Vietnam Emerges as Key Manufacturing Destination as U.S. Firms Diversify Away from China

In September, President Joe Biden convened executives from Google, Amkor, Intel, Marvell, GlobalFoundries, and Boeing for a meeting with Vietnamese Prime Minister Pham Minh Chính, marking one of the most significant recent gatherings between the U.S. and Vietnam on trade relations. The meeting underscored a broader shift as companies and the Biden administration seek friendlier business partners beyond China, which has long dominated contract production in Asia due to its vast labor pool, raw materials, and logistics ecosystem.

Vietnam has positioned itself as a prime beneficiary, placing a premium on attracting semiconductor and advanced electronics manufacturing. In October, chip packaging maker Amkor announced its first $1.6 billion factory in Vietnam, slated to become the company's largest facility to date. Google revealed plans to produce its Pixel smartphones in Vietnam in September 2022, while semiconductor developer Marvell announced in May that it would establish a design center in Ho Chi Minh City.

Vietnam by the Numbers

• 98.2 million: Vietnam's population as of 2022, according to the World Bank.
• 33.9%: Percentage of Vietnamese workers in the industrial and construction sector in Q1 2022, out of more than 50 million workers.
• $410 billion: Vietnam's GDP in 2022, according to S&P Global Market Intelligence.
• 30%: Percentage of total GDP Vietnam wants to come from manufacturing by 2030.

In tandem with the U.S.-Vietnam business roundtable, the two countries signed a new strategic partnership in September—the highest tier of economic partnership Vietnam forges with other countries, according to the White House—dedicated to building a resilient semiconductor supply chain to support U.S. industry. Foreign direct investment in Vietnam rose 54% year-on-year in October 2023, reaching $15.3 billion, according to data from the country's Ministry of Planning and Investment. Investment in processing and manufacturing accounted for nearly 75% of the money.

"The U.S. is at a government level recognizing the growing importance of Vietnam as a manufacturing hub for U.S. multinationals," said Rajiv Biswas, Asia-Pacific Chief Economist at S&P Global Market Intelligence. "They want to tap into that capacity of Vietnam to be part of U.S. supply chains and electronics manufacturing."

Vietnam's Rise to Manufacturing Prominence

The first major foreign semiconductor-related manufacturer to establish operations in Vietnam was Intel in 2010, when it opened a $1 billion chip assembly and test facility in Ho Chi Minh City. The opening illustrated the country's advantages as a manufacturing base for others in the advanced electronics industry, Biswas said. "Ever since then, what we've seen is that Vietnam has really gone from strength to strength in developing its electronics sector," he noted.

In the 13 years since Intel's arrival, Vietnam has successfully pursued investment from global electronics leaders, including South Korea's LG and Samsung, U.S. firms such as Amkor, and others. Key to this success has been lucrative tax incentives for foreign investors. The country offers three main types of incentives: corporate income tax, import duties, and land rent. Vietnam has also established economic zones that "provide increased access to infrastructure, pools of talent, and networks of suppliers," according to Vietnam Briefing.

Labor costs in Vietnam remain cheaper than in China: roughly $2.99 per hour compared to $6.50 per hour in China as of last year. Additionally, Vietnam has leaned into free trade agreements, signing a deal with the EU in 2019, an agreement with the UK in 2020, and joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership when it was created in 2018. It is also a member of the Association of Southeast Asian Nations (ASEAN), which collectively is the U.S.'s fourth largest trading partner.

"There's been a lot of bilateral free trade agreements between ASEAN and other countries, which has helped to lower the tariff barriers for trade for Vietnam for imports and exports," Biswas said. "Which is also very important for developing their export sector, as well as getting competitive import costs."

The increase in U.S. reliance on Vietnam is clear: U.S. goods imports from Vietnam reached $127.5 billion in 2022, up 25.1% from 2021 and up 529% from 2012, according to the Office of the U.S. Trade Representative.

Vietnam Focuses on 'Supporting Industries'

Vietnam has set a target for 30% of its GDP to come from manufacturing by 2030, growing the industry's contribution by 8.5% a year, according to McKinsey. Officials are keenly aware of ensuring the state creates a durable domestic sector, said Arrian Ebrahimi, author of the Chip Capitols newsletter and former policy assistant at the Semiconductor Industry Association.

"Vietnam seems to be trying to take a similar path of development as Taiwan did a while back, where they start with lower value-add parts of the chip industry, and by attracting both investment and talent through those lower value added segments, slowly climb up the food chain," Ebrahimi said. "They're trying to take a long-term approach to their industry. They don't want to just give out state dollars to any manufacturer that will come in and make jobs in Vietnam [and add] to the GDP short-term."

Vietnam has focused on growing its "supporting industries": companies that produce raw materials, components, and spare parts used to assemble finished goods. Doing so is meant to elevate the country's manufacturing capacity in key sectors such as semiconductors, electronics, and automotive, according to Vietnam Briefing. In 2021, industrial parks in the country attracted $1.1 billion in supporting industry investments.

"Even if the company coming in is primarily a semiconductor upstream equipment or materials provider, they still want to know what other technologies down the road it would also support," Ebrahimi added.

"The U.S. is at a government level recognizing the growing importance of Vietnam as a manufacturing hub for U.S. multinationals."

— Rajiv Biswas, Asia-Pacific Chief Economist, S&P Global Market Intelligence

What Does the Future Hold for Vietnam?

Vietnam is one of multiple countries benefiting from shifting global supply chains, alongside Mexico and India. "We do expect a very big increase in the size of the [Vietnamese] economy in the next 10 years," Biswas said. "And what that means is the size of the domestic consumer market will grow quite substantially."

As the domestic market grows, more multinationals are likely to set up shop to tap into both manufacturing and consumer appetite. Vietnam's GDP was $410 billion in 2022, and S&P Global Market Intelligence estimates it to grow to $750 billion by 2030. With growing trade friendliness with the U.S., a relatively stable economy, political landscape, and labor wage market, the economist noted its relationship with foreign investors is likely to grow.

"I think more and more we're going to see U.S. electronics firms at least establishing part of their supply chains in Vietnam as part of a diversified global supply chain system," Biswas said. "There's probably at least another 10 to 20 years of ability for Vietnam to compete in low cost manufacturing."