A Rising Vietnam: The Fourth Act
“Anyone who offends China, no matter how remote, must be exterminated.” The tag line, from China’s renowned blockbuster series Wolf Warrior, bears a simple yet decisive message: China First.
As Beijing positions itself at the forefront of the Fourth Industrial Revolution, the unabashed and swift expansion of its tech companies into foreign markets has come to reflect this jingoistic ethos.
However, one country threatens China’s vision of AI hegemony. And no, it’s not the United States.
AN UNTAPPED MARKET
In recent years, Southeast Asia, which boasts a population of 655 million with a lower median age and per capita income than that of China, has attracted a number of businesses looking for cheap manufacturing.
The Association of Southeast Asian Nations (ASEAN) has become the fifth largest economy in the world and received more foreign direct investment (FDI) than both the European Union and China in 2019. In fact, member states have seen the largest chunk of FDI from ASEAN itself as intra-regional trade replaces international trade amid deglobalization.
The surge of investment in ASEAN has marked the rise of two regional competitors and partners: Singapore and Vietnam. Historically, the former received the bulk of the region’s FDI being the region’s financial services capital and a feeder into neighboring markets.
In recent years, the latter has emerged as the region’s preeminent manufacturing hub.
The US-China trade war has accelerated the pivot to Vietnam. In 2019, US imports from China and Singapore fell by 16% and 1% respectively, whereas imports to Vietnam grew by 36%.
Research and advisory firm Gartner anticipates around a third of firms shifting manufacturing out of China due to supply chain costs, which have increased by 10-40% in the past months. Vietnam’s top rating in production efficiency across ASEAN indicates that the majority of these businesses will look there for the most reliable supply chain alternative.
Vietnam’s economic boom belies its advancing leadership capability. Since becoming the chair of ASEAN in 2020, the association has managed to mitigate the spread of COVID-19 and draft an economic recovery plan. The Dutch bank ABN AMRO expects the region’s GDP to shrink by 2.5% this year and then increase 5.7% in 2021, returning to pre-pandemic trends.
The primary beneficiary of the trade war and pandemic, Vietnam remains one of the fastest growing economies in Southeast Asia and is projected to overtake that of Singapore by 2029. Professor Trans Viet of the Diplomatic Academy of Vietnam believes that Hanoi—in light of its rising geostrategic role—will become a hub through which investors can access the neighboring “insular” markets, similar to Singapore.
Historically lacking the large databases, infrastructure, and resources, Vietnam will now have the funds and the influence to drive AI development across Southeast Asia and beyond.
Hanoi has managed to effectively contain the pandemic through imposing a strict lockdown, conducting strategic testing, and introducing contact tracing apps. The Vietnam Institute for Foreign Policy and Economic Research projects Vietnam’s economy to grow by 2.2—3.8% in 2020.
The International Monetary Fund predicts the country’s economic growth rate to return to 4—5% in 2021. Despite seeing its first COVID-19-related deaths in recent weeks, Vietnam will likely emerge from the pandemic as one of the few countries with a positive growth rate—an example to both the developing and developed world.
Vietnam’s economic viability lies in its flexible manufacturing industry and tenacious trade agenda. During the initial months of 2020, the country’s primary industry of textile and garment exports fell to 6—22% of what they were in 2019.
The decline in global textile demand has led these businesses to manufacture PPE instead, producing nearly three billion masks a month auguring for a promising second quarter, says Bloomberg.
In addition to a rebound in trade surplus, the government has orchestrated two free trade agreements in recent months: The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPATTP) and the European Union Vietnam Free Trade Agreement (EUVFT).
These trade deals—in addition to chairing ASEAN—illustrate the social republic’s intent on being integrated into the global financial system.
Vietnam’s rapid response to the pandemic and trade strategy have only made investors more optimistic of the country’s manufacturing capacity in the post-pandemic era.
THE AI SCENE
There are three determinants of a successful AI hub: a vibrant startup ecosystem, investing in practical AI across small businesses and urban areas, and regulation surrounding AI ethics (Forbes).
