Vietnam looks promising for FDI: Reed Tradex

Phan Ngan, project director at Reed Tradex Vietnam, an ASEAN exhibition organizer, said that the country has expanded exports to more than 230 foreign markets and signed over 90 bilateral trade agreements and some 60 protection investment agreements to support local firms with overseas business expansion plans.

In addition, the country’s improved business environment is expected to attract a large number of investors in the manufacturing and industrial sectors, he said.

Vietnam is now home to over 10,000 active foreign firms, including global giants like Intel, Samsung and LG, which have plans to expand their businesses in the country.

South Korea-based electronics firm LG recently announced a plan to move its electronic product manufacturing plant from South Korea to Vietnam. This is forecast to increase the annual capacity of the smartphone manufacturing plant in Vietnam by 83%, equivalent to an output of 11 million electronic devices in the second half of the year.

Besides this, Japan saw a record number of Japanese-invested projects in Vietnam last year, at 603 projects, with total investment of some US$8 billion, according to Hironobu Kitagawa, chief executive of the Japan External Trade Organization (JETRO) in Hanoi.

Every year, JETRO conducts surveys on Japanese firms running businesses in Vietnam. Nearly 70% of respondents in a 2018 survey said that they expected to expand their businesses in the country. The intention to expand in Vietnam also remained strong among foreign firms from other ASEAN countries, the JETRO representative said.

However, the low localization rate remains one of the main obstacles faced by Japanese firms in the country, he said.

The localization rate, presently at over 36%, inches up every year but remains low compared with figures seen in China and Thailand, at 66% and 57%, respectively. As a result, many Japanese firms in the country have had to import more materials and accessories from neighboring countries, such as China and Thailand.

The low localization rate has resulted in rising production costs for firms operating in the manufacturing sector, hindering them from maintaining long-term operations in Vietnam.

Apart from that, small and medium enterprises (SMEs) operating in the supporting industries are facing other difficulties in operations due to inadequate policies in support of SMEs.

JETRO concluded that Vietnam would be an important investment destination to more Japanese firms if the obstacles facing the supporting industries were removed.