“Vietnam? Isn’t that where they grow rice and make all those rucksacks and bags for Western brands?”
This is what a neighbour (let’s call him ‘Bob’) said to me recently. He had just heard that I’d been to Vietnam in connection with my work. In one very narrow sense he was correct, in that both these things happen in Vietnam. However, he thought he was summing up the essence of Vietnam’s economic activity.
Bob seems to think it is part of the natural order of things that products designed and marketed by large European corporations would have their manufacture outsourced to countries where labour costs are lower. This fits with his general view that countries like Germany, the USA and the UK are where the ‘head-work’ is done, and those like Vietnam are good at the ‘grunt work’. The model of outsourcing he has in mind still exists, but it is not what is driving things in Vietnam, a country that recently became a top-performing Asian economy with a GDP growth of over 6 per cent, second only to China1.
We visited a range of large corporations and SMEs in different industries, located in or around Ho Chi Minh. Focusing on the changing nature of work and digital innovation we saw striking examples of the globalisation of knowledge work; increased access to high-level education and training, including international mobility; the prevalence and power of transnational capitalist corporations; and rapid digital innovation. These provided the conditions for a global auction in high-skilled labour and the widespread and more rapid development and sharing of knowledge. This shared knowledge includes high level technical know-how but also a speedier grasp and creation of new markets and opportunities.
Three examples from our rich data illustrate respectively (a) innovation to compete internationally, (b) the creation of a reverse value chain, and (c) innovation in a more traditional and local way.
The first is a drone company, relative small with around 50 employees, led by an inventor-CEO. Despite being in a field that is well established globally, the firm has developed and manufactured a model that redefines what small, personally transportable drones can do:
- a ‘Swiss Army knife’ that can carry and balance four independently controlled attachments
- world-leading payload capacity to weight and volume ratio
- personal transportability (foldable and fits into a backpack) and operation
The firm aims to transform labour-heavy and high-risk tasks such as search and rescue (e.g. the drone can carry a normal camera, night camera, water and medicine at the same time) or utility inspection. Indeed, the CEO told us that after days of thinking about a tagline for his business, he decided on ‘making humanity a better place’. Tackling such an endeavour involves multi-disciplinary experimentation and then integration, including material refinement, additive manufacturing, embedded and control system, machine learning, and sometimes just good old mechanical and electrical incremental improvement (an engineer showed us four iterations of a particular joint in a prototype). This relatively small company owns the patents to its inventions and is poised to upscale production, either through attracting further investment or by some form of partnership. When it does, the whole value-chain will continue to be located in Vietnam.
The second example also shows Vietnam’s evolution away from outsourcing, but in a different way. This is a medium-sized company with around 5000 employees that produces beverages, supplements, and various food items, with their core product being baby and elderly formula. It was founded 40 years ago as a state enterprise by a group of doctors who wished to tackle very high rates of infant mortality due to malnutrition; the company now has a turnover of around 200 million dollars and is private. What is special about this company is that, as a 100% Vietnamese firm, it bought a Swedish research institute in 2019 to develop a new product line of baby and elderly formula. In other words, it has ‘reversed the value chain’, as the CFO put it. In addition, the company has taken measures to become less reliant on foreign supply, such as acquiring land for herbal production and building high-tech milk facilities. As the CFO explained, all this enables them to compete with imports from larger international firms, especially those from the USA.
The final example is perhaps more understated, but it demonstrates Vietnam’s capacity equally well. This is a long-standing ceramic company of 2400 employees with 50 million dollars annual turnover, mostly from high-quality domestic and catering crockery. It was formed some 50 years ago, and the current CEO describes himself as ‘the fourth generation’. Over its life, the company had seen continual international endorsement, evident by the fact that it was often approached by various high-end global brands wanting to incorporate it into their manufacturing base – in other words, outsourcing. The company resisted all such opportunities. The CEO highlighted the continuing importance of innovation that comes out of the ordinary and mundane like clay, craft knowledge, and furnace temperature control, in addition to newer elements of automation and digitalisation. The company’s latest innovation is a clay formula that, when made into cookware, can boil vegetables and meat without water, as the material itself generates natural infrared to cook an item from the inside. The clay mix was discovered and is being harvested in Vietnam. Innovations like this have won the company awards from the Government, and moving forward it is looking to apply innovations in ceramic manufacturing to deliver marked improvement in other fields, including the world of coffee roasting.
In all three cases, innovation is being harnessed in a deliberate process of building a longer value-chain that includes cutting-edge knowledge-work. The value created far exceeds that achievable through contracts on outsourced manufacture for foreign interests, and it is future-oriented whilst remaining within Vietnamese control. These companies have defended their autonomy and identity whilst also maximising open-ness to global influence and global awareness of technical developments, markets and competition. They are part of a major social and economic shift driven by invention, innovation and investment. This is a far cry from the ‘rice and rucksacks’ model in Bob’s head, though I suspect he prefers the somewhat illusory comfort of not knowing!