Vietnam's Supporting Industry: From Assembly to Manufacturing, Localization Opportunities under Supply Chain Restructuring

When "China+1" Meets the "Made in Vietnam" Challenge

At a forum in Ho Chi Minh City in July, the future of Vietnam's supporting industry was clearly placed under the spotlight. This economy, long regarded as an "assembly workshop," is trying to shed its label and prove that it has the ability to evolve from a screwdriver factory into a true manufacturing engine.

Data shows that in the first five months of 2026, Vietnam attracted $24.81 billion in FDI, a surge of 34.9% year-on-year, with the processing and manufacturing sector absorbing $8.06 billion. During the same period, total trade approached $496.7 billion, with exports of electronics, computers and components reaching $63.5 billion and machinery and equipment $30 billion. However, the other side of the coin: massive imports of intermediate goods and components—with imports of computers, electronics and components alone reaching $6.62 billion—exposes the fragility of the domestic supply chain.

"Supporting industries are no longer just a auxiliary manufacturing sector; they are the foundation for industrial autonomy, enhanced competitiveness, and integration into the global supply chain." This remark by Cao Thi Phi Van, Deputy Director of the Ho Chi Minh City Investment and Trade Promotion Center, reveals Vietnam's transformation anxiety.

Blueprint: A Leap from 10% to 45% Localization Rate

The Vietnamese government has clearly recognized the urgency of the issue. The 2026-2035 Supporting Industry Development Plan sets ambitious targets: by 2030, the average localization rate for key industries should increase from the current approximately 10% (taking high-tech parks as an example) to 40-45%; by 2035, most supporting industry sectors will possess advanced technological capabilities and be deeply involved in the global value chain.

As the economic engine, Ho Chi Minh City's Saigon Hi-Tech Park has seen its localization rate double from about 10% in 2010 to over 20%, but there is still huge room for growth. The park has attracted 26 supporting industry projects with total investment exceeding $512 million. However, compared to the enormous import volume, this is only the beginning.

Certification Barriers: Tickets to the Global Supply Chain

For Vietnamese SMEs hoping to break into multinational supply chains, certification is an unavoidable hurdle. Nguyen Ngoc Dang Khoa, Deputy General Director of SMC Phu My Precision Mechanics, pointed out that in addition to general standards such as ISO 9001 and ISO 14001, companies also need to obtain industry-specific certifications, such as IATF 16949 for automotive, AS9100 for aerospace, and ISO 13485 for medical devices. "These certifications are not only customer requirements but also a framework to ensure consistency in product quality across different factories."

This reflects the hidden costs of upgrading supporting industries: long certification cycles, high costs, and rapid iteration of technical standards. For most SMEs lacking capital and talent, this could become a difficult chasm to cross.

"Window of Opportunity" Amid Geopolitical DynamicsA consensus at the forum was that global supply chains are being reshaped by geopolitics, green transition, and the digital revolution, creating a historic opportunity for Vietnam. The "China+1" strategy has accelerated multinational corporations' partial relocation of production capacity to Southeast Asia, and Vietnam is one of the main beneficiaries. But opportunities wait for no one: relying solely on assembly and processing cannot sustain long-term growth; it must master the production capabilities of components, materials, technologies, and quality standards.

The Ho Chi Minh City Supporting Industry Association (HASI) signed three strategic memorandums at the forum: cooperating with the Domestic Industrial Development Support Center to enhance enterprise competitiveness and establish an industry database; cooperating with the Vietnam-Belgium-Luxembourg Business Association to explore the European market; and cooperating with MISA Group to promote digital management. These collaborations demonstrate an "ecosystem" mindset – a single enterprise cannot break through alone; synergy among the government, associations, financial institutions, and multinational corporations is needed.

China's Revelation: Can Vietnam Replicate the Dongguan Model?

Looking back at the rise of China's Pearl River Delta, its core was attracting foreign investment, cultivating a local supplier network, and ultimately forming a complete industrial ecosystem. Vietnam is trying to replicate this path but faces two key differences:

1. Technological depth: China rapidly gained technology spillovers after the 2000s, while Vietnam still heavily relies on imported core components (such as chips and precision transmission parts). Its supporting industry is mostly concentrated in simple mechanical processing and electronic assembly, with low technological added value. 2. Market size: China has a huge domestic demand market, providing room for trial and error and iteration for local suppliers. Vietnam's domestic market is relatively small, so enterprises must be export-competitive from the start, which imposes higher requirements on quality, cost, and certification.

However, Vietnam also has its unique advantages: lower labor costs, continuously improving infrastructure, and a "neutral position" that avoids being drawn into major power trade frictions. The key is whether the government can solve the "last mile" problems such as financing difficulties for small and medium-sized enterprises and insufficient technical training when implementing policies.

Two Paths for the Future

Looking ahead to 2026-2035, Vietnam's supporting industry may diverge:

• Optimistic scenario: Government plans are successfully implemented, industrial clusters in Ho Chi Minh City, Hanoi, Haiphong form specialized supplier networks, localization rate gradually approaches the target, and Vietnam becomes a secondary supply center for the global electronics, automotive, and machinery industries.
• Pessimistic scenario: Certification and financing barriers hinder SME upgrades, foreign enterprises continue to rely on imported inputs, localization rate stagnates below 20%, and Vietnam falls into a "middle-low-end lock-in."

The information conveyed at the current forum leans towards optimism, but actions still need to catch up with words. As one participating expert said: "Digital transformation, data, and artificial intelligence are becoming new competitive advantages, helping enterprises improve productivity, reduce costs, and meet international standards." But to turn these concepts into actual factory output, Vietnam still needs to overcome numerous obstacles.Postscript: This article is based on a report from the Ho Chi Minh City Supporting Industry Forum on July 2, 2026. Data is cited from public information of the Ministry of Planning and Investment of Vietnam and the Ho Chi Minh City Department of Industry and Trade.