US-led trade network could strengthen Vietnam’s place in global supply chains

Vietnam was recently invited to join the "Quad" countries, Australia, India, Japan, and the U.S., in an unofficial teleconference on combating Covid-19 and reviving the economy post-pandemic.

Analysts said the addition of Vietnam, South Korea and New Zealand to the group, which has been dubbed "Quad Plus," suggests the group is seeking to reduce the dependence on China in the global supply chain.

U.S. Secretary of State Mike Pompeo said last month his government was working with these six countries to "move the global economy forward" by restructuring the supply chains.

American officials are reportedly looking for ways to push companies to move sourcing and manufacturing out of China using tax incentives and subsidies.

Economist Nguyen Tri Hieu said as one of the fastest-growing economies in Southeast Asia with exports running into the tens of billions of dollars annually, Vietnam has many good reasons to be selected to the grouping.

Other experts said the pandemic has placed Vietnam in the spotlight thanks to its drastic and quick response to contain it and successfully prevent any deaths.

Phung Duc Tung, director of the Mekong Development Research Institute, said after the pandemic revealed that multinationals are too dependent on China for their manufacturing, Vietnam has emerged as an alternative destination for them.

Vietnam has 64 percent of the population in the working age and labor costs lower than that of China, he said, adding that the country’s long coastline and shared border with China are other factors that would help a switch.

It has already been identified as their next investment destination by many multinationals. Apple, Google and Microsoft are all reportedly making plans to begin or expand production in Vietnam this year.

Experts say the country will benefit even more in trade if a grouping like Quad Plus is established.

Economist Pham Chi Lan said Quad Plus could help Vietnam further advance its trade relations with the U.S. without the need for a free trade agreement, which would take a lot of time and work.

There would be a wave of American investment coming to the country, and investors from Japan, another Quad member, and the E.U, with which Vietnam has signed a free trade pact, could also pour money, she said.

Vietnam has in the last three decades missed many opportunities to establish a better position in the global supply chain, and it should not make the same mistake again since after this time there might not be any space left, she warned.

"This is a golden opportunity for Vietnam."

Experts also warned that Vietnam needs to move quickly since other Asian countries are doing so.

Indonesia has reportedly persuaded 27 U.S. companies to relocate to an industrial zone in Java.

India reached out to more than 1,000 companies in the U.S. last month through its foreign missions, offering incentives to manufacturers seeking to shift from China, while Malaysia and Thailand have also been offering incentives to multinationals.

Tung said the Vietnamese government needs to make institutional changes to make the country a more appealing investment destination.

Transparent and democratic policies would attract investors since they then would not have to worry about "unofficial costs" while doing business in Vietnam, he said.

Besides offering tax incentives, Vietnam should also dispatch officials to find out from foreign investors what they seek and what the government could offer, he added.

There are also concerns about infrastructure. Thao Nguyen, senior leasing manager at real estate service firm CBRE Vietnam, said the limited supply of industrial land and poor road and port quality are barriers to attracting foreign investment.

There are concerns about Vietnam’s capability to absorb this new wave of investment since numerous challenges remain, including infrastructure capacity constraints, according to a recent CBRE report.

Tung said the private sector should be allowed to participate more in developing infrastructure to meet the increasing needs of FDI companies.