Value Chains (GVCs) has created opportunities for companies to enhance their regional operations, facilitating deeper integration within Asia and the Pacific This shift enables economies to focus on labor division and task specialization rather than solely relying on product-based comparative advantages For instance, advanced industrial nations like Japan and South Korea manufacture technology-intensive components for electronics, while emerging economies such as China and Vietnam are responsible for assembling these components into finished products.
In conclusion, the primary drivers of Global Value Chains (GVCs) are cost efficiency, market access, and reduced international trade costs The process of international production sharing within GVCs occurs across various geographic scales, including both regional and global levels This highlights the significance of strategic service innovation design in the cultural and creative industries, as explored by Ko, Yu-Yuan, Lin, Po-Hsien, and Lin, Rungtai in their 2009 study.
Research gap
Analyzing the participation of the electronics industry in Vietnam's global value chains (GVCs) reveals significant trends and opportunities for growth While foreign research outlines a five-step approach for countries to enhance their GVC positions, local studies, such as those by Hanh et al (2008) and Quynh et al (2016), primarily focus on production-related value chains, overlooking other critical GVC activities This thesis aims to comprehensively evaluate all aspects of the electronics industry's GVCs in Vietnam, identifying key areas for long-term development The findings will provide a valuable framework for future research, enabling scholars to concentrate on specific GVC activities pertinent to Vietnam's electronics sector.
Lessons from regional countries in electronics industry
The rise of Industry 4.0 is transforming the global labor market, significantly enhancing the importance of the electronics industry, particularly through the integration of artificial intelligence This sector is poised to create new value within the production and distribution chains In Vietnam, the electronics manufacturing industry is set for substantial growth, supported by stable political, economic, and social conditions As a result, it has emerged as a key driver for development in various countries and regions, including China and Taiwan.
Importers increasingly turn to Asia, particularly Vietnam, to capitalize on low labor costs and enhance profit margins While low labor costs fueled China's manufacturing growth for decades, rising wages and a declining labor force are now reshaping the sector As a result, China can no longer compete with countries like Bangladesh, Cambodia, or Vietnam in terms of labor costs.
As China's working-age population begins to decline, the surplus of low-wage labor is diminishing To advance up the value chain, China must now compete with developed nations, shifting its focus from solely rivaling other developing countries Automation will play a crucial role in this transition, enabling China to enhance productivity and maintain competitiveness in the global market.
Advanced economies have significantly higher productivity levels compared to China, and the gap is widening due to increased automation In response, China is enhancing its manufacturing capabilities by incorporating more robots and automated machinery in factories Under the "Made in China 2025" initiative, the government aims for domestic production to utilize 70% industrial robots, emphasizing a shift towards original design manufacturing.
China's transformation into a manufacturing powerhouse has been remarkable, rising from seventh place in global production in 1980 to surpassing the United States in 2011 as the largest producer of manufactured goods This shift has significantly enhanced living standards, doubling the nation's GDP per capita over the last decade Initially focused on Original Equipment Manufacturing (OEM), which offered limited economic value, China has shifted its strategy, particularly in the smartphone sector Notably, 91% of China's semiconductor demand, a critical component for smartphones, was previously met by foreign imports However, increased investment in research and development has led to the emergence of three of the world's top five smartphone manufacturers: Huawei, Xiaomi, and OPPO.
Many Chinese companies are advancing in technology development through mergers and acquisitions (M&A), allowing them to acquire established high-end technologies rather than starting from scratch This strategy not only facilitates access to valuable customer bases and distribution networks, which would typically take years to develop organically, but also significantly boosts their market presence In 2016, the industrials sector accounted for 51% of all outbound M&A, exemplified by Haier Group's $5.4 billion acquisition of General Electric's home appliance division, which enabled them to capture a 1.1% market share in the U.S.
Taiwan, despite its small size—only one-tenth the area of Vietnam—boasts a leading global electronics industry Notably, Foxconn, officially known as Hon Hai Precision Industry Co Ltd., stands as the largest electronic OEM in the world, manufacturing components for major technology companies such as Apple, Nokia, Sharp, and LG In 2018, Taiwan's electronics exports ranked 6th globally, making up 5.2% of total exports Additionally, Taiwan's electronics trade patterns mirror those of Vietnam, with primary importers including China, South Korea, and various Southeast Asian nations.
