Foreign groups step up plans to enter or expand in Vietnam

While China is struggling with the pandemic and is losing the confidence of foreign investors, proven resilience is pushing Vietnam to the fore as an ideal investment and manufacturing hub for Southeast Asia.

Vietnam has been chosen as the ideal destination for the “China+1” policy of HZO, a US-based company producing protective nano-coatings with an announcement on opening its very first manufacturing facility in Vietnam at Yen Phong Industrial Park in the northern province of Bac Ninh.

The country is also rumoured to be the next destination for Apple, the iconic US multinational tech titan of consumer electronics, computer software, and online services. Recently, the giant listed recruitment notices in Vietnam on LinkedIn, including a position of operations manager based in Hanoi and test engineers in Ho Chi Minh City.

These recruitment notices add credence to reports that Apple could increase outsourcing its manufacturing to Vietnam, while Foxconn, the world’s biggest electronics contract manufacturer and a key supplier of Apple, also has a facility in Bac Ninh to produce for the tech giant.

Sharing the same trend, other US giants of Google, Microsoft, HP, and Dell have also announced their plans to settle in Vietnam. While Google has asked suppliers to calculate expenses for moving some equipment from China to Vietnam via road, sea, and air after considering the impact of coronavirus to its operations, Microsoft aims to launch its latest Surface computer and laptop models in the country.

HP and Dell are also said to be moving up to 30 per cent of their notebook production to Vietnam.

As China is gradually losing its priority in global production, large-scale international manufacturers are rolling out China+1 expansion policies – with Vietnam emerging as a clear alternative in many evaluations.

China dominance dwindles

In a report released last week, global manufacturing consulting firm Kearney pointed out that China is increasingly losing share from US companies during the Trump administration, and the main beneficiaries of this are the smaller Southeast Asian nations. Along with the US companies, the move has also happened to enterprises coming from other big economies. 

The coronavirus has stalled manufacturing and logistics around the world, especially exposing the vulnerabilities of Japanese companies which rely on China for more than 20 per cent of their parts and materials needs. Japan has already prepared ¥240 billion ($2.23 billion) in subsidies for the 2020 fiscal year for companies moving production out of China. Consumer products maker Iris Ohyama is set to become the first Japanese company to receive a government subsidy to shift production out of China as part of an effort to build more resilient supply chains.

A survey from marketing and credit reporting firm Tokyo Shoko Search Co., Ltd., said that 37 per cent of 2,600 respondent businesses want to get out of China.

Since the US-China trade war kicked off, Japanese electronics maker Sharp has planned to shift computer production from China to Vietnam for shipment to the United States. According to Japanese television channel NHK, Sharp is also considering shifting production of multi-function office equipment to Thailand instead of China.

Meanwhile, it is reported that Nintendo, one of the largest video game developers based in Japan, is also going to pull a portion of its console production from China to Vietnam.

Across the pond, European leaders and enterprises also have looked into such moves to reduce dependencies on the Chinese market. Last week, the EU’s Commissioner for Trade Phil Hogan said the bloc would seek to “reduce our trade dependencies” after the pandemic.

Meanwhile, UK Foreign Secretary Dominic Raab, standing in for Prime Minister Boris Johnson as he recovers from the coronavirus, said on economic relations with China, “There’s no doubt we can’t have business as usual after this crisis” at a recent press conference after a phone call with G7 leaders.

Raab explained that the pandemic had taught the United Kingdom about the value and importance of co-operation and that Britain could not solely depend on China. Foreign groups step up plans to enter or expand in Vietnam

The US-China trade war last year triggered the trend of shifting production lines from China to Southeast Asia and other markets, but the virus outbreak has reaffirmed the danger of supply chain disruption when the world’s economy depends too much on one major market. Foreign groups step up plans to enter or expand in Vietnam

Vietnam is currently highly appreciated by the international community for its firm and timely actions to deal with the pandemic while maintaining its economic growth momentum and ensuring social security.

In addition, the various support packages to rescue the business community, including foreign-invested enterprises, are already appearing as a new driver of foreign capital inflows into Vietnam after the pandemic ends. 

Members of the European Chamber of Commerce in Vietnam (EuroCham) welcomed the government’s restrictions, including Directive No.11/CT-TTg dated March 4 directing the urgent tasks and solutions to address the difficulties of production and business establishments, extending the deadline for tax and land hiring fee payment, and suspending social insurance payments.

Around 75 per cent of businesses surveyed by EuroCham agreed that the extension on tax payments would help them overcome their difficulties during the pandemic.

Minimising damage

According to Ousmane Dione, World Bank country director for Vietnam, if the COVID-19 pandemic is gradually brought under control in the coming months, the Vietnamese economy will recover relatively quickly thanks to its solid foundations.

The World Bank also believes that the Vietnamese government was determined to curb economic losses from the crisis by taking necessary treatment and preventive measures, in addition to providing financial policies to support the majority of people and businesses to cope with the immediate burden.

In addition, global real estate services firm JLL’s latest market report showed that companies looking to diversify their manufacturing portfolio outside of China are attracted to Vietnam thanks to its proximity to China, free trade agreements, and the government’s desire to build Vietnam into a manufacturing hub in Southeast Asia. These comments are plus points in the eyes of foreign enterprises planning to relocate facilities or expand operations outside China, the report noted.

Shirakawa Satoko, head of the Japanese and English-speaking enterprises of Kizuna JV Corporation, said foreign investment inflows will be poured into Vietnam after the pandemic if the country can keep damage to a minimum. “The company has accelerated construction of ready serviced space in the Mekong Delta province of Long An’s Can Giuoc district with a scale of 80,000 square metres. The construction is expected to finish in the fourth quarter of the year to welcome foreign investment inflows,” Satoko said.

Asia Times quoted Alexander Vuving, professor at the Daniel K. Inouye Asia-Pacific Center for Security Studies in Honolulu, Hawaii, as saying that the pandemic has been a great opportunity for Vietnam to enhance its soft power, as it helped to broadcast Vietnam’s generous behaviour towards the international community.

Many analysts now expect Vietnam to receive the lion’s share of “second wave” factory relocations driven by the pandemic and growing anti-Chinese sentiment in the west fuelled by perceptions that China is chiefly responsible for the outbreak.

“Vietnam is a major beneficiary of this diversification as it has proved to be friendly while still cost-effective to investors from the west,” said Vuving. “Vietnam will be, in many cases, their first choice when they look around to find a reliable alternative.”

Sectors that are benefiting from urbanisation, a growing middle class and young demographics have the greatest potential:

– Consumer (food and beverage, modern retail): Continued growth of middle class driving discretionary/non-discretionary spending including dining out;

– Healthcare: Private providers help ease burden on public system;

– Energy: Limited capacity and strong demand have made this sector a top government priority;

– Domestic manufacturing: Companies that are involved in infrastructure and/or catering to needs/desires of growing middle class;

– Tech: Fintech, AI, logistics, real estate all seeing startups aiming to solve pain points in Vietnam and the region; and

– Tourism 2021 comeback: Foreign tourist arrivals hit a record of 18 million in 2019, while the level of domestic travellers reached 85 million. In addition, lower cost destinations will be poised to welcome more visitors once the world feels comfortable travelling again – benefiting Vietnam, which is seen as a safe haven from the coronavirus.

Source: VinaCapital