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Vietnam’s Semiconductor Manufacturing Ambitions: Unpacked

It was 2008. The world was in the throes of the global financial crisis and businesses and consumers were tightening their belts all over the world, Intel, however was expanding. Specifically, it was building its biggest chip factory at the time in southern Vietnam. 

This was something relatively new for an economy that until this point had been heavily dependent on garment and textile manufacturing–low-value goods that created low-skilled jobs.

But Vietnam had been actively courting change.

In November of 2008, for example, it passed the Law on High Technologies which provided guidelines for developing high-tech workers and high-tech parks to facilitate the growth of high-tech industries and manufacturing. A law squarely targeted at big tech manufacturers like Intel.

And Intel was, indeed, at the forefront of a tech-manufacturing revolution in Vietnam. The firm was followed by Samsung in the same year, and not long after Canon, LG, and Panasonic among a whole range of other well known tech brands.

But the jobs these big tech giants were creating were mostly in assembly, packaging, and testing–Vietnam wasn’t really making anything. Instead parts were being imported and Vietnamese workers were putting them together, making sure they worked, and then packing them up and shipping them off to the end consumers.

For a while, however, this was good enough creating a boom in exports and jobs and GDP growth. That said, it couldn’t last forever. With economic growth came higher wages and at some point these big tech-firms would move on to somewhere with cheaper labour.

With this in mind, by the end of the last decade, having firmly secured its place in global manufacturing, Vietnam was determined to climb higher up global value chains. A big goal it believed it could reach through tiny semiconductor chips.

The stars align

When the pandemic hit, supply chains were thrown into shock all around the world, creating havoc for businesses, not least of which were those dependent on semiconductors. 

Indeed, a surge in people working from home saw a huge spike in demand for electronics which saw a huge spike in demand for integrated chips. Exacerbating the problem was the fact that many chip facilities were working on limited capacities due to lockdowns.

At the same time, multinationals were actively engaged in diversifying their supply chains. This was partly due to the supply chain issues caused by the pandemic but also a greater shift out of China on the back of increasing tensions between the world’s second biggest economy and the world’s biggest, the United States.

In this context, Vietnam was in a unique position. Its proximity to China made it an ideal choice for diversification–equipment and supplies could relatively easily be simply trucked across the border. Furthermore, China was one of the world’s biggest buyers of integrated chips which could just as easily be trucked back.

Moreover, Vietnam already had strong trading relationships with Asia’s key tech producers, namely Japan, South Korea, China, and Taiwan. Big corporations from these high-tech neighbours had been in constant dialogue with Vietnam’s leadership over the preceding decade or so as they had expanded their footprint in the rapidly developing Southeast Asian nation. The point being, that Vietnam had the ear of some of the biggest, most important tech manufacturing decision makers in the world.

In this light, not only was an opening forming in semiconductor supply chains, but Vietnam was well poised to take advantage.

The state media machine goes to work

It was in October of 2020 that Vietnam’s semiconductor manufacturing ambitions were made clear when Prime Minister Nguyen Xuan Phuc broached the idea of Samsung opening a semiconductor plant in Vietnam with the company’s vice chairman, Lee Jae-yong.This made national news. It was reported in all the major mastheads and was covered from every angle with experts of all shapes and sizes trotted out to talk up Vietnam’s semiconductor manufacturing potential.

And this may have at least partially helped to bring in the punters. Representatives from ASML, Nvidia, and Samsung all visited Vietnam in 2023. Though notably these visits were part of broader tours of Southeast Asia as these firms went about the region assessing the thousands of factors that go into making a multi-million dollar investment.

In this regional light, however,  though Vietnam had a lot going for it, it also had several challenges that its neighbours did not.

Of power and people

As Vietnam lifted its head further and further above the semiconductor parapet, it quickly became clear that there were a number of obstacles that would need to be overcome to become an integral part of the world semiconductor ecosystem.

For one, the power supply was unreliable. In the summer of 2023, blackouts gripped northern Vietnam and shut down production for some very-big tech brands–Canon, Samsung, and Foxconn, for example. This was also reportedly behind a decision at Intel to slow its roll in Vietnam (though this assertion has been disputed).

Regardless, semiconductors would need a consistent supply of power and lots of it and at least in northern Vietnam this was clearly a problem.

What’s more, on a visit to Hanoi U.S. Undersecretary for Economic Growth and the Environment, Jose Fernandez, said concerns about access to clean energy were also a concern for US chip makers. Despite committing to net-zero by 2050 and developing a power development plan designed to realise this goal, Vietnam’s renewables sector was fledgling as it waited for a clear roadmap so that investors could move forward with some certainty.