Figure 2.8 Share in value in Taipei, Chinese’s imports from 2010 -
Source: Trademap.com (2019a) a/Special economic zone
Since the 1960s, Taiwan has established free economic zones, attracting foreign investors, particularly in the manufacturing sector, due to its affordable labor Key coastal areas such as Kaohsiung, Taichung, and Keelung have been developed to facilitate trade The Farglory Air Cargo Park enhances the transportation of goods, creating a robust connection system that supports the manufacturing, import, and export industries This strategic development has significantly advanced the production of chemicals, plastics, and electronics through an efficient inbound logistics network.
Table 2.3 Ease of doing business metric between China and Taiwan
However, to participate in GVCs, Taiwan has established science-based industrial parks such as Hsinchu Science Park (1965), Southern Taiwan Science Park
(1996) and Central Taiwan Science Park (2003) to develop R&D activities when the future of labor factors will not be sustained. b/Education first
Taiwan's advanced technology and electronics production capacity can be attributed to its strong educational system, which consistently produces high-achieving students in science and math Taiwanese students excel in international assessments such as the Trends in International Mathematics and Science Study (TIMSS) and the Program for International Student Assessment (PISA) From an early age, students in 4th and 5th grades are exposed to advanced science curricula The country's high rate of higher education has seen significant growth since the mid-1980s, fueled by foreign investments from nations like Japan and the U.S This growth was further accelerated by President Chen Shui-bian's initiative to establish a university in every county during his tenure from 2000 to 2008.
The Korean economy is a highly developed market, ranking 4th in Asia and 11th globally in terms of GDP as of 2018 Following the Korean War in the 1950s, South Korea transformed from one of the world's poorest nations to a significant economic power, experiencing rapid growth throughout the late 20th century The country's GDP (PPP) per capita soared from just USD 100 in 1963 to over USD 10,000 by 1995, and exceeded USD 25,000 in 2007 Despite the severe impact of the 1997 Asian financial crisis, South Korea swiftly and robustly recovered The nation is also a leader in the global electronics industry, home to major firms like Samsung, the world's largest mobile phone manufacturer, along with LG Electronics and Daewoo.
A chaebol is a significant industrial conglomerate in South Korea, typically managed and dominated by a single owner or family These entities comprise numerous diversified affiliates, with the owner wielding considerable influence that often surpasses legal boundaries The term parallels the English concept of "conglomerate."
The remarkable growth of South Korean chaebols since the early 1960s was significantly linked to the surge in exports, driven by a diverse range of products rather than a limited selection Key to this success were innovation and the proactive development of new product lines Initially focused on textiles in the 1950s and early 1960s, chaebols shifted their attention to heavy defense and chemical industries by the mid-1970s and 1980s However, the most substantial growth emerged in the electronics and high-technology sectors during the 1990s, positioning South Korea as one of the largest newly industrialized nations and elevating its standard of living to levels comparable with established industrialized countries.
Korea's major chaebol, including Samsung, Daewoo, and LG, are prominent players in the technology and electronics sectors, benefiting from government support that prioritizes research and development These favorable policies have created an optimal business environment, enabling these corporations to evolve into global leaders in technology innovation.
South Korea has devoted extra attention to technology development and innovation to promote growth Innovation and technology are the key factors that have
33 underpinned South Korean export competitiveness and fueled the country's remarkable economic rise over the past decades.
South Korea currently allocates the highest percentage of its GDP to research and development (R&D), surpassing both the U.S and Japan, which are recognized as global leaders in innovation From 1996 to 2015, South Korea's R&D intensity surged by 88.5%, increasing from 2.24% to 4.23% In contrast, the United States experienced a modest growth of only 14.4%, rising from 2.44% to 2.79% during the same period.
Methodology
To carry out the theory research, I have used desk - study methods, meta- analysis, statistics analysis, combined with reference and comparison aiming to highlight the research concerns.
