Name: Bisme Rana

Id: 2019-1-10-187

Relate with theories

1. Trade Surplus:
When a country is exporting more than its importing, we say that country, is
following trade surplus. In 2019, Electronics Industry exports amounted to 36%
from Vietnam on the other hand Imports accounted for 30% of total import flow
(Nguyen, 2020). If we compare between these % we can see the export is higher
than the import. It illustrates that electronic industry in Vietnam is trying to
maintain trade surplus.
Example: According to “Hanoi Times” in January 2021, Vietnam recorded an
estimated trade surplus of US$1.3 billion. The reason behind this boost up is new
flagship of “Samsung smartphone model S21”. During that month, Vietnam has
exported goods worth an estimated US$27.7 billion, while imports are estimated
to decline by 5.4% and it was worth an US$26.4 billion. Vietnam’s top five
largest export markets were the US, EU, China, ASEAN, Japan and South Korea.
(Nguyen, Vietnam’s Electronics Industry: A Guide to Emerging Opportunities,
2020)
2. Comparative Advantage:
This theory suggests that, when a country is expert in producing more than one
good then it should focus on that particular industry in which it is most efficient.
Top industries of Vietnam are: food processing, garments, textiles, shoes,
electronics. So, it means this country is specialized in producing these goods but
among them Electronics industry is leading and significantly boosting the trade
volume. Due to some favourable advantages such as low labour cost, trade
liberalization, supportive government policy, EI playing crucial role in Vietnam’s
fast-growing economy. On the other hand, due to the ongoing US-China trade
war manufacturing cost in china is rising and Vietnam is grabbing the opportunity
and providing labour cost almost 3 times lower than china. As a result, Vietnam is
focusing on its Electronics industry more and providing electronic gadgets at low
labour and manufacturing cost with high quality goods.
Example: According to Vietnam briefing 2018, phones and electronics goods
export value was US $45.1 billion on the other hand export value of footwear and
machinery industries were US $14.6 billion, US $12.8 billion respectively. So,
Vietnam has comparative advantage on Electronics Industry that’s why it focusing
on it most.
3. Heckscher Ohlin Theory:
A success behind an industry mostly depends on the availability and the quality of
the raw materials and inputs. When a country is specialized in a particular industry
this reflects that it has abundancy of land/labour/capital or other factors of
production.
Vietnam’s top exports are Electrical goods (44.1%), Machinery (6.9%), Footwear
(6.8%), Clothing (4.5%), furniture (4.4%) etc. (Workman, n.d.) Among the total
exports almost half of the % is coming from Electrical industry. Because Vietnam
 is producing electrical goods with the use of locally abundant factors.
Multinational companies like Samsung, LG electronics, Panasonic are being
highly interested to invest in Vietnam due to some specific advantages provided
by Vietnam. For instance, free trade agreement, lower tariffs on import,
favourable demographic structure and low labour-manufacturing cost etc. As a
result, electronics giants such as Intel, Samsung, and Japan’s Panasonic are some
of many that have turned to Vietnam to manufacture their products. Also, Vietnam
is doing the intensive use of locally abundant factors which is resulting the
success in Electrical industry and almost half of the total export is coming from
here.
4. Competitive Advantage Theory:
There are 4 attributes or reasons behind every industry’s success/failure. We can
relate those attributes with the success of electrical industry of Vietnam.
 Factor Endowment:
Low labour and manufacturing cost
Favourable demographic structure
Supportive government policies
Lower tariff on import
 Demand Condition:
From 2001 to 2019 Vietnam has ranked 12th position from 47th as a key
electronics exporter. The reason behind this success is demand of
electronic goods both in local and global areas. Although the electrical
industry of Vietnam is mostly dominated by multinational companies such
as Sharp electronics, Samsung, Canon but this demand is only one-third of
the total EI. Their export share accounted for over 90 percent of total
exports and covered 80 percent of the domestic market demand.
 Related and Supporting industry:
The related industry of EI is Semiconductor industry which is dominated
by foreign players. By 2021 Vietnam’s semiconductor industry is expected
to reach US$6 billion but not as success as other Southeast Asian countries
due to limited integrated circuit (IC) fabrication supply. (Associates, 2021)
 Firm’s structure and rivalry:
China has always been a strong competitor in electrical industry but
due to the ongoing US-China trade war manufacturing cost in china is
rising. Vietnam is grabbing the opportunity and providing labour cost
almost 3 times lower than china. As a result, Vietnam is focusing on its
Electronics industry more and providing electronic gadgets at low labour
and manufacturing cost. So here we can say healthy competition is
occurring which is boosting up the economy of Vietnam.
Reason behind success
Vietnam’s Electronics industry has been playing a vital role in enhancing the economical
growth. With the emerging opportunities EI has significantly boosted Vietnam’s trade
volume. As a result, Vietnam has become a favourable option for renowned multinational
companies such as Sharp Electronics, LG, Samsung, Panasonic etc.
1. Lower Labour Cost:
Since 2010, many companies have chosen to relocate production to Vietnam because
of its lowered labour and manufacturing costs which average US $174 per month. Not
only this if we compare the labour cost with China, Vietnam is providing almost three
times lower going rates.
2. Trade liberalization:
Vietnam is providing free trade agreements with lower tariff cost. This lower tariff
cost is a tempting offer which is attracting renowned multinational companies to
invest more.
3. Supportive Government Policy:
Electronic industry has been number one among the top 10 industries of Vietnam
which is approved by the local government. With the help of government Vietnam’s
local companies are being equipped with the necessary infrastructure and facilities.
Also, government is controlling some parts of the industry which is helping the
industry to maintain the product quality.
4. Favourable demographic structure:
In compared to the other region, Vietnamese engineers working in EI have fairly high
qualifications in term of labour quality. A well renowned electronics brand Samsung’s
10% software globally is developed by Vietnamese IT engineers. Two of its largest
R&D Centres are being operated in Hanoi and Ho Chi Minh City which is a huge
success for Vietnam. (Nguyen, Vietnam’s Electronics Industry: A Guide to Emerging
Opportunities, 2020)