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What does automation mean for manufacturing in Vietnam?

Vietnam is becoming a manufacturing powerhouse. It is emerging as a low-cost hub for manufacturers who face increasing labour costs from neighbouring China and Thailand, with the likes of Intel and Siemens investing billions of dollars into factories around the country. Samsung recently announced its plan to increase direct investment in Vietnam to USD 20 billions in 2017.

Yet, Vietnam’s manufacturing scene is not immune to the “rise of the robots”. With global developments in automation to cut labour costs and reduce human errors, what do rising manufacturing hubs like Vietnam and Thailand stand to gain (or lose) from this movement? How then do manufacturers leverage on existing competitive advantages while continuing to innovate and stay ahead of the curve?

Cheap labour still a pull factor

Despite high entry barriers to foreign investors, Vietnam remains an attractive destination for manufacturers looking to cut cost. Wages in China rose at around 120% in the past few years, coupled with high-profile exposé of inhumane working conditions and lack of human rights protection for workers. Entering Vietnam is becoming easier with the country continuing to open up its economy by signing the Trans-Pacific-Partnership agreement and the EU-Vietnam Free Trade Agreement. Meanwhile, average manufacturing wage in Vietnam is expected to be around USD 3,500 per year in 2020, compared to China’s USD 11,300.

Automation and the future of manufacturing

The International Labor Organisation recently reported that more than two-thirds of Southeast Asia’s 9.2 million textile and footwear jobs, including 86 percent in Vietnam, are at risk due to automation. In response to this, Vietnam’s manufacturing scene has been moving away from the traditional portfolio into more higher value-added products like chipsets and parts for mobile devices. Yet, this move is still threatened by manufacturers being pressured to return to their own country (i.e. #MadeInAmerica), aided by the rise of automation that increases labour productivity while reduces labour cost.

What about manufacturers?

At the moment, manufacturers in Vietnam can still make use of the cheaper labour costcompared to its neighbouring countries (average monthly wage in Vietnam was at USD 197 in 2013, compared to USD 391 in Thailand and USD 613 in China, according to the International Labour Organisation). Early adoption of IoT and automation will allow manufacturers to stay ahead of the curve as costs are bound to increase, while tackling other issues such as quality management, efficiency, increasing labour cost, and human rights issues concerning workers’ work environment. Furthermore, government initiatives and legislation that accelerate the adoption of new technologies will allow the market to become even more attractive to foreign investors.

Moving forward

As Vietnam moves towards becoming an industrialised country by 2020, it needs to find a way to maintain its competitive advantage while catching up to technological innovations. IoT in manufacturing can provide valuable information for operators to maximise efficiency and reduce human errors, such as using sensors to monitor conditions of machines so companies can be alerted when maintenance is due - rather than having more costly routine checkups or unexpected breakdowns.

Meanwhile, the young and tech-savvy population needs to be educated with new technologies, and how to prepare to adapt to the fast-changing manufacturing work environment. In fact, as university graduates face increasing unemployment, some 32% of high school graduates in Vietnam qualified for university are applying to previous less-coveted technical tertiary institutions for better future prospects. Leveraging on this highly-educated labour pool, the government and technical institutions need to ensure that the graduates are equipped with future-ready skills, especially in up-and-coming technologies, so the workforce remains sustainable and competitive.

IoT in Industrial & Manufacturing will be discussed at the 11th edition of Asia IoT Business Platform, which will take place in Hanoi at the end of November. For more information, visit http://iotbusiness-platform.com/iot-vietnam or drop me an email at dinh@industry-platform.com.


By Dinh Viet Anh Nguyen | May 1st, 2017

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