A global value chain encompasses all activities involved in bringing a product or service from conception to end use, highlighting how these activities are geographically and internationally distributed The fragmentation of these activities is influenced by factors such as cost efficiency, market access, and international trade costs, all of which relate to the economic conditions of the host country Consequently, businesses operating in an international environment must thoroughly analyze the local conditions to effectively fragment their operations within global value chains.
In the electronics industry, developed countries prioritize high-value stages like research and development (R&D), design, distribution, sales, and services, while less technologically advanced nations typically concentrate on the production phase, particularly assembly.
The history of electronics began in the 1920s with the invention of semiconductors, revolutionizing electronic devices This evolution has transformed massive computers that once occupied entire rooms into multifunctional smartphones that combine the capabilities of cameras, computers, printers, and scanners into a pocket-sized format Insights from countries worldwide, particularly the Asian Tigers—China, Korea, and Taiwan—demonstrate that investing in education, technology, and research and development is crucial for sustainable growth in the electronics industry.
Detailed analysis of activities in the global value chains of electronics industry in Vietnam will be analyzed in chapter 3.
ANALYSIS
Economic performanceof Vietnam’selectronicsindustry
Vietnam's Electronics Technology sector has experienced steady growth over the years, becoming increasingly significant in the manufacturing industry and contributing to the economy Currently, the export of electronic equipment and components ranks 12th globally The development of the Electronic Industry in Vietnam can be divided into three distinct periods, with the first spanning from 1975 to 1990.
The electronics industry in Vietnam originated in the South before 1975, primarily focused on assembling foreign brand-name household appliances Following the reunification of Vietnam in 1975, several electronic enterprises in the South transitioned to producing civil electronic products, often through joint ventures with Japanese companies like Sony, National, and Sanyo, alongside smaller repair businesses This period marked the formation of Vietnam's nascent electronics industry, which also included several factories in the North.
Following the country's reunification, the Prime Minister formed the Sub-Committee for Electronic Industry Development in 1976, outlining a strategic plan for growth The Government prioritized the swift restoration of electronic enterprises in the southern provinces to meet domestic demand, while also investing in the establishment of new factories to produce electronic spare parts for assembly industries.
In the late 1980s, Vietnam initiated the Doi Moi reforms, focusing on three key economic programs: food production, consumer goods, and export goods This marked the beginning of a transition towards a market-oriented economy During this period, the Vietnamese electronics industry emerged, spearheaded by the Vietnam Electronics Enterprises Union, which aimed to produce essential components and assemble products to satisfy domestic demand and facilitate exports.
Since the early 1990s, Vietnam's economy has transitioned towards a market-oriented model, particularly following the signing of the Chengdu Treaty with China, which marked a significant turning point in Sino-Vietnam relations This normalization led to China becoming a key economic partner for Vietnam, fostering substantial bilateral trade benefits The influence of Japan and China is evident in Vietnam's overall economy, especially within the electronics sector, with imports primarily consisting of machinery, equipment, steel, chemical products, transport equipment, electronic components, and telephones.
The establishment of the Company Law and the Private Enterprise Law in Vietnam aimed to institutionalize private economic development, supported by open investment policies and infrastructure improvements These initiatives, including the development of export processing zones and industrial parks, successfully attracted foreign investors, significantly impacting the national economy and electronics sector The US embargo had previously hindered Vietnam's ability to repay loans and secure funding from international financial institutions However, the economy began to thrive following President Bill Clinton's announcement to lift the embargo in 1994 and the normalization of relations in 1995.
Since 1994, the Vietnamese electronic industry has experienced significant rehabilitation and growth, driven by the collaboration of state-owned enterprises, private companies, and foreign investors State-owned enterprises have adapted their operational methods and increased partnerships with international branches The establishment of numerous dynamic private enterprises has further invigorated the sector, attracting investments from renowned global electronics companies that either form joint ventures with local firms or invest entirely in building production facilities in Vietnam.
Vietnam's electronics industry is experiencing a resurgence due to a new policy mechanism and favorable operating environment The country's open and appealing investment framework, combined with a plentiful workforce, has created ideal conditions for growth and innovation in the sector.
