Please note that this blog post contains sponsored content.
Introduction: The New Equation for Competitiveness
For decades, Vietnam's appeal as an investment destination was closely associated with competitive labor costs, a growing manufacturing base, and strong export performance. These advantages remain important, but they are no longer the primary factor shaping investment decisions.
In a challenging time like today, German companies increasingly evaluate locations through a broader lens. Beyond production costs, they ask whether a market can provide the engineering talent, technical skills, and business environment needed to support increasingly advanced manufacturing. This reflects wider changes across global industry, where automation, AI, and digitalization are reshaping how factories operate and how companies compete.
For businesses in sectors such as machinery, automotive, electronics, industrial automation, logistics, and renewable energy, workforce capability has become a strategic consideration alongside infrastructure, market access, and regulatory stability.
Vietnam's competitiveness is therefore evolving through the development of the capabilities needed for more sophisticated industries and higher-value activities.
Manufacturing is Becoming More Knowledge-Intensive
The manufacturing environment that attracted foreign investment two decades ago differs significantly from today's industrial landscape.
Factories increasingly integrate robotics, Industrial Internet of Things (IIoT), predictive maintenance, digital quality management, and AI-supported production planning. Rather than reducing the importance of people, these technologies are changing the skills companies require.
For German manufacturers, whose competitiveness is built on engineering excellence and precision, this creates new expectations for local operations. Employees increasingly need to operate automated equipment, interpret production data, solve technical problems, and continuously improve manufacturing processes.
This shift is particularly relevant as Vietnam attracts more investment in electronics, precision engineering, semiconductor packaging, and advanced manufacturing, where technical capability matters as much as production capacity.
Vietnam's Labor Market at a Glance in 2025
Beyond Labor Costs: Vietnam's Workforce Is Evolving
Vietnam's workforce has expanded considerably over the past two decades, but the more significant transformation is taking place in its capabilities.
Figure 1: Vietnam’s labor force and its productivity throughout the years. Source: GSO Vietnam
Alongside continued investment in engineering education and vocational training, Vietnam has made workforce development a strategic priority for higher-value industries. Technical universities, industry partnerships, and company-led training programmes are helping prepare employees for increasingly sophisticated manufacturing environments.
AHK Vietnam’s Talents & Training team supports this development through DIHK-standard dual vocational training, combining classroom learning with practical company experience and aligning workforce skills with business needs.
Many international manufacturers have also introduced in-house training programmes that expose employees to international production standards, digital manufacturing technologies, and continuous improvement methodologies.
Figure 2: The growth of Vietnam's employed people by sector throughout the years. Source: GSO
Vietnam's participation in global supply chains has further accelerated this learning process. As international manufacturers introduce more advanced technologies, local engineers, technicians, and managers gain practical experience that strengthens the broader industrial ecosystem.
This does not suggest that Vietnam has already solved every workforce challenge. Competition for experienced engineers remains strong, and capability levels can vary across industries and regions. Nevertheless, the overall direction is clear: workforce development is increasingly becoming a long-term competitive advantage rather than simply a labor supply issue.
AI Changes Jobs, But It Also Changes Skills
Artificial intelligence (AI) is increasingly becoming part of industrial operations, supporting applications such as predictive maintenance, quality inspection, production planning, and demand forecasting. Rather than replacing workers, AI is reshaping jobs and raising expectations for workforce capabilities. PwC's 2026 Global AI Jobs Barometer finds that skill requirements in highly AI-exposed occupations are changing more than twice as fast as in less exposed roles, while new tasks are increasingly centred on human capabilities such as judgement, creativity, leadership, and collaboration. As a result, engineers, technicians, and production managers require not only technical expertise, but also continuous learning and digital literacy to work effectively alongside AI-enabled systems.
As businesses adopt these technologies, they must also consider issues such as data governance, employment, intellectual property, and regulatory compliance. Successfully implementing AI therefore depends not only on technical capability but also on operating within an evolving legal framework.
Luther is one example of a legal adviser supporting international businesses in this area. Its work reflects the growing importance of aligning digital transformation and AI adoption with Vietnam's evolving regulatory environment.
Building Capability Beyond the Factory Floor
Recruiting skilled employees is only the first step. As operations expand, companies also need organizational structures, leadership capability, and management systems that can scale alongside the business.
Cross-cultural collaboration, leadership development, talent retention, and organizational change all influence how effectively companies respond to technological change and increasingly complex supply chains.
contagi is one example of organizations supporting this transition through leadership development and organizational consulting. Its work reflects a broader trend of companies investing not only in technical expertise but also in the organizational capabilities needed for sustainable growth.
Digital Services Are Becoming Part of Industrial Competitiveness
Modern manufacturing extends well beyond the factory floor. Automated production generates large volumes of operational data that must be processed, managed, secured, and integrated into wider business processes.
As a result, manufacturers increasingly rely on digital services, intelligent information management, AI-supported workflows, and business process outsourcing to improve efficiency and support scalable operations.
Businesses such as DIGI-TEXX demonstrate how digital business services can support international companies through technology-enabled processes and operational efficiency. Their role reflects Vietnam's growing capabilities not only as a manufacturing location but also as a provider of knowledge-intensive business services.
Looking Ahead: Capability Will Define Competitiveness
Vietnam's attractiveness as an investment destination is no longer measured solely by production costs.
Infrastructure, industrial parks, and logistics remain fundamental, but they represent only part of the equation. Increasingly, investors are assessing whether a location can provide the people, skills, regulatory certainty, and business ecosystem required to support advanced manufacturing and long-term innovation.
Vietnam continues to strengthen these foundations through investments in education, vocational training, industrial upgrading, and deeper participation in global value chains. While challenges remain, particularly in developing highly specialized talent and experienced technical leadership, the overall direction is towards greater capability across the industrial ecosystem.
For German companies, investing in Vietnam is no longer only a question of production capacity or operating costs. It is increasingly about whether a location can provide the engineers, technicians, managers, and future leaders needed to support business over the next decade. Vietnam's workforce continues to evolve, and while challenges remain, its growing emphasis on technical skills, vocational training, and industry collaboration is becoming an increasingly important factor in long-term investment decisions.