Insight:
- With huge growth potential, the Vietnamese manufacturing market is garnering a lot of attention, and investment firms must be well-prepared and flexible enough to seize success.
- The manufacturing industry in Vietnam is experiencing an unprecedented boom, yet companies have to formulate concrete strategy directions to seize opportunities while managing challenges.
Bright spots in the manufacturing market
Manufacturing is truly indispensable in the development and resilience of the Vietnamese economy. In line with the release of several initiatives, the government is attempting to utilize the inherent strengths within the country with real and powerful evidence. Vietnam Manufacturing Tracker highlights interesting and current information and policy updates to enable foreign investors and analysts to stay informed about the industry.
In June, the Vietnam Manufacturing Purchasing Managers’ Index (PMI) moved to a new high at 54.7, up from 50.3 in May. With three consecutive months of improvements, this being increasingly healthy for the manufacturing sector signals a revival not witnessed before since this pandemic.
The S&P Global report on Vietnam’s Manufacturing PMI for June was released on July 1, 2024. Drawing from key insights from the report itself: order volumes are up at their fastest rate since March 2011; employment growth returns; output prices rise at the steepest pace in two years.
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Vietnam’s economic growth outlook
In a report by the General Statistics Office of Vietnam (GSO), despite some external difficulties, GDP in 2024 is expected to expand by 7.09%, slightly less than in 2018, 2019, and 2022. But it represents a considerable recovery.
For the entire year of 2024, the economy continued to improve from 5.98% in the first quarter to 7.55% in the fourth quarter. As the new year starts, domestic and international organizations have forecasted positively for Vietnam. HSBC placed it as the region-record-high Southeast Asia GDP growth in 2025 at 6.5%, ahead of the Philippines at 6.4%.
Some organizations were even more sanguine: the United Overseas Bank (UOB) raised its GDP growth forecast from 6% to 7%, and the Vietnam Institute for Economic and Policy Research (VEPR) estimated 7.5%-8%.
The General Statistics Office reported that in 2024 the industrial sector’s value added to GDP rose by 8.32% relative to the previous year, contributing 2.7 percentage points to overall growth. Here’s a more detailed breakdown of the industrial sector’s contribution:
- Processing and manufacturing increased by 9.83%, contributing 2.49 percentage points.
- Water supply, management, waste, and wastewater treatment grew by 9.43%, contributing 0.06 percentage points.
- Electricity production and distribution rose by 10.05%, contributing 0.37 percentage points.
- Mining activities decreased by 7.87%, reducing growth by 0.21 percentage points.
This growing importance is primarily driven by Vietnam’s labor-intensive manufacturing sector, characterized by relatively low labor costs, well-developed export infrastructure, and a strategic location on key trade routes.
Market opportunities and challenges
Vietnam, of late, has started to take this appeal to become a regional and global manufacturing hub full of opportunities for any local and international business. With relatively low labor costs young, dynamic, and increasingly well-trained workforce, this country has many advantages.
Solid location on key trade routes from the logistic hub in Vietnam. The Vietnam government has created tempting investment incentives, such as the development of infrastructure and dedicated industrial areas to areas, that create the right conditions for manufacturing.
In particular, amidst the “China Plus One” trend, many multinational corporations are looking to Vietnam to diversify their supply chains and reduce risk. These factors create a promising and potentially sustainable manufacturing environment.
However, alongside these exciting opportunities, Vietnam’s manufacturing market faces several challenges. One of the biggest is its reliance on imported raw materials. For sustainable growth, Vietnam needs to put more effort into localizing its supply chains and enhancing its capacity to produce higher value-added goods.
Furthermore, the transportation and logistics infrastructure is still not adequately developed, creating prominent obstacles to the movement of goods. Although the quality of labor is rising, it still needs further investment and development to meet international manufacturers’ increasing standards.
Besides this, Vietnamese manufacturers are seeing strong competition from other regional countries and bouts of economic volatility in the global market. These challenges entail a great deal of preparation on the part of companies for versatile strategies that enable rapid adaptability to competition in the Vietnamese manufacturing sector.
With the Vietnamese manufacturing labor market growing, investors and firms see these as great opportunities and challenges. To exploit opportunities while flushing through challenges, companies must formulate proper strategies, conduct rigorous market research, establish partnerships, and continuously update the latest information.
Conclusion
Vietnam’s manufacturing market shows many positive signs but also presents its share of challenges. Success will come to those businesses with a clear strategy, up-to-date information, and the ability to adapt quickly. Vietnam remains a promising destination for the manufacturing sector.