As of 2003, the electronics industry has emerged as a major attraction for foreign investment, drawing approximately USD 2 billion However, Vietnamese electronics companies have struggled to develop ODM and OBM models, limiting their ability to produce commercially viable consumer and industrial electronics A 2006 survey by the Vietnam Association of Electronic Enterprises revealed that the industry primarily focuses on assembling consumer goods, with 80% dedicated to consumer electronics and 20% to specialized electronic products This imbalance has resulted in low domestic value addition, estimated at only 20-30%.
A recent survey by the Vietnam Electronic Industries Association (VEIA) has revealed that Vietnam's electronics technology and equipment lag behind by 10 to 15 years compared to regional and global standards When compared to the ASEAN-5 countries—Thailand, Singapore, Malaysia, Indonesia, and the Philippines—Vietnam's electronics industry is primarily focused on assembling products from imported components, with only initial investments being made in the development of spare parts and supporting industries.
From 1990 to 2010, the electronics industry experienced an impressive annual growth rate of 20-30% Notably, consumer electronics surged by 35% between 1991 and 1995, while components and spare parts saw a significant increase of 30-45% from 1995 to 2000 Additionally, information technology products grew robustly by 30-50% during the period of 2000 to 2009, contributing to a continuous rise in the total output of the electronics sector throughout these years.
Specifically, it has increased from VND 4 trillion (1996) to VND 68 trillion in
From 1996 to 2009, export turnover saw remarkable growth, increasing from USD 90 million in its initial year to over USD 3 billion by 2009, marking a 16-fold increase over a decade Notably, exports rose from USD 1.5 billion in 2005 to USD 3 billion in 2009, with key products including spare parts and computers.
”- Office of the Ministry of Industry and Trade. c/Period of 2010 - now
Since 2010, Vietnam's electronics industry has integrated seamlessly into both regional and global markets, aligning with international standards and commitments This integration has positioned Vietnam as a significant player in the international electronics product market.
Vietnam's electronics industry has seen significant growth due to various forms of electronic product imports, including components and complete products from foreign joint ventures The improvement of business institutions, legal frameworks, and incentive policies for electronic enterprises has attracted new investments and enhanced industrial production value, ultimately meeting the diverse demands of consumers.
The electronics industry in Vietnam is predominantly located in the Red River Delta, including Hanoi and surrounding provinces like Bac Ninh, Hai Phong, Hung Yen, and Thai Nguyen, as well as in the Southeast region, particularly Ho Chi Minh City and nearby provinces such as Dong Nai, Binh Duong, and Long An Key products in this sector include mobile phones, printers, and televisions, with mobile phones experiencing the fastest growth rate.
Activities of electronicsindustryfirmsinVietnam
Over the past decade, Vietnam's economy has experienced significant growth, largely driven by a transformation in its economic structure centered on the electronics industry This sector plays a crucial role in global exports, as highlighted in Table 3.3, with Vietnam concentrating on enhancing its production value chain A comprehensive analysis of other activities within global value chains (GVCs) will provide valuable insights into the broader landscape of electronics businesses in the country.
Table 3.3 Top 10 World Exporters of Electronic 3C Final Products, 2000,
Malaysia _ _ 4% 4% 2% % _ lop III (in given vear⅝ 3
Source: Korea and the Electronics Global Value Chain (2017)
Research and Development (R&D) and Design activities are essential for the sustainable growth of technology enterprises, as they enhance technological capabilities, align with market trends, accelerate development, and boost competitive advantage By prioritizing these intangible value-adding activities over production and logistics, businesses can better capitalize on their innovations Focusing on the pre-production stages allows companies to hone their core competencies and maximize profits from their inventions, as these stages require distinct skills and tasks compared to production.
According to a 2017 World Bank report, Vietnamese firms allocate only 1.6% of their annual revenue to research and development (R&D), significantly lower than Malaysia's 2.6% and Laos's 14.5% This disparity highlights the critical importance of R&D investment, which is known to generate substantial added value In comparison to leading nations like South Korea, the USA, and Japan, as well as regional competitors such as Thailand and Singapore, Vietnam's R&D investment as a percentage of GDP stands at a mere 0.442% (2015) This figure is notably uncompetitive, especially when contrasted with the East Asia and Pacific region's average of 2.381% for the same year.
