Foreign investors flock to Vietnam for booming domestic market

19.02.2019

While most Asian economies are vulnerable to the ongoing trade dispute between China and the US, Vietnam is a possible exception, as it may attract parts of the global value chain that currently run through China.

Foreign investors are targeting Vietnam as an attractive destination thanks to its fast-growing domestic market rather than just low labor cost as previously, experts said.

Nick Mahon, head of International Subsidiary Banking at HSBC Vietnam, said investors look deeper than low labor cost. It is Vietnam’s strong fundamentals, growing consumption market buoyed by the middle class, and plenty of government support to do business.

The outlook has been also seized by investors from many countries, especially Japan and South Korea.

According to Hironobu Kitagawa, chief representative of the Japan External Trade Organization in Hanoi office, Vietnam has been attracting Japanese enterprises in recent years because it is not only a strong manufacturing location, with stable infrastructure and competitive labor costs compared to neighboring countries, but also because it is a market that has significant potential.

It is expected that domestic demand will grow due to increases in market size, stable economic growth, and higher incomes, Kitagawa said.

As for the investment inflow from South Korea, industry insiders have also highlighted about the country’s latest investment wave to Vietnam, saying unlike in previous years, when South Korean investors poured direct capital into labor-intensive sectors such as textile, they now prefer to partner up with Vietnamese businesses in M&A deals to capitalize on local market demands.

Jiun Park, deputy director of the Global M&A Facilitation Center at the Korea Trade-Investment Promotion Agency, said the attention is now on Vietnam’s growing domestic market.

“An increasing number of South Korean small- and medium-sized companies are keen on Vietnam.  South Korean investors put in US$300 million of M&A capital in Vietnam in 2017, and US$200 million in the first half of 2018,” Park said.

Experts also noted that South Korean investors are often quick to make investment decisions and willing to transfer technology to Vietnamese partners with an aim to rapidly exploit the local market.

“This is a win-win situation as the South Korean partner can offer hi-tech solutions, while the Vietnamese partner can leverage its strong domestic network and existing market share,” Young-sup Joo, former Minister of Small- and Medium-Sized Enterprises and Startups in South Korea, said.

High spending outlook

According to experts, local consumers are boosting spending as the country’s robust economy lifts household incomes. Vietnam’s GDP grew by 7.08 percent last year, the fastest in the past decade.

Reports from the General Statistics Office (GSO) showed the country’s total retail sales of goods and services last year rose by nearly 12 percent year-on-year to VND4.4 quadrillion (US$191 billion).

Domestic consumption demands are forecast to continue rising strongly next time, with the nation’s domestic trade development strategy targeting total sales of goods and services forecast to grow by 13 percent each year through 2020 and by 14 percent per year for 2021-2025.

Vietnamese consumers are also among the most optimistic in the world. The latest quarterly report from global market research company Nielsen showed with a 9-point increase over the second quarter of last year, Vietnam consumer confidence index in the third quarter peaked in the past decade to 129 points, helping the country rise to the second position in the consumer confidence benchmark globally, behind India at 130 points, due to the growth in confidence in employment prospects and personal finances.

According to the report, while most Asian economies are vulnerable to the ongoing trade dispute between China and the US, Vietnam is a possible exception, as it may attract parts of the global value chain that currently run through China.

The rise in the confidence index is also due to greater optimism about employment prospects, personal finances and the level of willingness to spend, the report said.

Source: Vietnam.net

Photo: VAM