In the first half of 2025, the country secured over $21.5 billion in FDI, a robust 32.6% increase compared to the same period in the previous year. Yet, as regional competition intensifies, Vietnam’s traditional advantages are narrowing within the global value chain. To sustain its appeal, the country must redefine its competitive edge.
Strong Inflows, Limited Spillovers
Vietnam’s investment climate has undergone significant improvements, fostering greater transparency, efficiency, and investor confidence. Streamlined procedures through the National Single Window, integrated business registration and customs processes, and round-the-clock online public services have slashed licensing times, minimised bureaucratic interactions, and curbed opportunities for corruption.
The government’s Resolution 176/2025/QH15, which took effect on 1 July 2025, has further reshaped the administrative landscape. By reducing the number of ministries from 18 to 14 and restructuring provincial administrative units into a two-tier governance model, Vietnam has empowered local authorities with greater autonomy in managing investments. This overhaul has enabled provinces to act more decisively in attracting capital.
Vietnam’s proactive integration into the global economy through next-generation free trade agreements (FTAs) has also bolstered its appeal. These agreements have expanded market access and lowered input costs through phased tariff reductions on raw materials and components. Meanwhile, the country’s special economic zones, seaports, logistics hubs, and bonded warehouses have continued to mature, cutting customs clearance times and boosting the competitiveness of its manufacturing and processing sectors.
However, Vietnam’s position as an FDI destination stands at a crossroads. While the country enjoys advantages such as political stability, strategic geography, a youthful population, and a commitment to global integration, it lags behind regional peers like Thailand and Malaysia in institutional depth, infrastructure quality, and the pace of reforms. Indonesia, the Philippines, and even India are intensifying competitive pressures. Meanwhile, China is aggressively restructuring its economy towards technological self-reliance and closed-loop supply chains, while Singapore maintains its dominance as the region’s financial and research and development (R&D) hub, underpinned by near-flawless institutions.
Without swift upgrades to its institutional framework and a more compelling ecosystem for FDI, Vietnam risks becoming a destination chosen for low costs but abandoned when expenses rise. The current FDI landscape reveals structural imbalances: investments remain heavily skewed towards labour-intensive industries with low value addition, while high-tech, supporting industries, and innovation-driven projects remain underrepresented. Vietnam continues to function primarily as a global assembly hub rather than a technology centre.
Moreover, linkages between foreign investors and domestic firms remain weak, with Vietnamese companies often relegated to marginal roles in global supply chains. Technology transfer, a critical component of FDI, lacks substance due to inadequate oversight mechanisms and limited absorptive capacity among local firms. Vietnam’s FDI strategy has leaned heavily on cost-based incentives, such as cheap labour and affordable infrastructure, at the expense of sustainable factors like robust institutions, digital infrastructure, and a skilled workforce. This approach has left the country less competitive in attracting high-tech, green, and sustainable investments amid the ongoing global supply chain realignment.
Forging a New Competitive Edge
Vietnam is well-positioned to capitalise on the global investment reshuffle, emerging as a top destination for capital relocation. Yet, transforming this opportunity into lasting advantages demands addressing three core challenges: enhancing institutional predictability to reduce policy risks, developing integrated infrastructure that meets regional connectivity and environmental, social, and governance (ESG) standards, and shifting from blanket FDI incentives to selective, conditional strategies tied to technology transfer, domestic enterprise linkages, and sustainable development.
Encouragingly, domestic reforms are laying the groundwork for this pivot. The administrative restructuring, accelerated public investment, legal reforms, and clear commitments to green and digital transitions provide a strong foundation for change. If local governments seize this moment to redesign industrial and urban planning, streamline administrative processes, enhance business support, and establish transparent and consistent investment standards, Vietnam could usher in a new generation of FDI.
Relying on low-cost advantages, such as cheap labour or subsidised infrastructure, is no longer a viable long-term strategy. Global investors increasingly prioritise projects that align with ESG criteria, demonstrate technological innovation, and offer resilient supply chains capable of withstanding global shocks, such as pandemics or geopolitical instability. Vietnam must align with these priorities by offering robust infrastructure, a predictable legal framework, and a skilled workforce to transition from merely attracting capital to creating value.
Local governments must evolve from merely soliciting investments to becoming true partners to businesses. Only by fostering deep collaboration with investors can Vietnam position itself as a hub for high-tech manufacturing, innovation, services, and technology within the reshaping global supply chain. This requires a holistic approach, ensuring that policies, infrastructure, and human capital development work in tandem to meet the demands of modern investors.
The stakes are high. Vietnam’s ability to redefine its competitive edge will determine whether it remains a low-cost assembly hub or emerges as a dynamic player in the global economy. By addressing its institutional and infrastructural gaps and aligning with global trends, Vietnam has the potential to not only attract investment but also sustain and amplify its economic impact for decades to come.