Figure 3.4 Research and development expenditure (% of GDP)
Vietnamese enterprises possess valuable knowledge and patents; however, they infrequently integrate new research into their operational processes, resulting in inefficient innovation Dr Huong notes that domestic firms often prioritize stabilizing production to navigate challenges rather than allocating resources for research and development (R&D) Currently, only about 9% of businesses invest in R&D, with less than VND 100 million allocated, while 37% of firms invest more than VND 100 million in R&D activities.
100 million, and only 22.8% of manufacturing/processing firms have R&D.
Decree 95/2014/NĐ-CP mandates that state enterprises allocate 3% to 10% of their pre-tax profits annually to establish a fund for scientific and technological activities Non-state enterprises can also deduct up to 10% of their pre-tax income for this purpose Despite these regulations, many businesses remain indifferent or rely on state budget investments instead of actively contributing to scientific and technological development.
Many experts believe that the current 10% limit on pre-tax profits for enterprises investing in R&D is insufficient, as numerous businesses are seeking to increase their investments These companies often face a tax burden that exceeds the 10% threshold, particularly those investing more than this amount in research and development activities.
Science and Technology, the State may lose tax if businesses receive incentives, but in return, society will receive new products, new technology entails many other benefits (Linh A., 2017).
The research and development of microchips is a crucial technology sector with significant value In Vietnam, government policies, alongside active participation from businesses and communities, will drive the advancement of the country's integrated circuit (IC) manufacturing industry, ultimately benefiting society as a whole.
Many companies prioritize high-value activities within the electronics global value chains (GVCs), focusing on areas like marketing, branding, research and development (R&D), and design Over the past thirty years, outsourcing final product operations has become a common practice among major corporations A notable example is Apple, the world's second-largest smartphone manufacturer, which has pioneered the use of electronics manufacturing services (EMS) contract manufacturers for its smartphone production.
Vietnamese enterprises are increasingly investing in high-end industrial segments, particularly in manufacturing phones and electronic components A notable example is BKAV, which has invested VND 500 billion in its Bphone project since 2009, resulting in the 2017 model featuring 54% of its components sourced from Japan, 23% from the United States, and minimal contributions from China BKAV handles the research and development as well as design stages in-house Additionally, Vingroup has announced plans to invest significantly in technology and industry, aiming to produce high-tech products at the Hoa Lac High-Tech Park, with a smart electronic equipment factory set to launch in 2019, emphasizing product design and the use of third-party components.
In the electronics industry global value chains (GVCs), the production of inputs and electronic components is known as "supporting industries." This term was first introduced in the mid-1980s in the "White Paper on Economic Cooperation 1985" by Japan's Ministry of International Trade and Industry.
The 47 supporting industries play a crucial role in manufacturing essential parts, components, and tools tailored to various sectors, particularly the electronics industry This sector relies heavily on these supporting industries to supply specialized tools, as well as materials such as plastics, glass, chemicals, integrated circuits, silicon chips, printed circuit boards (PCBs), batteries, and metal casings.
Figure 3.5 Scope of supporting industries
Source: Supporting Industries: A Review of Concepts and Development a/Input
The production of electronic components relies heavily on essential raw materials, including silicon, silicon chips for wafers, plastics for circuit board layers, ceramics, and doped chemicals In Vietnam, the availability of these materials is limited due to the scarcity of specialized mining sites While metals like aluminum, copper, gold, and silver are also integral to the electronics industry, only a few local businesses, primarily foreign enterprises, have the technology to produce high-grade materials like silicon However, Vietnamese companies have successfully mastered the production processes for chemicals, rubber, and glass, showcasing their capabilities in these areas.
Intel Corporation has established a factory in Ho Chi Minh City's Hi-Tech Park, marking a significant investment in Vietnam In January 2006, the company announced a $300 million project to build a facility that includes an assembly and inspection plant, which plays a crucial role in the semiconductor chip manufacturing process This facility represents the final stage in the production of Intel's silicon products before they are distributed to consumers globally Additionally, the Vietnam factory is expected to manufacture future processors and has already started producing the latest Intel mobile chipsets for laptops and mobile devices.
