Successfully investing in Vietnam

According to the Delegation of German Industry and Commerce in Vietnam (AHK Vietnam), Germany placed Vietnam one of the most important ASEAN trading partners in the European Union. Counting over 500 German companies in the country, the country represents a total FDI that reached an invested capital of 2.3 billion US dollars by the end of 2021.

   

German companies operating in Vietnam still face a number of challenges: from infrastructural problems, such as the underdeveloped road network to non-transparent administrative decision making. Contradictory legislation and inefficient bureaucracy remain serious problems that the country still has to manage.

    

Due to the high influx of FDI projects into Vietnam, in particular from Asian countries, we do witness pressure on real estate pricing, in particular in connection with manufacturing sites, but also increasing labour costs. At the same time companies may consider, depending on operation requirements, a location in a lesser developed area, i.e. outside of the HCMC, Da Nang and Hanoi regions, which still offer good value. Finally, localising suppliers in Vietnam may take some time and effort, as the economy is not as developed as – for example – Thailand or Malaysia, which means that finding suitable suppliers offering the desired quantity, quality and delivery timings may require some preparation.

Vietnam has continuously developed into an attractive supply-chain diversification option to China. China's trade conflict with the United States is leading to increased and unpredictable tariffs across the board. Vietnam offers a more cost-efficient and predictable trade option through a variety of free trade agreements, but also a liberal market entry thanks to an ever-reacting economy. Vietnam's independence from local partners further results in a strong investment inflow prone to innovation.

   

Vietnam will not become a fully-fledged alternative to China in the future, but the country will continue to be seen as a valued diversification option. From a risk management point of view, supply-chain dependence on one country such as China should be reduced, and Vietnam offers an opportunity to do so.

German companies also have good business opportunities in the areas of renewable energies, sustainable production or software and automation.

Finally, the shortage of skilled workers that prevails in Germany is also driving many companies to Vietnam not only to carry out suitable outsourcing projects, but also to recruit skilled workers in many areas.