Korea, Japan and the US are becoming Vietnam’s leading investors, even strategic investors. These three investors will create a “tripod”, contributing to promote foreign direct investment (FDI) in Vietnam in the near future.
The findings of the Foreign Investment Agency – FIA (Ministry of Planning and Investment – MOPI) on offshore investment trend of Vietnam’s top investment partners shows that Korea – Japan – the US will continue to make a “tripod” in Vietnam’s FDI attraction.
Not all, but together with other leading partners such as Singapore, Taiwan, Thailand, Malaysia, etc., these three investors will play an important role in promoting both quality and quantity of FDI inflows to Vietnam.
Not only FIA but experts in this field have the same opinion that FDI from Korea – Japan – the US will continue flowing strongly into Vietnam in the near future.
The problem not just lies in inherent advantages of Vietnam, but also the vast opportunities opened after Vietnam-Korea’s Free Trade Agreement (FTA) is adopted, as well as the Trans-Pacific Partnership (TPP) agreement will be concluded next year.
Vietnam has participated in a series of other FTAs, as well as the Asean Economic Community (AEC) which is expected to be the stimulus for Vietnam in attracting investments from these countries.
The common point of the three investors of Korea – Japan – the US when investing abroad is to seek for market. For these investors, Vietnam is not only a potential domestic market, but also has opportunities to expand through FTAs.
*Korea – the most healthy tripod
Naturally, the leading partner will still be South Korea. In January-November, 2015, Korean investors have committed to invest in Vietnam over $6.39 billion, bringing the total FDI from this country to Vietnam to over $44 billion, standing firmly as the No.1 investor in Vietnam, even in this year or accumulated.
Minister of Planning and Investment Bui Quang Vinh, in the talk with Korean investors, has always appreciated FDI flows from this country, not only quantity but also quality.
As per FIA, almost all the major Korean companies in Fortune 500 list have had investment projects or business activities in Vietnam, such as Samsung, LG, GS, Posco, Hyundai, Kepco, SK, etc. and the contribution to Vietnam’s socio-economic situation of these investors is indisputable.
“The Korean government always encourages Korean businesses to invest in Vietnam, considering Vietnam as a strategic investment area”, said FIA.
It is forecasted that FDI from Korea to Vietnam will increase sharply in the near future, not just from the opportunities presented by FTA, but also because of the trend that Korean investors withdraw from China, Japan.
FIA supposes that, the fields of industrial electronics, distribution, retail, real estate, energy, textiles will receive the attention of leading Korean businesses such as Samsung, LG, Lotte, Shinseghe, E-Mart, Shinha, Woori, etc.
However, a warning has also been given, i.e., that South Korea continues to promote its investment in Vietnam is praiseworthy, but balance and diversification is also needed. This warning comes from the concern about the dependence on South Korea when FDI from traditional partners such as Japan, Singapore, Taiwan, etc. declined; the FDI attraction from G7 countries have had no positive signals.
*The US – hidden power
The US has always received great expectations from Vietnam. For years, there have had many statements about the fact that the US will become the largest investor in Vietnam. However, looking at the figure of $226 million that US businesses invested in Vietnam in the past 11 months, or the accumulated figure of over $11.2 billion, though the US still ranked among the top 10 foreign investors in Vietnam, there still has a great distance to take the No. 1 position.
As per FIA, the reason why FDI from the US to Vietnam is limited derives partly from the factors relating to transparency and corruption. Up to 69 percent of surveyed US businesses answered that corruption is one of the biggest issues in Vietnam.
In addition, the sporadic collaboration between the government and businesses in efforts to restructure the economy in order to increase competitiveness and adaptability to the WTO environment for both State businesses and small businesses is also one of the prominent causes.
Limitations in infrastructure, lack of hi-tech manpower also made the US’s investment in Vietnam to be not as expected.
In addition, rising costs in the past five years, including labour costs, office rent, housing, etc. have not pleased many investors.
