Consider Vietnam!

By Keith Meadowcroft, Asia Associate for Trade Horizons, Ho Chi Minh City, Vietnam

Why Consider Vietnam and Asia Pacific for your International Expansion Plans and Corporate Growth? I have been coming to Vietnam and Asia Pacific for over 10 years from Washington State USA, first as a traveller enthralled with the people and dynamic cultures, second as a business representative for other companies, and now in 2023, as a permanent resident of the country. I’ve chosen to open my own Vietnam based company and field representative office for Trade Horizons.

While I could have settled in so many places for business, the main reason I am here, in Vietnam and Southeast Asia, and why other companies just might want to be here, if they haven’t investigated it deeply yet, can be summed up in one word, “Opportunity”.

If any country outside of the Asia Pacific (APAC) region doesn’t have an APAC strategy, It should. This is where the most growth in consumerism is projected to happen in the next 30 years and where western countries have strong competitive advantage with many of its advanced industries.

Background

Vietnam, in particular, and my home, which is part of the ASEAN block of countries within APAC, is an excellent choice for being a top tier market choice for a company’s international strategy, in some form. https://en.wikipedia.org/wiki/ASEAN

Vietnam offers western companies’ great opportunities, 1) As an Export Market, 2) As a Sourcing Market, and 3), as a Foreign Direct Investment market. There are challenges and risks that should not be overlooked in executing any business plan in Vietnam or other countries in the region, but risk can be mitigated with strong awareness, adherence to a plan, and working with local partners.

With a population of over 95 million, Vietnam is dynamic country of change and opportunity, heavy in young consumers and entrepreneurialism.

Its centrally located in SE Asia, with easy travel reach to a nearby population base of over 3 billion people, within a 5hr flight.

Vietnam has a one party “communist” system, but its communist mostly in name only. In fact, it’s very capitalistic and entrepreneurial, more so that most of the other ASEAN countries I work in.

Although a low GDP per capita, Vietnam is growing rapidly. https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=VN

Why Vietnam

The population is very tech savvy, and puts emphasis on education of its population and developing bilingualism in Vietnamese and English, and increased global involvement.

The country has 3 major population zones, in North(Hanoi), Central(Danang), and South(Ho Chi Minh City). Exporting into requires in country distributors who know how to be effective in all zones.

Viet Thinh Garment Factory, Ho Chi Minh City, Vietnam (c) ILO Asia-Pacific

The country has been growing its GDP at a rate of 5 to 7%, pre and post Covid. Singapore’s United Overseas Bank (UOB) forecasts Viet Nam’s GDP growth for 2023 at 6.6 percent It has one of the highest projected growth forecasts in all of ASEAN

Free Trade Agreements

Besides being in the ASEAN trade block, Vietnam has several one-on- one FTAs, including with the US, UK, Chile, Korea, and Germany. It’s also a member of the newly formed. Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with 10 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Singapore., and most recently the RCEP(The Regional Comprehensive Economic Partnership), which is an FTA of 15 Asia countries, including China.

With regards to Vietnam’s relationship with China, it’s kind of love-hate for many reasons, historically, militarily, and politically. Its highly dependent on the Chinese supply chain for raw materials and some finished goods but likes to stay diversified and keep good relations with the USA and the west.

Export Destination

Export of each product type will be different, but As a Food and Beverage Export I have sold into the country for several years, but have found its not quick to build essential brand loyalty, and is and very price competitive However, depending on the product type and positioning like in FMCG, it can be a good market, where western brands are appreciated for quality and status.

According to research by the US gov’t, and personal observations, western companies seeking to come in with non-food related products should focus on industries, that can’t easily be supplied easily from China. Very good sector potentials include:

Green Tech/Environmental- Vietnam is very committed to Climate Change technology adaption, and like all of SE Asia, cleaning up its environment. Vietnam recently sponsored with Europe, a Green Forum and expo in November 2022, Many European sponsor and country pavilions were present including: The Netherlands, Belgium, UK, Denmark, Japan, France, Italy, and German.https://eurochamvn.glueup.com/event/green-economy-forum-exhibition-gefe-2022-56987/
Chemicals- a wide category, including Specialty Chemicals for construction, manufacturing, agriculture.
Industrial Equipment- Wide applications including manufacturing, infrastructure improvement
Defense- Anything to boost its defense.
Cold Chain- Cold Storage and Transportation
Healthcare- IT, Equipment and Pharmaceutical
Aviation- Expanding Airport Systems. All technologies
Franchising- Vietnam is relatively untapped for foreign F&B and Service organizations. Use of local experts is advised.