Before Intel's entry in 2006, Vietnam primarily exported low-tech, labor-intensive products such as rice, shrimp, fish, agricultural goods, textiles, and shoes Intel's presence inspired international investors, leading to the establishment of high-tech projects in the country Following Intel, companies like Canon set up factories in Bac Ninh in 2006 and Hung Yen in 2008, while Samsung opened facilities in Bac Ninh (2009), Thai Nguyen (2013), and Ho Chi Minh City (2014) Additionally, Nokia/Microsoft launched a factory in Bac Ninh in 2012, and LG opened a factory in Hai Phong, further diversifying Vietnam's industrial landscape.
In 2013, Fuji Xerox established a factory in Hai Phong, marking a significant development for Vietnam's electronics industry This move has attracted major companies such as Intel, Samsung, and LG, all of which have committed to increasing their investments in the region.
Mapping the Vietnam electronics industry in global value chains
The following is an analysis of some Vietnam’s electronics industry features to have an overview of foreign businesses when they share their activities in Vietnam.
3.3.1 The participation of electronics industry in global value chains
After nearly two decades of rapid growth in Vietnam's electronics industry, foreign companies continue to dominate most value chains, particularly in production and pre-production activities However, Vietnamese enterprises have emerged as a notable force in the post-production value chain, excelling in software resources and leading information technology development services in the region.
The Vietnamese electronics industry primarily concentrates on the production phase, specifically in subassemblies and final product assembly While this middle stage generates relatively complete and high-value products, it contributes the least to domestic added value throughout the entire product value creation process.
Figure 3.7 illustrates the participation index for various countries, comparing their involvement in domestic and foreign production stages alongside the average value line Countries positioned above the median line are engaged in a greater number of production stages than anticipated relative to their current participation levels Conversely, countries below the average line indicate a lower level of involvement in intermediary inputs trade within global value chains (GVCs).
Vietnam's involvement in Global Value Chains (GVCs) exceeds expectations, as the country has made significant strides in enhancing its production stages This achievement is attributed to the concerted efforts in developing supporting industries alongside major sectors, which has led to an increase in domestic value added in key export products.
Figure 3.7 Participation and number of production stages in global value chains
Source: OECD, ECIPE, Erik van der Marel (2015)
Policy approach FDL SME Targeted FDI, SME SME
AbihtJ for upgrading Average High Low High Average High High
Vietnam's electronic value chains within global value chains (GVCs) involve numerous domestic and foreign enterprises Assessing the position of these value chains requires an examination of the participation levels of both local and international companies Furthermore, an analysis of policy approaches and the potential for upgrading the value of Vietnamese businesses will be presented in Table 3.5 below.
Table 3.5 The participation of Vietnam businesses in electronics GVCs
The expansion of Global Value Chains (GVCs) necessitates strategic policies due to resource limitations As manufacturing industries grow, there can be a dispersion of essential resources such as capital and labor, which may hinder the scaling of production and the effectiveness of specialization and division of labor This challenge contributes to Vietnam's relatively low global competitiveness, as the country struggles with low labor productivity compared to regional and global standards.
Developing countries aiming to enhance their industrial development face significant risks of being confined to low value-added production stages Limited participation in fabrication processes restricts their GDP contribution from Global Value Chains (GVCs) Additionally, the dominance of multinational corporations (MNCs) in generating GVC value can result in low value capture due to practices like price transferring and income repatriation Without government investment in education and the capacity of local firms to absorb new technologies, the potential for beneficial technology spillovers from MNCs diminishes, hindering the creation of higher value-added industries Furthermore, the lack of efficient regulatory frameworks can lead to negative environmental and social consequences.
The 55 framework poses additional risks for developing countries, as the potential "footlooseness" of Global Value Chain (GVC) activities heightens the vulnerability of local firms to external shocks (UNCTAD 2013b).
