Beyond FDI: Vietnam’s Moment for Tech Upgrading

As an emerging and dynamic economy in Southeast Asia, Vietnam has been rapidly integrating itself into global tech supply chains. The country now stands at a pivotal juncture: will it seize this moment to move up the value chain or remain stuck in low-margin assembly? While Vietnam’s foreign direct investment-fuelled rise has been remarkable, genuine technological upgrading will require more than foreign capital.

Since 2018, US tariffs on hundreds of billions of dollars of Chinese goods have pushed multinational companies to relocate their manufacturing operations and diversify their supply chains to avoid tariffs. This is referred to as the China+1 strategy. Vietnam has been one of the top recipients of these relocations, especially in electronics, furniture, garments, and machinery.

In electronics manufacturing, Vietnam has emerged as a global hub for assembling products like smartphones, computers, and consumer electronics. Foreign investors have poured billions into factories — Samsung alone contributed around US$55 billion in exports in 2023, constituting nearly 50 per cent of Vietnam’s electronics exports. In 2023, Vietnam’s electronic goods accounted for 31.9 per cent of the country’s total export value. The figure rose to 34.3 per cent in 2024, far surpassing all other sectors.

However, challenges remain. Much of the electronics production is still at the lower end of the value chain — primarily assembly, packaging, and testing of components designed elsewhere. For example, Vietnam’s nascent semiconductor industry remains focused on assembly and chip packaging. In addition, Vietnam is not the only “1” in the China+1 strategy; it faces competition from other regional powers, including many of its peers in Southeast Asia. Its enduring reliance on China for intermediate inputs makes it hard to navigate US trade measures and geopolitical shocks.

Vietnam has long positioned itself as a manufacturing base which is friendly to foreign direct investment (FDI). It attracted roughly US$38 billion in FDI in 2024, outpacing Malaysia. Vietnam is party to 17 free trade agreements, including the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership, giving it deep integration into global supply chains. It started from a low base in the 1990s but quickly prioritised light manufacturing and export processing zones, following an FDI-led growth model. Vietnam’s one-party system offers political and policy stability and clear long-term development plans. In contrast, regional peers like Malaysia have seen more flux given the vicissitudes of its domestic politics, and Indonesia historically has had more red tape for investors.

Without urgent reforms in education, infrastructure, and domestic innovation, Vietnam risks becoming a permanent second-tier assembly line — not the next semiconductor powerhouse it fashions itself to become. Vietnam’s tech moment is real.

FDI has been Vietnam’s growth engine but no longer provides a ladder to advanced tech competitiveness. In the 1970s, Malaysia leveraged FDI for genuine industrial upgrading — for example, Penang’s semiconductor cluster. In contrast, today’s multinationals fiercely guard high-value intellectual property (IP) and production. Vietnam’s role remains confined to low-margin assembly, with limited spillover effects. Vertical integration along the value chain through technology transfer, human labour training, and direct support has become less available in the 21^st century. Eighty per cent of Vietnam’s mobile phone exports and over 70 per cent of its electronics products, for instance, rely on imported components, leaving local firms as subcontractors, not innovators. Therefore, a breakthrough in Vietnam’s position in the global value chain relies less on FDI than on its domestic capacity.

Nowhere is this clearer than in the semiconductor industry. Despite the government’s ambitious national strategy, Vietnam remains a second-choice destination, absorbing lower-end tasks that China, Taiwan, and Malaysia no longer prioritise. The foremost domestic constraint is human capital. Vietnam has only about 6,000 semiconductor engineers — far below what is needed. While plans are underway to train 50,000 more semiconductor engineers by 2030, the overall workforce shortage remains significant. The government estimates the country needs 150,000 IT and digital engineers per year, yet the current supply meets only 50 per cent of that demand. This skills gap is especially acute in specialised areas like chip design, verification, and fabrication process engineering.

Secondly, infrastructure limitations and energy constraints pose risks. Stable power supply is critical for chip fabs and packaging facilities. Vietnam’s electrical grid has struggled with outages, and power instability is a serious concern (for example, the power blackouts in 2023, which impacted production at Apple and Samsung manufacturing facilities, risking high-value investments). Some high-tech parks now invest in back-up power, but nationwide, reliable energy remains a work in progress. Coal still supplies nearly 47 per cent of power generation, making Vietnam heavily reliant on imported coal and vulnerable to price fluctuations and climate risks. Grid development still lags behind solar and wind power generation.

Finally, supply chain maturity is another bottleneck. Supporting industries (local suppliers of key inputs such as semiconductor-grade gases, chemicals, and packaging materials) are underdeveloped. Therefore, firms must import almost all inputs, which can raise costs and extend lead times. Even as Hanoi courts Western chip firms, few will commit to local fabs without a reliable ecosystem. FDI, therefore, is not the solution to improve domestic supply chains and reduce import reliance. To break this cycle, Vietnam needs a long-term strategy that actively improves upstream capacity. This has to be done through supplier development programmes, incentives for joint ventures, and public-private consortia that de-risk investment in supporting industries.

Without urgent reforms in education, infrastructure, and domestic innovation, Vietnam risks becoming a permanent second-tier assembly line — not the next semiconductor powerhouse it fashions itself to become. Vietnam’s tech moment is real. To move forward, it must shift from chasing FDI volume to cultivating genuine domestic capacity. As General Secretary To Lam passes the landmark Law on Digital Technology Industry to unleash digital transformation and pushes for private sector growth by supporting private firms and national champions, Vietnam needs to further expand its digital workforce, heavily invest in energy infrastructure, and nurture local firms that can absorb and develop higher-end technology.  Only by making this strategic pivot can Vietnam transform its current “tech moment” into lasting industrial advancement.

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