Vietnam Holds Promise as a Global Semiconductor Hub

The semiconductor industry is one of the most strategic and lucrative sectors in the global economy, with a market value of over $574 billion in 2022 (according to World Semiconductor Trade Statistics, WSTS) and an expected growth of over $1 trillion by 2030. Semiconductors are essential for electronic devices, from smartphones and computers to cars and medical equipment, and is witnessing heightened demand due to digitization, cloud adoption, chip miniaturization, and AI/ML advancements. They also play a key role in energy efficiency and integrate into EVs and renewable energy systems for efficient electricity management.

Amidst increased chip demand driven by the COVID-19 pandemic and the US-China trade war, Vietnam is emerging as a potential semiconductor hub. This article explores Vietnam’s semiconductor landscape, providing insight for foreign companies on the industry’s compelling future prospect in the country.

The Current Status of Vietnam’s Semiconductor Industry

Setting Ambitious Goals in 2012…

After its semiconductor inception in 1979, Vietnam faced challenges hindering the industry’s growth, but experienced a resurgence in the late 1980s. Vietnam has since pursued growth in this sector, with The Vietnam National Semiconductor Institute (VIS), established in 2010, emphasized commitment to industry growth through Decision No.66 in 2014.

Targets for 2020 included exporting semiconductors worth $800 million (2% global market share), establishing a value chain, R&D centers, and training 2,000 engineers and 25,000 technicians. The new 2030 vision aims to secure 10% of global market shares, aiming for semiconductors exports worth $15 billion, positioning Vietnam as a regional hub, and advanced product development. An ambitious training program targets 20,000 engineers and 250,000 technicians.

…To 2023, after A Decade of Progress

Over the past decade, Vietnam’s semiconductor industry has seen remarkable growth. Statista reported a 7.1% compound annual growth rate (2016-2021), propelling the market value to over $18.2 billion in 2022. Forecasts predict continued expansion, with an anticipated 7.5% CAGR in the period of 2022-2027, reaching over USD 26.2 billion by 2027. Vietnam is now among the top 10 global exporters of semiconductor devices and integrated circuits, placing 9th in both categories. Impressively, the country commands a substantial market share, contributing around 2% of the total value derived from exports in these sectors, according to data from the Observatory of Economic Complexity (OEC).

Vietnam is now the third-largest Asian exporter of semiconductors to the United States, after Malaysia and Taiwan. In February 2023, chip imports from Vietnam increased by 75% to 562 million, emphasizing the nation’s growing importance for the U.S. semiconductor market. This is particularly significant as American chip makers, holding a 48% global production market share (SIA, 2022), navigate ongoing trade tensions.

A Nationwide Semiconductor Ecosystem

Vietnam’s semiconductor industry extends across the nation, forming clusters from north to south, facilitating access for foreign investors. In the north, Hanoi and Bac Ninh host major semiconductor companies, with research centers and favorable policies. Strategically located just a 12-hour drive from Shenzhen, China, it’s ideal for a China Plus One strategy.

The central region is catching up, focusing on high-tech parks and skilled workforce development.

Down south in Ho Chi Minh City, a bustling semiconductor hub, features a high-tech park, a semiconductor association, and a robust pool of engineers. Synopsys, Marvell, FPT, and CMC contribute to the city’s semiconductor landscape.

An FDI-Driven Market Landscape

Vietnam actively attracts foreign direct investment (FDI) from global semiconductor leaders to achieve national strategic goals, fostering both international and domestic growth. Tech-friendly government policies offer high incentives, including tax reductions and exemptions. Foreign investors qualify if their project achieves a minimum annual revenue of around $430 million within three years, or if projects with $260 million or more in capital employ over 3,000 workers and disburse $260 million within three years of approval.

In 2022, the government also provided customized incentives, notably drawing Samsung Electronics’ $850 million investment, marking a total of $2.6 billion in semiconductor manufacturing in Thai Nguyen province. Besides, Hana Micron, Amkor Technology, Synopsys, and Marvell, as other FDI contributors, are also expected to inject billions into Vietnam’s semiconductor industry.

Currently, FDI dominates the Vietnamese market at 90%. Domestic enterprises like FPT, CMC, Viettel, and VNPT also contribute significantly, focusing on chip design, software development, and system integration.

Vietnam’s Strategic Value-Add in the Global Semiconductor Chain

In the complex global semiconductor production chain, Vietnam has carved a niche in the final assembly in the manufacturing process, adding 6% to the value chain.

Prominent players in the total value chain encompass the USA, Taiwan, South Korea, Japan, the EU, and China, each contributing distinct expertise. Additionally, the global semiconductor assembly and testing services market is anticipated to achieve a CAGR of 5.3% over the next decade. By 2023, projections indicate the market size will soar to $38.1 billion.

