Vietnam’s Growing Investment Appeal: Insights and Future Outlook

According to the "Vietnam at a Glance - FDI" report published by HSBC's Global Research department on August 8, attractive factors play a significant role in drawing investment and enhancing Vietnam's integration into the global value chain.

Vietnam's Investment Climate: A Historical Overview

Since joining the World Trade Organization (WTO) in 2007, Vietnam has become a prominent manufacturing hub, integrating deeply into the global supply chain. Exports have surged by over 13% annually since 2007, primarily driven by foreign-invested enterprises.

South Korea, notably Samsung, has been a major source of FDI. Samsung’s establishment of a mobile phone manufacturing plant in Bac Ninh Province in 2008 marked the beginning of a substantial investment trend. Over half of Samsung’s global smartphone production now takes place in Vietnam, with total investments exceeding $20 billion.

The success of early investors like Samsung has spurred other multinational corporations to invest in Vietnam. In 2023, top Chinese manufacturing companies significantly increased their investment in Vietnam, contributing nearly 20% of new FDI.

Factors Driving Multinational Interest

Several factors contribute to the heightened interest from multinational corporations:

Competitive Costs: Labor costs in Vietnam are lower than in China and other countries, despite a strong educational foundation evidenced by high PISA scores.
Energy Costs: Vietnam offers competitive energy prices for manufacturing operations, though recent changes may affect electricity pricing.
Economic Agreements: Vietnam has established significant trade agreements such as the Vietnam-EU Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which have facilitated foreign investment.

The supportive tax environment also enhances Vietnam's attractiveness, with a statutory corporate income tax rate of 20% and additional tax exemptions for some businesses.

Vietnam’s Integration into the Global Value Chain

Vietnam’s participation in the global value chain has increased significantly and now rivals that of Singapore. However, much of this integration is through backward linkages, positioning Vietnam as a center for importing intermediate inputs for final assembly, as seen in the electronics sector’s low localization rate.

Challenges and Future Directions

To sustain strong investment inflows, Vietnam must advance within the manufacturing value chain and increase the domestic value-added portion of its products. Although consumer electronics exports have surged, Vietnam’s share in global integrated circuit (IC) exports has grown more slowly due to a shortage of skilled labor.

Addressing this labor shortage and expanding the semiconductor workforce will be crucial. The government must also enhance vocational education and support initiatives that encourage foreign companies to engage with the domestic economy. For example, Synopsys, a U.S.-based chip manufacturer, has recently partnered with the National University of Ho Chi Minh City for IC design and training.

Encouragingly, advanced knowledge and manufacturing processes are increasingly entering Vietnam. Samsung’s new research and development center in Hanoi and Apple’s expanding presence are signs of this trend.

Conclusion

In conclusion, Vietnam’s investment appeal remains strong, driven by favorable factors and ongoing improvements. However, addressing challenges such as labor shortages and infrastructure quality will be essential for maintaining robust FDI flows and further integrating into the global value chain.