In recent years, Vietnam has emerged as a popular destination for large international companies looking to set up their operations in Southeast Asia. The country has attracted businesses from a range of sectors, including manufacturing, technology, and finance. In this article, we will explore the reasons why so many large international companies are moving to Vietnam and the trends associated with this phenomenon.
Favorable business environment
Vietnam has been a popular destination for foreign investors due to its favorable business environment. According to the World Bank’s Ease of Doing Business Report 2022, Vietnam ranks 70th out of 190 countries, which is a significant improvement from its previous ranking of 105th in 2017.
Vietnam has implemented various reforms to simplify business registration procedures and reduce administrative burdens, such as shortening the time required to start a business from 22 days to 6 days only. Additionally, the government has established a one-stop-shop for business registration and launched an online portal to streamline the registration process.
Access to credit has also improved in Vietnam, as the government has implemented policies to increase lending to small and medium-sized enterprises.
Moreover, the Vietnamese government has made significant investments in infrastructure development to enhance the country’s business operations. Vietnam has developed a modern transportation network that includes highways, airports, and seaports. For instance, the country has built a new international airport in Hanoi, and is building a new airport outside of Ho Chi Minh City, and completed several seaport projects.
In conclusion, Vietnam’s improving business environment, simplified business registration procedures, improved access to credit, modern infrastructure, and a growing middle class make it a desirable destination for foreign investors.
Low labor costs
Low labor costs are one of the key factors that make Vietnam an attractive destination for international companies. Vietnam has a large and young workforce, with a median age of just 31 years old. The country has a population of over 100 million people, which is the third-largest in Southeast Asia after Indonesia and the Philippines.
Vietnam’s labor costs are among the lowest in the region, with the average monthly wage in the manufacturing sector being around $300-$400. This is significantly lower than in neighboring countries such as China, Thailand, and Malaysia. The low labor costs in Vietnam are particularly attractive to labor-intensive industries such as manufacturing, textiles, and electronics.
Another factor that contributes to the low labor costs in the country is the relatively low cost of living. The cost of living in Vietnam is generally lower than in other countries in the region, which means that businesses can offer lower salaries while still providing a reasonable standard of living for their employees.
Vietnam’s strategic location is another key factor that makes it an attractive destination for international companies. The country is situated in the heart of Southeast Asia, with a coastline that stretches over 3,260 km along the South China Sea. Vietnam shares land borders with China to the north, Laos to the northwest, and Cambodia to the southwest.
One of the main advantages of Vietnam’s location is its access to major shipping routes. The country’s coastline is dotted with several deep-water ports, including the ports of Hai Phong, Da Nang, and Ho Chi Minh City. These ports are well-connected to major global shipping lanes, which makes it easy for businesses to transport goods to and from Vietnam.
In addition to its access to major shipping routes, Vietnam’s location also makes it an ideal base for companies looking to access markets in Southeast Asia and beyond. The country is located at the crossroads of several regional trade corridors, including the Greater Mekong Subregion, which includes Vietnam, Cambodia, Laos, Myanmar, Thailand, and China. This makes it easy for businesses to access the markets of these countries.
Vietnam’s location also makes it an attractive destination for companies looking to diversify their supply chains. With tensions between the US and China, many companies are looking to reduce their reliance on China as a manufacturing hub. Vietnam’s proximity to China, coupled with its low labor costs, makes it an ideal alternative for companies looking to shift their manufacturing operations to Southeast Asia.
Vietnam’s political stability and commitment to economic reform have contributed to the creation of a favorable business environment in recent years. The Vietnamese government has made a concerted effort to introduce policies that aim to attract foreign investment and promote economic growth. These policies have included tax incentives, subsidies, and other measures to encourage foreign investment and reduce the barriers to doing business in Vietnam.
Furthermore, Vietnam’s membership in several regional trade agreements has helped to create a more open and competitive market for businesses. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement that includes 11 member countries, including Japan, Canada, and Australia. The CPTPP aims to reduce trade barriers and increase investment flows between member countries, creating new opportunities for businesses to expand their operations and access new markets.
Similarly, Vietnam is also a member of the ASEAN Free Trade Area (AFTA), which is a regional trade agreement that aims to promote economic cooperation and reduce trade barriers between member countries. As a member of the AFTA, Vietnam has access to a market of over 650 million people, which presents significant opportunities for businesses to expand their operations and access new customers.
Vietnam has one of the fastest-growing economies in Southeast Asia, with an average annual growth rate of around 6-7% over the past decade. The country has a young and dynamic population, a growing middle class, and a rapidly expanding consumer market. This presents significant growth opportunities for businesses that are willing to invest in the country.
In terms of numbers, according to the Ministry of Planning and Investment, as of November 2021, Vietnam had attracted a total of 4,583 foreign direct investment (FDI) projects, with a total registered capital of USD 235.78 billion. The top countries investing in Vietnam are South Korea, Japan, Singapore, Taiwan, and Hong Kong. In terms of sectors, manufacturing and processing account for the majority of FDI projects, followed by real estate, wholesale and retail, and science and technology.
Vietnam’s growing middle class has also created a favorable consumer market for businesses. According to Euromonitor, Vietnam’s middle-class population is projected to reach 26 million by 2025. This rising middle class has increased demand for consumer goods, including food, apparel, and electronics.
Major recent relocations to Vietnam
Some examples of companies that have expanded or relocated to Vietnam in recent years include:
- Samsung: The South Korean tech giant has invested heavily in Vietnam, with several factories in the country producing smartphones, electronics, and home appliances.
- Intel: The US-based semiconductor company has been operating in Vietnam since 2006 and has recently announced plans to invest $475 million to expand its operations in the country.
- LG Electronics: The South Korean electronics company has invested in several manufacturing facilities in Vietnam, producing televisions, home appliances, and mobile devices.
- Adidas: The German sportswear company has relocated some of its production from China to Vietnam, citing the country’s lower labor costs and favorable business environment.
- Foxconn: The Taiwanese electronics manufacturer, best known for producing iPhones for Apple, has expanded its operations in Vietnam in recent years, building several factories in the country.
In conclusion, Vietnam’s emergence as an attractive destination for international companies is a trend that is not only supported by favorable economic and political factors, but also by firsthand experience of business owners who have been living in the country for a decade.
KNOK STUDIOS, our digital marketing company specialized in website creations, has found Vietnam to be a thriving market with abundant opportunities for business creation. The country’s strategic location, low labor costs, and stable political climate make it an ideal place for entrepreneurs to set up their operations.
As Vietnam continues to improve its business environment and attract foreign investment, the potential for growth and success is immense. For those looking to expand their businesses, Vietnam is a promising destination that should not be overlooked.
Contact us for your digital marketing needs in Vietnam!