As the industry grows, Vietnam has two potential paths to fortify its standing in the global industry: expanding current production capabilities, or focusing on higher value-added stages like packaging and chip design.

Navigating Future Prospects

In the dynamic landscape of Vietnam’s semiconductor industry, a wealth of opportunities aligns in both growth paths. By leveraging its strategic location, government support, rich raw materials, and skilled yet cost-effective labor force, investors can align with Vietnam’s growth trajectory in this sector.

Strategic Integration into the Shifting Supply Chain

The global semiconductor industry’s supply chain shift, driven by chip shortages, rising costs, and geopolitical tensions, presents Vietnam as an attractive investment destination, especially for firms seeking to diversify their production bases and enhance supply chain resilience. Its proximity to China is a key advantage, fostering a ‘friend-shoring’ destination and solidifying Vietnam as a pivotal hub for foreign semiconductor companies looking to enhance supply chain resilience.

Notably, Foreign Direct Investment (FDI) is steadily increasing in Vietnam, particularly in assembly, packaging, and testing, where China currently dominates with nearly 40% share in this processing segment.

Endorsed by Governmental and Global Alliances

Vietnam’s governmental initiatives and international partnerships, particularly with the U.S., Japan, and South Korea, underscore its commitment to semiconductor advancement. A key collaboration occurred on December 7, 2023, when Vietnam’s Prime Minister and the leader of the U.S. Semiconductor Industry Association directed bilateral efforts to enhance production capacity and workforce. Nvidia’s CEO also declared Vietnam as its home, solidifying plans for a center within the country, marking a significant step in the evolving Vietnam-USA relationship. During the USA president’s September 2023 visit, a substantial $2 million grant was announced to boost Vietnam’s semiconductor workforce.

Vietnam’s attractiveness is further enhanced by its participation in 15 free trade agreements, including the EU-Vietnam Free Trade Agreement and the CPTPP, offering favorable market access. In the semiconductor sector, tariffs are at 0% for nearly all products. Businesses investing in Vietnam’s semiconductor industry enjoy preferential incentives, including zero percent corporate income tax for the first four years, followed by 5% for the next nine years, and 10% for the subsequent 15 years, compared to the standard 20%. Additionally, industrial parks in Vietnam contribute 10 to 15% of training costs for semiconductor companies.

Capitalizing on Raw Material Resources

Vietnam’s rare earth reserves, essential for semiconductors, offer a competitive edge, aligning with global efforts to secure critical materials and reinforcing Vietnam’s role in the semiconductor supply chain. The country boasts the world’s second-largest rare earth deposits, totaling approximately 22 million tons or 18% of the global total. Key mines are concentrated in northwest provinces like Lao Cai, Yen Bai, and Lai Chau.

Its strategic partnership positions Vietnam to play a significant role in the semiconductor supply chain, aligning with U.S. efforts to secure crucial raw materials. During a meeting on November 10, 2023, Japan’s Minister of Economy, Trade, and Industry also urged Vietnam to actively participate in semiconductor manufacturing, AI research, and rare earth mining, fostering international collaboration.

Nurturing a Skillful and Cost-Effective Workforce

Vietnam’s engineering excellence is evident with over 40% of graduates specializing in science and engineering, placing the country among the world’s top 10 nations with the highest number of engineering graduates, according to World Economics. The skilled workforce positions Vietnam to become a semiconductor hub. Recognizing the potential, the government aims to train 50,000 more engineers by 2030. Proactive collaborations with industry leaders like Synopsys, Cadence, and Nvidia were highlighted during the recent US President’s visit. Initiatives such as the Vietnam Semiconductor Training Center, a partnership between FPT Corporation, the National Innovation Center (NIC), and TreSemi, aim to train 15,000 skilled workers.

Vietnam’s competitive labor costs, ranging from $3,100 to $3,800 per manufacturing staff per year, make it an economical choice for foreign companies compared to neighboring countries. Additionally, Vietnam has maintained robust productivity growth, achieving 8% over the past five years, the highest in the region.

Conclusion

Vietnam’s semiconductor industry is rapidly evolving into a global hub, backed by steady expansion, strategic location, government support, and access to vital raw materials. With a skilled workforce and preferential policies, the nation is poised to meet growing semiconductor demand and capture a significant share in the projected $1 trillion global market by 2030. The sector’s consistent growth fuels optimism, positioning Vietnam as a compelling destination for strategic investors seeking an innovative manufacturing partner. Proactive collaborations and favorable economic conditions further enhance Vietnam’s appeal, solidifying its emergence as a dynamic force in the semiconductor landscape with promising prospects for future rewards.

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