But it wasn’t just about power. Vietnam had a people problem too.

High-skilled labour, the kind of labour that can design and engineer semiconductor chips, was limited. By some estimates Vietnam had just 6,000 chip engineers when it would need about 20,000 by 2028.

Ready to meet this challenge head-on, it was announced that the government was committed to ensuring 50,000 chip engineers would be trained in Vietnam by 2030 with chip sector training dubbed a ‘hot new trend for 2024’ by the local press. That said, there was a distinct lack of detail as to what those 50,000 chip engineers would and would not be able to do.

When Intel was establishing itself in Vietnam back in 2008 a it noted that the education system was built on rote learning and lacked the critical thinking skills the firm needed.

“Their curriculum is antiquated,” Rick Howarth, Intel’s general manager who oversaw the development of the firm’s first factory in Vietnam, told SiliconValley.com at the time. “Their teaching methods are very hierarchical, meaning it’s all memorization and passing tests, vs. the practical application we’re looking for.”

And there are few signs much has changed since then.

Biden offers limited US support

But Vietnam was not to be deterred. 

When the President of the United States Joseph Biden visited Hanoi, in September of 2023, it was made clear in local media that semiconductors were very much on the table and that Vietnam very much had the support of the US in developing the sector.

In fact, the US would front-up US$2 million from the CHIPS Act out of the US$500 million set aside for non-US based supply chain development. These funds, according to a White House fact sheet, were earmarked to “jointly develop hands-on teaching labs and training courses for semiconductor assembly, testing, and packaging” in Vietnam. This would then “support the expansion of good jobs for the American middle class for work further up the semiconductor industry value chain.”

Indeed, the US saw a place for Vietnam in semiconductor supply chains but it was toward the end, as a final link, not so much the higher value manufacturing role that Vietnam appeared to be aspiring to.

And this was becoming clear looking at global investment patterns as well. Whereas fabrication projects upward of US$30 billion were announced in Europe and the United States, in Vietnam, it was a few hundred million dollars here or there–a relatively small amount in comparison.

This reality, however, seemed to slip by the wayside. With a vote of confidence from the United States it was full steam ahead for Vietnam’s semiconductor industry. Although, not everybody was on board.

At what cost?

In November of 2023, VN Express carried a feature on Vietnam’s garment and textiles industry in which Associate Professor Nguyen Duc Loc, head of the Institute of Social Life Research, urged caution buying into the semiconductor hype.

He noted that the shortage of workers would be a big problem developing the industry and that it may come at the expense of local manufacturing, particularly garments and textiles. 

Indeed, Vietnam’s garment and manufacturing sector, which had been a key driving force in Vietnam’s economic development for the better part of two decades, had been struggling on the back of lower demand. Textile firms were closing down, laying off workers, and selling off assets, left right and centre.

This was all the more concerning, because a sizable number of garment and textile firms in Vietnam were Vietnamese owned businesses. By comparison, big semiconductor operations were mostly, if not all, entirely foreign owned. Vietnam’s exports were already heavily weighted toward foreign firms and this would see that weighting shift further in their favour.

But this appeared for the most part to be a non-issue for key decision makers who were at work drawing up tax incentives specifically targeted at semiconductor makers, details of which, however, are still yet to be revealed.

What would be a win?

All of that said, it’s never been made clear exactly what a win would be in terms of Vietnam’s role in semiconductor manufacturing. No doubt a fabrication project would be a coup, but the reality is that investments of this magnitude command stable business environments with well educated workforces and very low risk.

That said, Vietnam has a breadth of experience in assembly, packing, and testing of semiconductor chips. Furthermore, regional and global free trade agreements to which Vietnam is a party position it well for this final stage of semiconductor chip supply chains.

In particular, whereas Malaysia and Singapore look to be firming up as the go to location for chip manufacturing in Southeast Asia, as a member of ASEAN, trade between Malaysia, Singapore, and Vietnam is almost entirely tariff free.

In this context, a more realistic picture of a Southeast Asian semiconductor supply chain begins to shape up and Vietnam very-much could be a part. But that is to say, in the low-skilled jobs at the end of the supply chain that at the outset it looked to be trying to shirk. 

What’s next?

Though fabricating semiconductors in Vietnam may be a stretch, its low-cost workforce, investment incentives, and location next door to China has made it a popular choice for tech manufacturing beyond simply semiconductors. 

That said, it can be a challenging market to enter and good advice and business acumen can go a long way in this rapidly developing Southeast Asian nation. To learn more, let us connect you with a tech manufacturing expert in Vietnam.Furthermore, Vietnam’s tech manufacturing sector is dynamic and can change rapidly.

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