Vietnam, as a developing nation, is emerging in the global electronics industry's value chains, but it faces significant challenges To advance, the electronics sector must identify its weaknesses and set clear future goals Currently, many domestic companies concentrate on assembly and distribution rather than investing in technology and automation, which undermines their competitiveness Small and medium enterprises struggle to invest in modern production lines and achieve high efficiency without state support for product consumption and technology investment.
Pham Chi Lan, former General Secretary and Vice Chairman of the Vietnam Chamber of Commerce and Industry, noted that most Vietnamese enterprises primarily concentrate on production activities, neglecting critical value-added stages like research and development (R&D) and promotion and marketing (P&M) In contrast, developed countries derive 30-35% of added value from R&D and 20-25% from P&M Unfortunately, Vietnamese firms engage minimally in R&D, reflecting their limited capacity for innovation While R&D should involve innovating products and production processes or adapting imported technologies, many businesses focus instead on applying existing technologies for operational purposes rather than pursuing true technological advancement.
According to the General Statistics Office, there are 517,900 enterprises registered in 2017 Although the number of businesses increased, there were only
10,100 large enterprises accounting for a modest proportion of 1.9% while SMEs account for 98.1%.
Many small and medium-sized enterprises (SMEs) in Vietnam face significant capital challenges due to their size and the need for investment in research and development, design, and modern production lines Additionally, these businesses often lack specialized departments, leading to integrated operations that can hinder efficiency The limited interconnection among Vietnamese enterprises contributes to an uneven development landscape between domestic and foreign sectors.
The electronics industry faces significant challenges due to the low technical qualifications of its workforce, with 68.75% of workers lacking proper qualifications or certificates, a figure that is even higher in the FDI sector Approximately 80% of electronic enterprises struggle to recruit skilled technical workers, as most employees come from rural areas with inadequate training The introduction of new technology often leaves workers unable to meet the required standards Furthermore, strict working conditions contribute to the issue, as 60% of firms violate overtime regulations, leading to unbearable pressure for many employees.
Vietnam enjoys a strategic position for global trade; however, it faces significant challenges due to high costs and lengthy cross-border transportation times Compared to East Asia and OECD regions, Vietnam's import and export expenses are considerably elevated Specifically, the clearance process is prolonged, and logistics infrastructure remains underdeveloped and fragmented, leading to operational difficulties Marine transport dominates the logistics sector, comprising 60% of the total market, primarily controlled by international shipping lines that are increasing surcharges Consequently, these factors elevate the costs of inputs and imported materials, resulting in higher prices for Vietnamese electronic goods and hindering their competitiveness on the global stage.
Pacific OECD high income Best
Time to export: Border compliance (hours) 55 54 7 12.5 1 (19
Cost to export: Border compliance (USO) 290 382.2 139.1 0 (19
Time to export: Documentary Comptiance (hours) 50 57.6 2.4 1 (26
Cost to export Documentary compliance (USO) 139 1094 352 0 (20
Time to import: Border compliance (hours) 56 69.2 8.5 0 (25
Cost to import: Border compliance (USD) 373 4158 100.2 0 (28
Time to Import Documentary Comphance (hours) 76 57.0 3.4 1 (30
Cost to import: Documentary compliance (USO) 183 109.5 249
Table 3.6 Trading across border in Vietnam
Source: Doing business report (2018) b/Opportunities
From 2001 to 2007, China was pivotal for Samsung, hosting factories in Tianjin, Shenzhen, and Huizhou By 2008, China produced 54% of Samsung's mobile phones, outpacing Korea's 41% However, production has recently transitioned to Vietnam, where two new factories near Hanoi have been established As of 2014, Vietnam emerged as the primary production hub, contributing 46% of Samsung's total mobile phone production capacity.
In recent years, China and several other nations have shifted their economic focus towards domestic consumption and higher-value exports, prompting a restructuring of their economies This transition has influenced foreign investment patterns, particularly in labor and land-based sectors A notable example is Samsung Electronics relocating its smartphone manufacturing from China to Vietnam As Vietnam enhances its production capabilities, it is crucial for the country to develop its supporting industries to capture greater added value in the market.