A new Asian tiger

Vietnam's tech feast relies on foreign ingredients

Vietnam's tech feast has a distinctly foreign flavour. Exports of electronics reached $48 billion in 2015 - up 34 per cent from the previous year. Yet Vietnam's gains in the global technology supply chain depend mostly on big investors such as Samsung Electronics.

When the South Korean giant started manufacturing in Vietnam back in 2009, smartphones and personal computers played a minor role in the southeast Asian economy. Last year, however, electronics accounted for almost 30 per cent of the country's total exports - more than textiles, garments and footwear combined. That expansion helped lift economic growth to 6.7 per cent in 2015, the fastest rate in eight years. Analysts at HSBC think the economy will expand at the same pace this year, with exports rising more than 10 per cent.

Much of this is down to Samsung. The $160 billion group's products accounted for a staggering 18 per cent of Vietnam's exports last year, according to state media. The world's largest smartphone maker has pledged over $12 billion of new investment, including a $2 billion plant in the south, Reuters reported in December. That's huge: total implemented foreign direct investment last year was only $14.5 billion.

The ruling Communist Party, which meets to fill key leadership positions this week, is betting that a combination of tax incentives, low wages, and proximity to Chinese raw materials will prompt other electronic giants to follow Samsung and Intel - another early investor. That strategy may already be working: last year, LG Electronics said it will shift production of televisions to Vietnam from Thailand.

The influx may be crowding out domestic firms, though. Exports from local companies actually contracted in 2015, official data show. Private sector firms face heavy debt burdens and limited access to credit, according to analysts at Natixis. A 2014 World Bank report concluded that, despite having a literate and urban workforce, Vietnam still has a shortage of skilled workers.

But for Vietnam's next crop of leaders, financial and educational reforms will take time. And moving up technology's value chain will be harder with global demand for electronics slowing: the smartphone market grew by less than 10 per cent in 2015. If it is to emulate Asian success stories like South Korea and Taiwan, however, Vietnam will ultimately need to develop its own tech champions.