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Vietnam’s Trade Landscape and Key Industries

Vietnam’s Import and Export Industry Landscape in 2015

In recent years, Vietnam has become the go-to place for manufacturing in Asia. Overtaking China in terms of low labor and operating costs, Vietnam has the potential to attract yet more foreign direct investment (FDI) as manufacturers shift their production capacity from other areas, which have much higher wages and stricter social insurance requirements for workers.

Vietnam:Global Manufacturing Hub

Vietnam’s minimum wages are low compared to other countries in the region, which makes the country attractive for labor-intensive industries including textiles and footwear manufacturing, driving them to transfer their production to Vietnam.

Vietnam is a world leader in emerging markets, reaching Tier 1 In Gartner’s Leading Offshore Service Destinations 2015 report, alongside China and India. The vibrant economic hubs of Hanoi and Ho Chi Minh City, home to more than 290 universities and colleges offering Information and Communications Technology (ICT) courses, both ranked in the top 20 of Tholons’ Top 100 Outsourcing Destinations 2015. Government support through provision of tax incentives keep Vietnam high in the list of outsourcing destinations.

Vietnam’s Top Manufacturing Industries

Textile and Garments

According to FPT Securities’ Textile & Apparel Industry Report, Vietnam had approximately 6,000 textile and apparel companies with 2.5 million workers in 2013, 10.4 percent up from the previous year. Textiles and garments are Vietnam’s second most significant export after telephones.

Yarn is mostly imported from Taiwan, which provided 32 percent of total yarn import value in 2013, and China, which provided 30.8 percent. These two markets remain integral to the Vietnam textiles industry supply chain.

The textiles industry faces some interesting times ahead, due to the proposed Trans-Paclfic Partnership (TPP). The TPP is a free trade agreement (FTA) Integrating Vietnam and other Asia-Pacific markets with the U.S. Canada and other economies.TheYarn Forward’ rule in theTPP would incentiviseVietnam to use yarn originated only from TPP members, which could reduce Vietnam’s reliance on yarn imports from China.

According to the U.S. Department of Commerce’s Office ofTextiles and Apparel, Vietnamese textile and garment businesses earned US$6.395 billion from its exports to the U.S. market In the first seven month s of 2015, up 14.22 percent from the same period in 2014.

With regards to the EU market, the EU-Vietnam FTA will eliminate high taxes on textile and apparel products exported from Vietnam to the EU, which are 11.7 percent as of 2015, opening up the market for a further share of textile apparel in the EU.

Telephones and Computer Products

Vietnam’s boom in manufacturing telephones and computer products led to these exports being ranked first and third In export value In the first seven months of 2015. As stated in Vietnam Customs’ Preliminary Assessment of Vietnam International Merchandise Trade Performance In July and The First Seven Months of 2015, the export value of telephones and parts thereof from the beginning of 2015 to July was US$17.125 billion, an increase of 28.6 percent compared to the same period in 2014.

When comparing July 201 5 to July 2014, computers and components thereof has the highest growth in the export revenue, up 55.4 percent to US$8,578 billion.

The main export markets for Vietnam’s telephones and components are the United Arab Emirates (US $2.678 billion export turnover) and the United States of America (US$1.536 billion export turnover), as stated by the General Statistics Office of Vietnam.

Foreign direct investment has played an important role in boosting Vietnam’s exports, especially of telephones and computer parts. Samsung Electronics Co. is a good example of how foreign investment has contributed heavily to Vietnam’s position in the global electronics industry. The South Korean giant has invested around US$13 billion in Vietnam, and it is projected that Samsung’s investment will reach US$20 billion by 2017. China and South Korea are the two largest markets for Vietnamese telephones, with an import value of US$3.889 billion and US$1.829 billion, respectively In the first seven months of 2015.

Automotive Parts

Auto-part exports are playing an important role in driving the country’s economy. The export value of automobile parts in 2014 was US$5.627 billion and as of July of 2015, had reached US$3.119 billion. Vietnam has integrated into Asia-Pacific automobile industry supply chains. Based on Japan External Trade Organization statistics, 28 percent of production materials needed by Japanese automotive manufacturers were imported from Vietnam. For China, this number went up to 61 percent. From January to July 2015, the export turnover of auto-parts from Vietnam to Japan alone was worth US $1.096 billion.

Compared to turnover from auto-parts sales, revenue from sales of automobiles is still much higher. The Vietnam Automobile Manufacturet’s Association stated that sales of automobiles were 157,810 units in 2014, an increase of 43 percent from the previous year.

Click here to download the full report: Import & Export in Vietnam, Key Industries & Free Trade Agreements

Learn more about how Skoda Minotti’s International Tax group can grow your business.

Originally published by Dezan Shira & Associates, a fellow LEA Global member.

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