What makes Vietnam more attractive than Thailand in drawing manufacturer investment
The trade tension that is stretching into years has fostered a wave of shifting manufacturing activities to Vietnam production to countries outside of China. Meanwhile, Thailand and Vietnam are considered as two promising destinations for foreign manufacturers – with Vietnam gaining a more competitive advantage over its Southeast Asian peer for the following reasons:
1. Population
According to the World Bank, Vietnam is undergoing a rapid transformation in population and social structure. Vietnam’s population now stands at more than 97 million (2020) and is expected to reach 120 million by 2050.
Thailand now has a population of approximately 70 million. As reported by the United Nations (UN) last year, Thailand have experienced an ongoing decline in their fertility rates for many years. The UN forecasts that more than a quarter of Thailand’s population will be over 60 years old by 2030. According to the International Monetary Fund (IMF), the decline in Thailand’s national workforce will deteriorate the country’s economic growth for the next two decades.
2. Advantages from free trade agreements
Vietnam is gradually expanding its competitive advantage by entering a large number of free trade agreements (FTAs) compared to Thailand and other countries in Southeast Asia (details are shown in the table below).
According to research by the Ministry of Planning and Investment, Vietnam’s exports to Europe after EVFTA come into effect is expected to grow by about 42.7% in 2025 and 44.37% in 2030 compared to without the agreement.
Meanwhile, CPTPP will establish one of the world’s largest economic blocs in terms of market size with a substantial share of about 13.5% in global GDP while also developing giant market across continents.
3. Strong domestic consumption growth
As the country’s economic conditions have swiftly improved, Vietnam’s per capita GDP tripled from more than USD600/year in 2005 to approximately USD2,800/year in 2019.
Vietnam is the only country in the six Southeast Asian economies to achieve positive growth in 2020. Recently, S&P Global forecast that Vietnam will attain a robust economic recovery in 2021 with a GDP growth rate of 10.9%, — more than any other country in the Asia-Pacific region — following a 2.91% uptick in 2020.
In the meantime, the growth prospects of other ASEAN economies look bleak. Thailand’s GDP is expected to drop by 6%, Singapore by 5.7%, Malaysia by 3.9%, the Philippines by 3.5% and Indonesia by 1%. As reported by Bloomberg in its 2021 outlook, Vietnam should be among the fastest-growing economies in ASEAN with an 8.1% GDP growth rate while Thailand ranks last with 4%.
4. Geographical location
Vietnam is endowed with a favourable geographical location that provides ideal accessibility to important global commercial sea routes, thereby opening up opportunities to develop maritime transport — especially for logistics services.
The shortest distance between major cities of Thailand and China is 1,687 km (Pak Kret → Guangzhou). On the other hand, Vietnam is adjacent to China and in close proximity to the Guangdong manufacturing powerhouse (722 km Haiphong → Guangzhou). Vietnam’s more extensive coastline makes it particularly ideal for the China+1 one structure as well as for any business that needs to source goods from China.
5. Political stability
Since the 1932 coup that turned the Kingdom of Siam into a constitutional monarchy, Thailand has been continuously swept up in a spiral of political crises. Social unrest in Thailand due to decades of internal dissension was exacerbated by COVID-19 as areas that had been affected by political instability were seriously affected by the pandemic, including investment and consumption expenditures of the private sector.
On the contrary, one of the key factors that make Vietnam attractive to manufacturers is its political stability. The success story of Vietnam in luring foreign investment is attributed to an effective financial management system surrounding tax, accounting and foreign exchange control. The process of investment registration and tax administration in Vietnam is decentralized and has gradually improved as provincial and city authorities have considerable discretionary power on how businesses are established and managed.
