Vietnam is shifting its foreign investment strategy toward semiconductors and electric vehicles (EVs) as FDI inflows hit USD 18.4bn in the first 5 months of 2025, up 51% year-on-year, according to official data.

However, rising labour costs and growing competition from neighbours are threatening Vietnam's long-standing position as Southeast Asia’s top manufacturing hub. To stay competitive, Hanoi is moving away from low-cost assembly lines and toward capital-intensive, high-tech sectors.

“Many ASEAN countries are offering incentives for companies that invest in the semiconductor value chain, and global semiconductor sales surpassed USD 630bn in 2024 and will keep growing,” said Jari Hietala, managing partner at consultancy Asian Insiders, on 17 June.

Higher wages narrow cost gap

Vietnam’s reputation as a low-cost production base is becoming harder to sustain. Average industrial wages have risen by 5-7% annually since the pandemic, reducing the country’s labour-cost advantage over peers like Indonesia and the Philippines. Export zones near Hanoi, north Vietnam, and Ho Chi Minh City, south Vietnam, face skilled labour shortages, forcing firms to consider alternatives.

The Vietnamese Labour Ministry raised the national minimum wage again in 2025, adding further pressure on firms in labour-intensive sectors such as textiles and furniture.

Investors spread bets across ASEAN

Multinational companies are no longer concentrating their regional investments in Vietnam alone. While it remains a key part of supply chains, firms from South Korea, Japan and Germany are beginning to invest in new sites in the Philippines, Indonesia and Malaysia.

“ASEAN countries can leverage several advantages in the shifting geopolitical landscape… In 2023, ASEAN recorded USD 229.8bn in FDI inflows, with Singapore (USD 159.6bn), Indonesia (USD 21.6bn), and Vietnam (USD 18.5bn) as top destinations,” ASEAN Briefing reported in January.

Vietnam pivots to tech

To defend its lead, Vietnam is betting on high-tech industries. Intel is committing USD 1.5bn to expand chip packaging operations in Ho Chi Minh City, while EV maker VinFast targets international markets with new models and overseas factories.

However, the shift to advanced manufacturing may reduce job creation. Chip factories and EV plants employ fewer workers than garment or electronics assembly lines, raising questions about how much of the new FDI will translate into broad employment gains.

Foreign-owned companies account for around 70% of Vietnam’s exports. The country remains an attractive destination… but certain risks could change this,” noted French insurer Coface in its May 2025 Vietnam country risk file.

Neighbouring economies step up

Vietnam’s neighbours are stepping up. The Philippines is offering new tax breaks and industrial zones to attract tech-sector investment, while Cambodia is absorbing low-cost Chinese assembly work. Both are positioning themselves as alternatives amid rising US-China tensions and shifting global supply chains.

“The Philippines is seen as an emerging friendshoring destination for the US… with an attractive demographic, ready infrastructure, and a friendlier relationship with the US,” BusinessWorld wrote on 20 May.

FDI quality could rise, jobs may not

“Vietnam has one of the most attractive business environments among economies with similar incomes in the region, with competitive labour costs and flexible labour regulations,” according to Vietnam Investment Review.

However, Vietnam’s long-term challenge is balancing quality and quantity. Analysts say the shift to semiconductors and EVs is necessary, but warn that new investments must be supported by upgrades in education, energy systems and digital infrastructure.