The Great Tech Migration: Vietnam’s Next Challenge

18 December, 2024

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Vietnam is emerging as a safe and promising investment destination for multinational tech giants, becoming the third location for Nvidia’s AI research and development (R&D) center. Image source: blogs.nvidia

Diversifying the supply chain to mitigate risks

The recent collaboration between Nvidia Corporation, the world’s largest chip manufacturer, and Vietnam to establish an AI research and development center and an AI data center has grabbed headlines in early December 2024. Vietnam becomes the third location for Nvidia’s AI R&D center, after the US, where Nvidia is headquartered, and Taiwan, the homeland of Nvidia’s chairman, Jensen Huang.

In early November 2024, international media reported that American tech billionaire Elon Musk had requested suppliers of components for his Starlink satellite internet service to shift production from Taiwan to Vietnam. Prior to that, in September 2024, the senior vice president of SpaceX, a world-leading provider of spacecraft, satellite launching services, and satellite communications, also founded by Elon Musk, announced the company’s plan to invest $1.5 billion in Vietnam in the coming years.

According to analysts, after decades of concentration in mainland China and Taiwan, major electronic assemblers like Foxconn, Quanta, Wistron, TSMC, and United Microelectronics Corporation (UMC) are gradually expanding their operations to Southeast Asia, Japan, and even Europe. Besides the impact of the US-China trade war in recent years and the stringent bans on Chinese tech companies, geopolitical risks are a growing concern for these corporations.

With its young and dynamic workforce adaptable to technological advancements, Vietnam offers both a promising market for tech products and a capable talent pool for high-tech industries.

The Russia-Ukraine conflict persists, tensions between Israel and Iran could escalate and spread across the region, the war in Syria is flaring up again, and the Taiwan Strait might be the next potential hotspot. Wistron NeWeb Corporation (WNC), a Taiwanese company providing networking equipment for Starlink, which recently moved its production to Vietnam, acknowledged, “Due to geopolitical risks and our customers’ constant demand for change, we continue to expand our global manufacturing capabilities.”

Amid these developments, Vietnam is emerging as a safe and attractive investment destination for multinational tech corporations. Before Nvidia, numerous tech giants have been ramping up their investments in Vietnam, not only in manufacturing plants but also in R&D. This shift aligns with Vietnam’s recent change in foreign investment attraction policy, focusing on higher-value segments.

Notable examples include Samsung Group’s inauguration of its largest R&D center in Southeast Asia in Hanoi in late 2022. Infineon Technologies, Germany’s largest semiconductor manufacturer, established an R&D center in Vietnam in May 2023, specializing in digital circuit testing and customization. Additionally, Bosch Vietnam, along with tech giants like LG, Panasonic, and Renesas Electronics, a leading Japanese semiconductor manufacturer, all have R&D centers in Vietnam.

Vietnam’s Advantages

Firstly, Vietnam’s strategic geographical location in the heart of Southeast Asia facilitates market expansion within the region and proximity to major economies in East Asia, such as Japan, South Korea, and China. This enables tech corporations to easily reach and distribute their products and services to neighboring countries. Vietnam also boasts favorable conditions for maritime and inland water transport, with an extensive coastline and deep-water ports that facilitate shipping and logistics operations.

Diplomatically, Vietnam’s stature has been elevated on the international stage and within the region. The upgrade of relationships to strategic partnerships with several major economies and the proactive signing of new-generation free trade agreements (FTAs) have expanded export markets and facilitated the development of international markets for tech corporations. This provides Vietnam with access to the economies of 60 countries, including 15 out of the G20 nations, while mitigating the risks of trade wars between powerful nations.

Domestically, Vietnam maintains political stability and consistent economic growth, instilling long-term confidence in investors. Notably, in the last five years, Vietnam has successfully attracted FDI projects in high-tech sectors through a range of investment incentives, including tax breaks, land support, and infrastructure development. Projects in the semiconductor industry, a high-tech field, receive the most favorable treatment within the framework of Vietnamese law.

To attract investments from leading tech corporations and develop high-tech industries, which are among the three key breakthroughs identified by the Party’s resolution at the beginning of the 13th term, Vietnam has focused on building technology infrastructure and high-tech parks, such as Hoa Lac Hi-tech Park in Hanoi, Danang Hi-tech Park, and especially the Ho Chi Minh City Hi-tech Park, creating a vibrant tech ecosystem.

Additionally, with its young and dynamic workforce adaptable to technological advancements, Vietnam offers both a promising market for tech products and a capable talent pool for high-tech industries. The government is also implementing training programs to provide 50,000 high-quality workers for the semiconductor industry by 2030. Furthermore, Vietnam’s indigenous culture is relatively flexible and easily adaptable for foreign tech companies.

Lastly, high-tech industries, such as the semiconductor industry, rely on advanced technology and high-energy consumption. Maintaining clean production environments and controlling temperatures in cleanrooms also contribute to substantial energy consumption. Ventilation, air filtration, and air conditioning systems must operate continuously to ensure product quality, further increasing energy usage.

Triệu Minh