Reshaping Global Value Chains: Opportunities and Challenges for Vietnam

Global value chains have undergone significant transformations over the past decade. Previously, developing nations, especially in Southeast Asia, greatly benefited from labor-intensive manufacturing models. However, escalating geopolitical tensions between major powers like the U.S. and China are reshaping traditional supply chains. Many multinational corporations have begun relocating production facilities outside China to mitigate risks, giving rise to the "China+1" strategy, with Vietnam emerging as a top alternative.

Additionally, technological advancements, particularly automation and artificial intelligence (AI), are reducing the demand for low-cost labor in several industries. According to the World Bank, export-dependent countries like Vietnam must rapidly upgrade their technological capabilities to remain competitive, especially in manufacturing and processing industries.

Vietnam has increasingly established itself as one of Southeast Asia’s leading manufacturing hubs. Factors such as its advantageous geographic location, youthful workforce, and extensive free trade agreements (FTAs) offer significant advantages for Vietnam to attract international investors.

Specifically, trade agreements like the CPTPP and RCEP have expanded Vietnam’s export market reach. RCEP member nations account for approximately 30% of global GDP, providing Vietnamese goods and services with broader market access. Furthermore, Vietnam’s participation in numerous bilateral trade agreements with favorable terms helps reduce non-tariff barriers and enhances competitiveness.

Another opportunity lies in the rising demand for green and environmentally friendly products. As countries worldwide push strategies to reduce carbon emissions, Vietnam can integrate more deeply into green production value chains, particularly in renewable energy, environmental technologies, and sustainable manufacturing.

Despite the opportunities, Vietnam faces significant challenges in redefining its role within global value chains.

Firstly, the limited involvement of domestic enterprises in GVCs is a major hurdle. Currently, foreign direct investment (FDI) enterprises account for 73% of Vietnam’s total export turnover, while local firms contribute minimally. This indicates a heavy reliance on foreign investment and weak integration of domestic businesses into international supply chains.

Secondly, technological and workforce barriers pose considerable challenges. Reports show that only 5% of Vietnam’s workforce in manufacturing and processing industries are highly skilled—far lower than comparator nations like South Korea or Malaysia. To remain competitive in the new GVC landscape, Vietnam must invest heavily in skills training and the adoption of modern technologies in production.

Lastly, climate change is an unavoidable challenge. With industrial zones concentrated in coastal provinces, Vietnam is highly vulnerable to natural disasters such as floods and rising sea levels. Without effective mitigation strategies, supply chain disruptions could directly impact economic development.

To seize opportunities and address challenges, Vietnam must implement specific measures:

1. Promote Linkages Between Domestic and International Enterprises
The government should adopt policies to encourage stronger connections between FDI and domestic businesses. Supplier development programs (SDPs) can help improve the capacity and quality of local firms, enhancing their competitiveness in GVCs.

2. Invest in Technology and Human Resources
Expanding technical education, vocational training, and lifelong learning programs is essential to enhance workforce quality. At the same time, enterprises should be encouraged to invest in research and development (R&D) to strengthen technological capabilities.

3. Develop Green Production
Vietnam must transition to low-carbon, environmentally friendly industries. This not only aligns with global trends but also enhances the value added within supply chains.

4. Adapt to Climate Change
Building more resilient infrastructure to withstand natural disasters, particularly in coastal industrial zones, is crucial. Additionally, policies should focus on minimizing environmental risks and bolstering the resilience of enterprises.

Reshaping global value chains is not just a challenge but also an opportunity for Vietnam to elevate itself as a key player in the global economic system. To achieve this, Vietnam needs a comprehensive development strategy, from improving the business environment and enhancing the capacity of domestic enterprises to investing in technology and human capital. While the journey is not without obstacles, with determination and a long-term vision, Vietnam can position itself as a regional and global hub for manufacturing and innovation by 2045.

By Minh Huong