Can Vietnam Benefit from the Global Chip Rush?
Vietnam’s semiconductor industry is expanding rapidly as firms caught in the ensuing U.S.-China trade war seek refuge in the country. But Hanoi needs to bolster support for domestic semiconductor firms to make the country a significant player in the global chip market.
Vietnam is riding high on the semiconductor wave, as recent statistics by the country’s Ministry of Information and Communications (MIC) reveal its rise as the third largest chip exporter to the United States, trailing only behind Malaysia and Taiwan. Notably, revenues swelled by 75 per cent year-on-year, reaching US$562 million in February 2023. To put this in perspective, the exports of all electronic products to the U.S. from Vietnam (including semiconductors) in February 2013 were merely US$110 million. The surge in semiconductor exports is a testament to Hanoi’s strategic positioning amidst the U.S.-China trade war. Firms caught in the semiconductor supply chain maelstrom have sought refuge in Vietnam amidst geopolitical tensions, while U.S. companies, equally eager to diversify chip sources, have found a reliable partner in Hanoi. However, to translate these gains into long-term growth, Vietnam must recalibrate its policy framework, augment its vocational training for high-tech sectors, and bolster support for domestic businesses. Currently, most of Vietnam’s chip exports come from foreign-invested companies. Although there is no breakdown for semiconductors, data from the government shows that 98 per cent of electronic product exports come from FDI.
Vietnam’s strategic foresight regarding semiconductors was evident as early as 2012 when the government considered the products as “key national goods and services”. When meeting the president and chief executive officer of the American Semiconductor Industry Association (SIA), John Neuffer, during a U.S. business delegation trip to Vietnam early this year, Deputy Prime Minister Le Minh Khai reemphasised this point, saying that semiconductor is Vietnam’s “top priority” and asked for more American investment into this sector.
As the US$600 billion industry becomes the linchpin of the global economy, underpinning every electronic product from smartphones to computers, Vietnam’s strategic focus is astute. By pivoting to semiconductors, Vietnam can elevate its position in the global value chain, transit from its cheap-labour model, and modernise the economy in alignment with its 2045 vision. This aims to transform the nation into a developed country with a GDP per capita exceeding US$18,000 – marking the 100th anniversary of Vietnam’s independence with significant economic strides.
Vietnam has mostly focused on attracting big players in the semiconductor businesses to invest in the country. Intel was the first major corporation to operate parts of the chipmaking process in Vietnam, with its Ho Chi Minh City-based facility delivering three billion semiconductor products worldwide as of 2021. Subsequently, other major global players, including Samsung, Qualcomm, Texas Instruments, SK Hynix, Hayward Quartz Technology, Synopsys, and NXP Semiconductors, had all entered the country. By the late 2010s, domestic players, including Viettel and FPT, started joining Vietnam’s burgeoning semiconductor industry, which is estimated to be worth US$6.16 billion by 2024.
Nonetheless, Vietnam’s semiconductor industry is heavily reliant on foreign direct investment (FDI). The country’s role in the supply chain is primarily limited to assembling, testing, and packaging. Vietnam is yet to produce any semiconductors domestically. Even the first “Make in Vietnam” chips by FPT Semiconductor must be manufactured in South Korea.
The Vietnamese government’s ambition is to foster self-reliance and cultivate domestic champions in the sector, with future plans to produce chips domestically. In August 2022, Prime Minister Pham Minh Chinh directed the military-owned Viettel to “seriously and effectively” implement plans for R&D, designing, and manufacturing domestic chips. However, given the capital-intensive nature of semiconductor manufacturing, which might cost multi-billion dollars for a single factory, the pragmatic approach would be to encourage international semiconductor manufacturers to establish bases in Vietnam while incrementally enhancing the role of local suppliers.
Several key areas need government improvement. Despite having a robust pool of technology talent, particularly in software development and IT services, Vietnam’s education and training system in technology-related fields lags in producing the needed human resources. For instance, Vietnam’s biggest training hub for semiconductor engineers, Vietnam National University in Hanoi, only produces around 500 specialised graduates per year. This is far from meeting the demands of the burgeoning industry. As suggested by Nguyen Anh Thi, the director of Saigon Hi-Tech Park, Vietnam’s largest high-tech investment zone, the required skilled workforce may indeed be in the tens of thousands annually.
Moreover, while the number of domestic technology firms in Vietnam is on the rise, most are small to medium-sized enterprises. Apart from Viettel and FPT, few are equipped to climb the ladder of the semiconductor industry. As of 2021, 99 per cent of the hardware parts in the IT industry were imported. Building a reliable domestic supply base with such limited capacity is challenging.
Additionally, the absence of a comprehensive national strategy for the semiconductor business could prove to be a hurdle. Unlike China, Vietnam’s 2006 technology transfer law does not compel foreign investors to transfer technology to local partners. This policy encourages global high-tech firms to invest in the country without fear of patent loss. However, in the absence of incentives for technology transfer or clear policy support, domestic firms will find it hard to take part in the semiconductor supply chain with global players.
As the U.S. and China continue to engage in geopolitical competition, and with the global economy more reliant on semiconductors than ever, Vietnam’s strategic positioning and continued focus on this sector could reap significant dividends.
Nevertheless, the future holds promise for Vietnam’s semiconductor industry. The end of 2022 witnessed Samsung inaugurating its US$220 million R&D centre in Hanoi and announcing its plan to mass-produce chips in Vietnam from mid-2023. Early 2023 brought news of Intel’s planned significant investment increase in Vietnam, estimated at over US$1 billion, indicating that the wheels of progress are already in motion. Amkor Technology, a global leader in outsourced semiconductor packaging and test services, will also open its Vietnam factory later this year.
As the U.S. and China continue to engage in geopolitical competition, and with the global economy more reliant on semiconductors than ever, Vietnam’s strategic positioning and continued focus on this sector could reap significant dividends. However, transitioning from being a beneficiary of circumstance to a self-sustaining player in the global semiconductor market demands major policy changes. By enhancing its educational and training system, nurturing domestic innovation, and devising a clear national strategy, Vietnam can transform the ephemeral “chip rush” into a well-orchestrated marathon, securing its position at the forefront of the semiconductor revolution.
Nguyen Khac Giang is Visiting Fellow at the Vietnam Studies Programme of the ISEAS – Yusof Ishak Institute. He was previously Research Fellow at the Vietnam Center for Economic and Strategic Studies.