Vietnam factories buoyed by diversion from China: Report

MORE hot beds for factories are springing up in Asean - particularly as Asian companies build up shorter, more local supply chains, a McKinsey Global Institute report has suggested.

Yet, even while regional markets such as Vietnam step up to the plate to make labour-intensive goods at low cost, other value-added factors will become more important, the report said.

As a wealthier China retreats from labour-intensive manufacturing, South-east Asian countries such as Vietnam, Cambodia and Indonesia have taken over those jobs.

Vietnam's Hai Phong and Ho Chi Minh City, alongside Bekasi in Indonesia, have attracted swathes of greenfield investment, especially into electronics production.

With the funds flowing into Vietnam - largely from South Korea and Japan, as Asia becomes more internally connected - McKinsey noted that "a new set of cities begins to benefit from the influx of capital", through the creation of factories, roads and jobs.

But the report also noted that industry value chains now rely more heavily on research and development, innovation, and value-added services.

"These shifts, combined with a wave of new manufacturing and logistics technologies, mean that countries across Asia will need to alter their investment priorities and develop new types of skills to compete in a more knowledge-intensive trade landscape," the analysts wrote.