As a result of historic capital inflows, Vietnam now has the third largest startup ecosystem in Asia which dominates the e-commerce, fintech, and online services space.
2019 saw Vietnamese startups receiving more funding than their Singaporean counterparts for the first time—the former received $741 million and the latter received $693 million. The number of new businesses increases by 5.2% a year shows that the entrepreneurial scene will continue to thrive.
The government has also sought to insure scientific and technology research and development (R&D) “high tech” firms along with small and medium size enterprises (SMEs).
High tech firms have not only seen their real estate fees reduced or waived completely, but have also been able to take preferential loans with half the general interest rate. SMEs with a revenue of 200 billion dong ($8.8 million) will also see a 30% reduction in corporate income taxes.
As the government has sought a strong startup culture and has invested heavily in the tech sector, Viettel—the largest state-owned military telecommunications company—developed 5G technology this year.
In order to upgrade the national digital infrastructure Viettel has invested nearly 700 billion dong ($30 million) in 5G labs to prefect and manufacture chips en masse. A domestic 5G network will catalyze investment in AI applications to urban infrastructure by way of the internet of things.
Having developed its first 5G network, Vietnam will also be able to block off China’s Huawei corporation, which has previously striven to monopolize ASEAN’s 5G network share.
Finally, Vietnam’s various trade agreements with the EU and Pacific states have enshrined the intellectual property rights of partner states. Therefore, Vietnam’s corporations can look to digitize supply chains using 5G and ideally introduce its 5G brand into other markets without arousing fears of the government’s dubious intent.
Hanoi’s once weak technology sector and lack of human resources is now giving way to an increasingly sophisticated workforce pioneering AI development. The numbers speak for themselves: nearly 60% of the country’s AI firms were founded in the last two years according to Nexus Frontier Tech.
~Supply Chain 4.0
The meteoric development of Vietnam’s domestic AI-scene has attracted a number of foreign high-tech corporations looking to re-shore their supply chains, making the nation the second largest electronics exporter in ASEAN.
South Korea’s consumer electronics companies LG and Samsung have relocated their supply chains from China to Vietnam due to cheaper production costs and geopolitical stability. In late July, Samsung partnered with software company Kinaxis to monitor supply chains via its cloud technology RapidResponse.
Since April 2019, fifteen out of the thirty Japanese companies have shifted supply chains from China to Vietnam. The Japan External Trade Organization indicated that 66% of Japanese corporations in Vietnam had profited from this venture: companies include Toyota, Hona, Parsonic, and Canon.
World Bank Logistics Performance Index has ranked Japan 5th in the world for digital supply chain prowess; this may illustrate that Vietnam now has the infrastructure for international firms that employ supply chains driven by AI-applications.
Since 2019 as well, US firms Microsoft, Google, and Apple have shifted a portion of their production to Vietnam. All these firms have utilized cloud-based technology to monitor their production lines, whether it be for the Surface computer line, the Pixel phone, or AirPods.
Vietnam’s new 5G network capability will only serve to bolster investments from these megalithic tech corporations, as it would enable AI applications like the Internet of Things to connect warehouses with one another and anticipate supply and demand trends.
AN UNWAVERING SPIRIT
In the past two years, Vietnam has become a stable nation in an otherwise economically and politically volatile continent. Record FDI garnered from free trade agreements, cheap manufacturing, and an established leadership role portends a bright future for the Socialist Republic. Sporting a tech sector growing by the day and rapid economic growth, Vietnam has all the necessary ingredients to be a leader in the Fourth Industrial Revolution.
Perhaps, during this trying time, the poetry of nation’s father the late Ho Chi Minh confers the character of this nation to be reckoned with:
Stubborn and persevering
I’ve not yielded an inch.
Physically I’m suffering
But my spirit will never flinch.
Written by Pavan Nagaraj
Edited by Calvin Ma, Alexander Fleiss, Antonella Dec-Prat & Alexander Fleiss