However, the future is bright when many statements show that US’s FDI in Vietnam is likely to increase rapidly in the coming period. The reason is, like European, Korean or Japanese companies, the biggest goal of the US’s transnational companies when investing overseas is to seek for market while Vietnam assembles all the elements to become an attractive market.
Besides, Vietnam’s attractiveness comes from low labour costs. Currently, soaring labour costs in China are forcing many American multinational manufacturers to turn their attention to cheaper places, including Vietnam.
In fact, more and more US businesses seek for investment opportunities in Vietnam. Typically, Microsoft, since the end of 2014, this business moved smartphone factories from China to Vietnam, turning it into a major global supply chain of the group.
“The US’s corporations have considered Vietnam as a strategic market for long-term benefits, not only for their immediate interests”, said FIA, adding that, apart from Microsoft, a series of other groups are also shifting their focus to Vietnam like Intel, Jabil, Microchip, etc.
Obviously, TPP is bringing about enormous attractiveness to Vietnam. Since Vietnam joins TPP negotiations, the number of US companies coming to Vietnam to seek investment opportunities are increasing. If in 2013, only 22 US businesses came to study the business environment, in the first six months of 2014, there have had three business delegations with a large number (including many reputable American corporations such as Boeing, Apple AIG, Exxon Mobil, etc.) seeking investment opportunities in Vietnam.
“This attention will be increasingly large when Vietnam joins TPP. This is a favourable condition for US companies to increase investment, including the constant expansion of scale, production capacity increase, profit seeking”, said FIA, adding that TPP will make Vietnam become different than other investment markets in the region.
As per the forecast of FIA, Vietnam can also be a preferred choice of Hongkong-based US companies in shifting investment outside China.
*Japan – a firm pillar
One thing that is undeniable is FDI from Japan to Vietnam is slowing down. Over the past 11 months, Japanese investors only invested in Vietnam more than $1.723 billion, bringing the total cumulative FDI in Vietnam to approximately $39.5 billion. In spite of surpassing many other investors, Japan has lagged behind quite far from the No. 1 investor of Korea.
The reason for the slowdown is from 2013, most Japanese investment in Vietnam comes from Japanese small and medium-sized businesses, so few projects have large scale. Even, as per FIA, this will be the reason making the total newly granted FDI from Japan to Vietnam to reduce in the short term. However, in the long term, investment from Japan into Vietnam will continue rising.
Study of Japan External Trade Organisation (JETRO) shows that, one of the reasons making FDI from Japan to Vietnam to slow down in recent years is due to huge demand for reconstruction of the country after the earthquake, tsunami disasters. Japan has urged Japanese firms to boost doing business and investing in the country to promote growth and solve jobs.
The monetary loosening policy, the devaluation of Japanese Yen have also made foreign investment cost to be more expensive and caused Japanese investors tend to wait for improved exchange rate.
Apart from internal hindering factors from Vietnam’s investment environment such as policy inconsistencies, bureaucratic administrative procedures, high tax costs, underdeveloped supporting industry, etc., that the Vietnam’s economy in 2012 have yet returned to the good growth as in previous years also caused many Japanese businesses to tend to wait and have not decided to invest for expansion.
However, they are just temporary difficulties. “The potential to attract FDI from Japan has many favourable factors from both Japan and Vietnam”, FIA said and supposed that Japan currently has 4.7 million small and medium businesses, accounting for 99.7 percent of the total number of Japanese businesses with modern technology, technique and tendency to invest abroad, while Vietnam is in need of supporting industry development and investment attraction from these businesses.
Even in the long term, FIA said, the industrialisation – modernisation strategy till 2020 with vision to 2030 that these two countries are cooperating, with six cooperation focuses, will bring about great opportunities to FDI inflows from Japan. The collaboration from policy will bring about a “solid pillar” for FDI flows from Japan to Vietnam.
Source: Bao Dau Tu
Key words: Korea, Japan, the US, become Vietnam’s leading investors
