Vietnam’s FDI Paradox in Electronics: A “Shining Star” Without Spillover Effects, RMIT Experts Warn of “The More, The Worse” Scenario

The electronics industry has emerged as a beacon for foreign direct investment (FDI) in Vietnam. Multinational electronics giants such as Samsung, Intel, and LG have consistently ranked among the top investors in Vietnam over the past years. Together, FDI enterprises account for approximately 98% of the country’s electronics export turnover, valued at $126.5 billion in 2024—equivalent to one-third of Vietnam’s total goods export revenue.

This underscores the pivotal role of electronics FDI in Vietnam’s manufacturing sector and its broader economy. Foreign direct investment is often credited with fostering technology transfer, enhancing management capabilities, and improving productivity among domestic enterprises.

However, a recent study by Dr. Nguyễn Châu Trinh (Economics Lecturer) and colleagues at RMIT University Vietnam reveals that a technological gap persists between domestic firms and their FDI counterparts in the same industry, indicating limited technology spillover effects.

“The dominant presence of FDI firms in the value chain can intensify competition, marginalize domestic enterprises, or confine them to low-value segments with limited opportunities for technological advancement,” Dr. Trinh warns.

A decade-long gap between domestic and FDI firms remains unbridged

Findings from the study, based on Vietnam Enterprise Survey data from the General Statistics Office and advanced productivity and technology analysis techniques, show that domestic firms have made some strides in management capabilities by observing the operations of FDI “giants”—a positive example of the “role model effect.”

However, technological upgrading remains elusive. On average, domestic firms operate at just 64% of the technological frontier set by FDI firms—a gap that has persisted over a decade, from 2011 to 2020.

“The research highlights an asymmetry between management and technology spillovers: FDI suppliers and customers rarely deliver both simultaneously,” notes Associate Professor Phạm Thị Thu Trà, co-author of the study.

A key reason cited by the research team is the structure of the global value chain in the electronics industry. In sectors where manufacturers lead, core technology and design are tightly controlled by companies headquartered abroad. Without mandatory joint ventures or partnerships, technology sharing through supplier relationships remains rare.

“Yet, even with limited technology transfer, observable and non-proprietary management practices within FDI firms can spill over to domestic companies, elevating industry standards and boosting productivity,” states Dr. Hà Thị Cẩm Vân, Senior Discipline Lead in Economics at RMIT.

Spillover effects depend on FDI origin and value chain position

The RMIT study reveals that FDI impacts are uneven. For instance, Korean and Japanese FDI firms, dominant in Vietnam’s electronics sector, tend to operate closed networks, bringing their own suppliers and limiting linkages with local businesses.

In contrast, ASEAN and Chinese investors are somewhat more open in certain segments, allowing Vietnamese firms to benefit modestly in both management and technology.

Additionally, the impact varies by a firm’s position in the value chain. For example, upstream FDI (suppliers) in metal component manufacturing enhances domestic firms’ productivity through higher-quality inputs.

Conversely, downstream FDI (customers) in industries like plastics forces domestic firms to upgrade technology amid fierce competition, weakening their management efficiency.

However, the research team also notes that the overall productivity gains in domestic electronics firms stem primarily from their own efforts, such as innovation and workforce development, rather than external FDI spillovers.

Rethinking FDI strategies

These findings highlight several policy considerations for FDI activities. While FDI has driven electronics export growth, relying solely on FDI attraction may no longer yield the expected benefits.

RMIT experts caution that without targeted support measures, Vietnam risks falling into a “more is less” scenario, where FDI presence inversely correlates with domestic firms’ capability upgrades, trapping the country in an assembly-centric role rather than fostering innovation.

To avoid this pitfall, researchers recommend that Vietnamese authorities foster deeper linkages between domestic and foreign firms through policies encouraging the use of local materials and suppliers.

Promoting research and development (R&D) projects and joint ventures, especially with ASEAN and Chinese partners, who tend to engage more inclusively in supply chains, is also advised.

Simultaneously, enhancing domestic technological capabilities and innovation will enable Vietnamese firms to compete in higher-value segments. Prioritizing knowledge-sharing policies over mere FDI attraction is essential.

As Vietnam aims for high-tech growth in its next industrialization phase, the challenge lies in ensuring FDI not only boosts exports but also substantively upgrades domestic capabilities.

“Policies mandating specific localization thresholds could be pivotal in strengthening ties between FDI and domestic firms,” observes Dr. Đào Lê Trang Anh, one of the study’s authors.