Where Does Vietnam Stand in the Migration of Supply Chain to Southeast Asia?

April 27, 2024by Hằng Hoàng

The manufacturing shift to Southeast Asia has been gaining momentum in recent years due to the US-China trade tensions and the demand for a diversified and stable supply chain post-COVID-19. Within the region, Vietnam holds advantages in geopolitics, participation in numerous trade agreements, an abundant labor force, and a rapidly growing domestic consumer market. However, there are still several challenges that prevent Vietnam from being fully prepared to welcome this wave of investment. How is the Vietnamese government addressing these issues, and what proactive measures do businesses need to take? These were the key topics discussed during a CNCTech seminar with the SECC electronics business delegation from Shenzhen, China’s industrial hub.

CNCTech discussed with SECC businesses in the seminar
Taxes: The Same as Home?

The Chinese government has numerous policies to support manufacturing businesses, particularly in terms of finance. These include tax breaks and capital support. Additionally, over the past few decades, China has been very active in improving the business environment, promoting innovation, and expanding the market.

Statistics from a camera manufacturing company in Vinh Phuc show that up to 48% of their raw materials come from China itself. When shifting production to Vietnam, businesses are concerned that these raw materials will be subject to additional import duties. Sharing this concern, a representative from SECC asked: “My company specializes in assembling electronic devices, and the finished products are then sold to Chinese and European companies. Are there any special tax incentives for importing electronic components? Because if we manufacture in China, we do not have to pay import duties on these components.”

The Vietnamese government has issued numerous preferential tax policies to encourage the development of export manufacturing activities. Export processing enterprises (EPEs) are exempt from export tax, import tax on raw materials and machinery for export production, and corporate income tax for 2 years. In addition, new investment enterprises in industrial zones will also be exempt from corporate income tax for 2 years and reduced by 50% for the next 4 years. Personal income tax for foreign employees and vehicle registration tax are also subject to preferential treatment.

It is clear that when shifting production to Vietnam, manufacturers also enjoy support and preferential policies. The Vietnamese government is still creating the best conditions for domestic and foreign enterprises to have a favorable and healthy business environment.

Supply Chain: Still Lacking and Weak?

SECC delegates also expressed their concern about the state of the supply chain in Vietnam. One delegate said that Vietnam’s supporting industries do not have as diverse a range of suppliers as Thailand. According to a USAID report, although Vietnam ranks third in Southeast Asia and 12th in the world in electronics exports, most Vietnamese businesses can only supply simple materials such as packaging, components, metals, and logistics services. This could be a limitation for the development of the supply chain but also creates a market gap for component and electronics manufacturers to enter the Vietnamese market.

The government not only welcomes large corporations (Queenbees) to Vietnam along with their suppliers, but also facilitates businesses operating in the supporting industry, electronics manufacturing, and components. The entry of these businesses will help strengthen Vietnam’s thin supply chain.

According to a Taitra report on Taiwan’s southward manufacturing shift trend due to US-China trade tensions to countries including Thailand, Malaysia, Vietnam, Indonesia, India, Philippines from 2018 to 2021, Vietnam accounted for 51% of the total direct investment capital of Taiwanese enterprises in these 6 countries. In which, the electronics and components manufacturing sector is the most interested sector.

Manufacturing electronics and components in Vietnam
A Maze of Procedures?

Vietnamese regulations on fire prevention and control (PCCC) and the effectiveness of environmental impact assessment (EIA) reporting in industrial zones were also topics of interest to many SECC businesses.

Fire prevention and control regulations for the construction of factories and warehouses in Vietnam vary from locality to locality, causing confusion for investors in the process of finding and selecting suitable investment locations. At CNCTech, with our understanding of local policies, we provide comprehensive services to support businesses in completing their facilities and installing fire prevention and control equipment that meet standards.

For EIA reports, CNCTech’s team will provide businesses with all the information needed to prepare the necessary documents, such as production processes, treatment processes, lists of machinery and chemicals, and support businesses in submitting reports to relevant departments and agencies.

During the seminar, SECC representatives also shared the difficulties in accessing and finding information related to investment and business in Vietnam. The Vietnamese legal system related to foreign investment is still under improvement, so there are still many complicated administrative procedures that lack uniformity and consistency. Information on this policy is scattered in many different legal documents, making it difficult for foreign businesses to find and fully grasp. In addition, electronic information pages are not updated regularly to ensure accuracy, and the lack of foreign languages such as English and Chinese also hinders businesses’ access to information.

Understanding the difficulties of businesses, CNCTech has been and is making efforts to support foreign investors in the process of researching and making investments in Vietnam. The Group is always ready to answer any questions about investment policies and procedures, and to provide investors with the most complete, accurate and up-to-date information.

The seminar with SECC is one of CNCTech’s efforts to support foreign businesses in resolving their investment difficulties in Vietnam. In addition, CNCTech also provides an Investment Guide section on the industrial.cnctech.vn website, which summarizes all information on investment in Vietnam, making it easy for businesses to consult and look up.

CNCTech always provides dedicated support to customers in all aspects

The shift in policies, supply chains, and markets is not a challenge that can be easily resolved overnight. Businesses on both sides, investors and local businesses, need to take the initiative to find their own solutions to meet the rapidly expanding and changing demands of the international market.

In the role of an industrial infrastructure developer, CNCTech not only provides rental factories and warehouses, but also offers comprehensive support services in legal matters, fitting out, machinery import, and labor recruitment to help businesses get up and running quickly and smoothly.