1. Vietnam - the new manufacturing hub
There have been a lot of discussions why Vietnam is about to become the world´s manufacturing hub. Let us draw some facts.
Based on the theory of comparative advantages, a country should allocate its production factors in a sector where it has its largest endowments. Once industrialized nations became expensive for in-country production, manufacturing companies moved their plants from Europe and the US to other countries – a natural process populist politicians use as their arguments in protectionist campaigns. While China nowadays attracts more manufacturing companies that require specific know-how (thus earning higher monetary values), Vietnam and Mexico are two examples of countries which are stepping in.
Why could Vietnam have comparative advantages in lower-level manufacturing goods?
It could be the combination of the enormous number of engineering graduates and the general education level of its people. Having a look at the number of engineering graduates per year in the world, Vietnam ranks 10th (Figure 1). On the other side, Vietnam still lacks a generally elevated education level as recent investments in the education system will only pay off slowly. According to the Hanoi Institute for Socioeconomic Development Studies, between 40 and 60% of Vietnam's workforce is unskilled. Thus, while Vietnam will slowly be able to send local engineers into the manufacturing sector, the manufactured products will yet lack high complexity.
Some people might see this as a problem for the sustainable development of the country. On the other hand, Vietnam could use this situation to position as the global manufacturing hub for less-complex production, while slowly increasing it in the years to come. Thus, the chances for the Vietnamese garment industry to grow in the long run could be high.
2. Labor productivity levels in garment manufacturing could reach the ones of China, but at more competitive wage costs
3. The astonishing skills of the "unskilled"
4. Vietnam's strategic geographic position
5. Curbed inflation and slower rising wage costs (real wages)
6. Some market entry barriers likely to rise in the future
7. Many regions with abundant workforce: moving from the cities to the countryside
9. The country's further integration in the world economy
10. Investments in supporting industries in process
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