Although it is still too early to tell, many observers agree that the
worst of Vietnam’s economic dip is over, its economy will bounce back in the
coming years, and a new wave of foreign direct investment is likely to flow
into the country.
We can definitely confirm a
strong interest among foreign investors with regards to investment into Vietnam
today, especially from those looking at integrating Vietnam into their Asian
supply chain. Business delegations are frequently seen in the many five-star
hotels in Hanoi and Ho Chi Minh City, visiting the cities to scope out
industrial zones or conduct B2B meetings with local entrepreneurs.
These foreign investors are drawn
by Vietnam’s key advantages, including cheap labor (Vietnamese low-skilled
labor might cost 2.5 times less than China), tax efficient trading (thanks to
an extensive network of double tax treaties and free trade agreements), as well
as extremely advantageous geographic and sector-specific tax incentive policies
for newly-established businesses.
Vietnam is a particularly strong
draw for enterprises involved in the low-end manufacturing sectors, such as
textiles and garments, footwear, seafood processing and aqua products,
furniture and electronics. Foreign investors in Vietnam commonly manufacture,
source finished and semi-finished products, or sell raw materials, parts or
machineries. Interestingly enough though, we now receive daily inquiries from
foreign investors from a variety of sectors, all looking at Vietnam as a
potential fit for their expansion strategy.
Foreign investors showing
interest in Vietnam include large multinational companies (MNCs) that want to
set up manufacturing plants to export to other ASEAN countries (as well as into
Korea, Japan and other countries in the area). Foreign small and medium-sized
enterprises (SMEs) are also following previous waves of MNCs as part of the
supply chains or those simply looking to delocalize their production to a lower
cost country, as well as service providers interested in entering a relatively
low competition environment. At this stage, relatively few foreign investors
seem to look to sell consumer products to the still emergent Vietnamese middle
class.
On the other hand, Vietnam is
still a developing country and, as is the case with other places in emerging
Asia, one of the key points foreign businesses should keep in mind is that the
country is going through a very deep reform process, which means that
regulations are continuously changing. In practice, this means, for example,
that local authorities still have a relatively high level of discretion in
interpreting policies and regulations, making the business environment more
challenging for many foreign investors.
Research shows that the challenge
of conducting business in Vietnam is not currently improving. For example,
Vietnam ranks 98 over 183 countries in the World Bank’s “Doing Business 2012”
overall ranking, down 8 positions from 2011. Moreover, when ranked by topic,
§
Paying Taxes”
is down 22 positions year-on-year to a staggering 151
§
Protecting
investors” ranks even lower at 166 (up 6 positions year-on-year)
§
Starting a
business” is ranked at 103 (down 3 positions year-on-year)
§
Resolving
insolvency” ranks at 142 (down 13 positions year-on-year)
Whether this is the beginning of
a new era for FDI flowing into Vietnam is something we will be able to tell
within a few years. However, this may be the right time for those companies
looking at sizing opportunities to check whether Vietnam fits their global or
regional strategies.
Rosario Di Maggio
Business & Investment Opportunities
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Healthcare and Life Science with expertise in ASEAN. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programmes. Many thanks for visiting www.yourvietnamexpert.com and/or contacting us at contact@yourvietnamexpert.com
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