I highly advise any company to cover your Intellectual Property and before entering Vietnam or other APAC nations for distribution of your branded products.

Sourcing

Vietnam has long been a strong global leader in textiles, garments, and footwear, and quite a few agriculture products and seafoods. As example, Nike produces over 35% of its products in Vietnam, and Samsung is now producing over 40% of all its products here. Walmart has a sourcing office in Ho Chi Minh City, just above mine for all kinds of FMCG.

Strategically located in the center of Southeast Asia, Vietnam has relatively good logistics systems and 3 seaports in the top 50, according to Lloyd’s Maritime. This provides Vietnam with favorable conditions for international shipping and trading in the Asia Pacific Region and out to the Americas and Europe.

From my experience, the Vietnam factories are skillful, and more and better manufacturing capabilities are happening in the country, in many sectors. The country is gaining credibility in sectors, such as light and heavy industry, as well as IT software development.

The factories I have worked with have been good about low MOQs for orders and depending on your industry.

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For sourcing in Vietnam, It is very important to always have clarity in design negotiations, have a Quality Control program in place, and be clear in any contracts, for expectations and financials. In contracts, I advise using dual language agreement so all terms are spelled out clearly. Even though you might visit the country a few times, during your sourcing project, it’s also highly advised to have contacts in Vietnam that are bilingual and skilled in business communications, and in legal area and accounting as necessary, to rely upon when not in country.

FDI

FDI investment in Vietnam is expected to reach up to $38 billion in 2023, up from $24 billion in 2022. Singapore is the leading FDI investor, with South Korea and Japan as 2 and 3 respectively.

https://en.vietnamplus.vn/vietnams-fdi-projected-to-reap-up-to-38-bln-usd-in-2023/247528.vnp

Vietnam has shown to be at forefront of country markets, to receive the transfer flow out China for banking and factory relocation.

Good opportunities in FDI, might include: Relocation of a factory, Establishment of a new production line Infrastructure Public Private Partnerships, Real Estate Investments, and Franchising.

The country has over 320 industrial parks, providing good manufacturing set ups for FDI. with clusters of industries like industrial and textiles in the south and high tech in the north, near Hanoi, centered around companies like Samsung, the growth shows the favorable business climate in Vietnam today.

Service companies. Like developers with Ready Built Factories and A La Carte 3^rd party start up partners can make a factory relocation, a reasonably strong experience for an FDI company.

Setting up a company office in Vietnam is fairly easy. Establishing a Vietnam registered company is a little more difficult but can be worked thru with the right agent familiar with Vietnam law, leasing and accounting.

The Vietnamese gov’t allow business to operate judiciously. A business just needs to who to “influence” to get certain things done. However, all FDI investors, should not go afoul of the local laws and home laws on Foreign Corrupt Practices. This is why its always good to have local partners.

Business practices here are similar to western style, but a bit different than the west. people want to get to know you first. This includes going out for meals and drinks a few times before business is delved into deeply.

Global banks in Vietnam for securing specific transactions and ongoing operations, as investors need, include Chase, Citibank, UOB, and Standard Charter

Region

Whatever focus of international strategy a western company brings to Vietnam and APAC, Export, Sourcing, or FDI, it is highly advised to have a trusted partner on the ground in a country like Vietnam, or for the region. This will help to understand the business environments better and help you avoid unnecessary risks and costly mistakes, as well as to promote operational success and profit maximization.

If you already have existing distribution in export in the APAC region but need better results from those existing distributors or country markets, we can help you increase and manage efficiently from our office in Vietnam. This will help dramatically lower your overall costs of operation and provide the best customer service possible. We work in good faith to represent your company goals, qualities, and ethics.

Please contact Keith Meadowcroft, Trade Horizons Associate for more information Keith.meadowcroft@global.tradehorizons.com