Vietnam as a rising center of manufacturing in the Southeast Asia

Korea’s investment value in Vietnam exceeded US$ 45 billion as of the end of 2015 holding its top place among foreign investors in Vietnam, and accounted for US$ 890 million in the first quarter of 2016. Korea’s investment contributes about 30% to total export volume of Vietnam, and about 4,600 Korean companies in operation create 700,000 jobs through investment in Vietnam.

Korean enterprises focused their investments on the labor intensive industry in the early stage of Korea’s investment in the 1990s. In the 2000s, however, Korean investment pattern was  transformed into  the capital intensive industry.  And now Korean investments in Vietnam are characterized by the technology intensive industry.

Why Korea invest in Vietnam? It can be answered by the favorable investment environment of Vietnam, strategic geographical location,  government commitments to improve its legal frameworks for foreign investors, and emerging as a rising center of manufacturing in the Southeast Asia.

Vietnam is located in the center of Southeast Asia, and its geographical proximity to Southeast Asia’s markets  leads to attractive destination for foreign investment. As a dynamic economy with its annual economic growth above 6% in the last five years,  however, Vietnam has been emerging as the new center of manufacturing in the Asia-pacific. This can be explained by one of the TPP expected effects which is to erode Chinese manufacturing edge. Also it is seen as a primary factor for foreign investment that the Vietnamese government has committed to create a fair and attractive business environment for foreign investors and  improve its legal framework related to foreign investment environment. 

In the meantime, the following advantages generally known to  Korean enterpriseshave promoted Korean  investment in Vietnam.

-affluent labor resource: cheap, young and highly literate labor force 

- growing potential of mid-income consumers and promising market for high-tech growth

- political and social stability, and favorable incentives from Vietnamese government

- market economy and international economic integrations

Despites the positive advantages, however, it should be noted that a number of barriers to Korean investment in Vietnam still remain.

 - administrativeand tax formalities:further simplication of administrative formalities and streaming customs and taxation formalities are required.

- lagging behind infrastructure development:threatening Korea’s investment in manufacturing and exports in Vietnam

- different work life values: Vietnamese workers tend to decline overtime work and prefer to spend time with family and in leisure activities

 -steeprise of wage: Korean firms in China have begun diversifying its investment and reduce dependence on the China market due to wages on the rise.

- high localization rate: the percentage of supplies that can be sourced locally 

-increasing criticism against Korea’s overseas investment in Korea resulting in reducing  domestic production andincreasing unemployment

Bilateral economic cooperation between Korea and Vietnam has recently been strengthened. Koreahas become the largest foreign investor in Vietnam as well as the 3rdlargest trading partner of  Vietnam, while Vietnam is the 3rd largest export market for Korea.

Thanks to favorable investment climate of Vietnam, there arise much room for further enlargement of Korea’s investment opportunities in Vietnam,  especially for Korean SMEs in high value added industry areas such as ICT, retails, service sectors, etc. In the aftermath of the bilateral FTAratification, however,  Korean enterprises have been put in  a better position of competing with Chinese and Japanese firms in Vietnamese market. 

With its geographical location and international integrations, Vietnam is expected to play an important strategic position for Korean businessesas a gateway to the Southeast Asia. In this context, Korean enterprises regard  Vietnamas an attractive investment destination to enhance cost-effectiveness in their global supply chains. In conclusion,Vietnamis recognized as an ideal partner for economic cooperation based on comparative advantage and strategic cooperation partnership in the years to come.