MARKET OVERVIEW 2019

MARKET OVERVIEW 2019 29 Tháng Mười

Recently, the globalization has impacted on every country from the biggest economy as America to the poorest countries, it has taken China from poor country to top the “world’s factory” where multinational corporations could optimize their profit by utilize the cheap costs and preferential policies of the giant government in last few decades. However, China has no longer the most attractive place for corporations. Investors are always looking for new opportunities to maximize their profit and China cannot give them much preference than emerging economies. Hence, there are a huge transfer FDI from around the world to emerging nations and Vietnam is the most attractive place for investors. The movements are derived from both external reasons and internal reasons of Vietnam.

 

  1. International Overview

As above mention, China has become a top the “world’s factory” from the nation belonging the third world due to GLOBALIZATION. The world has witnessed spectacular growth of China since 1978 when China shifted from a centrally-planned to a more market-based economy and officially over Japan in 2012 becoming the second largest economy in the world; however, the economic growth has been slowed down after got the peak in 2012 (World Bank, 2019). Researchers argue that there are several main reasons for this decrease including the movements of multinational enterprises from China to other countries to get advantage competitions from emerging economies and reflect against the tariffs of Trump which are applied on goods exported from China (Cheng Xiaonong (2018)

 

1.1. Costs of enterprises in China were soaring in the last decade

Indeed, in the last decade, the everage of manufacturing wages of the World Factory have tripled. Furthermore, taxes, social insurance, energy price, and exchange rate have been following. As the results, all of the soaring costs have weakened competitive advantage of China in comparison with developing countries, such as Southeast Asian Countries and India (Cheng Xiaonong, 2018).

 

Furthermore, the emerging economies, such as Southeast Asian Nations and India have sent many preferential policies including taxes, administrative procedure, and so on. to attract FDI from other countries, especially from China. Therefore, there is a certain trend being transference of international companies to the dynamic areas.

 

1.2. The TRADE WAR between the United State and China

Recently, the Trade War between US and China escalated. The newest action was announced on 9th Oct 2019, the Trump administration will restrict 28 more Chinese companies who are exporting to America before the next round of talks (Kiran Stacey and James Politi, Financial Time, 2019). The stress of the War has no sign to reduce in the near future. In fact, according to the American Chamber of Commerce in China, a nonprofit organization with membership of more than 3,300 individuals from 900 companies operating across China, 35 percent of the companies it surveyed have moved or considered moving their production bases out of China to other countries such as Southeast Asia. Report from Kyodo News based in Tokyo said that there are 60% of Japanese enterprises operating in China have been left or in the process to transferring out of China to other nations, while the rest of percentage are planning to withdraw their fund and investment. Indeed, recently, many companies operating in China want to move to others to avoid the tariff from the Trump policies. Many of them expects to move all factories but some of them want to transfer.

 

 

Besides, to avoid the high tariffs imposed by the United States, Chinese manufacturing companies are also moving out of China–their products range from bicycles, tires, plastics to textiles. Many Chinese factories are transferring their assembly lines abroad.

  1. Vietnam Overview

One of the most attractive places to consider to relocate factories of international corporations is Vietnam. According to  survey from Nomura Bank located in Tokyo on 79 multinational companies about a nation which their plan to transfer to from China. Unbelievable result shows that, there are 26 corporations expecting to relocate their factories in Vietnam accounting for a third. Vietnam has got many advantages to establish industrial zones and is an ideal place for foreign companies to set up manufacturing factories, such as have perfect geographic location, good demographic dividends, government policies to attract FDI, and so on.

 

2.1. Geographic Location

According to the report of Vietnam Institute for Development Strategy in 2014, Vietnam is located at the heart of Southeast Asia, serving as a gateway to the Pacific Ocean and Indian Ocean with the coastline is 3.041 km in long where there is one-fourth of number of ships over the world operating and accounting over a half total value of goods passing this sea route and very large ship can be anchored (http://vids.mpi.gov.vn/32/484.html). Vietnam borders with China that has over 1.4 billion people – a largest market at the Northern side and Laos and Cambodia – two emerging economies at the west. This strategic location enhances the country’s connectivity because all major international economic and commercial centers such as Singapore, Kuala Lumpur, Bangkok, Manila, Hong Kong, Taiwan, Tokyo, Seoul, and New Delhi are all within a few-hour flight. Recently, investors expect to invest in Kra Canal through Thailand to shorten the connection from Western Countries, Southern Asian Countries, and Africa to huge Asian economies, such as China, Korea, and Japan. And it is believed Vietnam will be able to be replaced Singapore to be a busy transit sub for cargos and passengers. All of above geographic advantages is going to bring to Vietnam significant competitive power for Vietnam now and in the future.

 

2.2. Scope of Market

According the General Statistics Office of Vietnam, the population of Vietnam is 97,685,701 on 10th October 2019 and The World Bank (Apr 2019) forecast to reach 120 million in 2050, which is enormous potential market to make the business investment for all investors. Besides, over the past 30 years, Vietnam has had a remarkable development record. Economic and political reforms under Đổi Mới, launched in 1986, have spurred rapid economic growth and development and transformed Vietnam from one of the world’s poorest nations to a lower middle-income country. The institute in another report also shows that the economics conditions have been continually improved, which is adduced by the Vietnam’s GDP per capita was four time higher from UDS600 in 2015 to USD2,600 in the second quarter of 2019 leading the purchasing power of whole market will be significantly increase. Furthermore, at the time being, the majority of the population is in the lower-middle income bracket, but the upper-middle income proportion who can earn USD714 per month or more was from less than 1% in 2011, is 10% currently and is predicted to grow up to a-third of total population in 2030, according to BMI Market Report (2019). In addition, there are considerable changes in spending habits of Vietnamese people. Although, old people still keep still conservative and choosey when it comes to spending their hard-earned income, but young people, nowadays, are spending more good quality products and luxury services (Hanh Vu, 2018). Large number of population, personal income, and shifting purchasing habit of population has significant brought attractions for investors for retail industry as well as consumer goods industries.

 

2.3. Trade Openness

Vietnamese government has made ceaseless efforts to open and integrate its economy into the global economy. After officially becoming a member of the World Trade Organization (WTO) in 2007, Vietnam has participated in many international cooperative agreements including various free trade agreements (AFTA, ACFTA, AKFTA, VKFTA, AJCEP, VJEPA, etc.) with many regional and global partners, been one member of ten large economies of organization of CPTP. Especially, Vietnam and America signed comprehensive cooperation agreement in 2013 and EVPTA between Vietnam and EU on 30th June 2019. These important agreements allow Vietnam and partners to achieve preferences from each members, especially in importation –  exportation, and technological transfer. On the other hands, the total exportation volume of Vietnam tripled in the last 8 years from USD157.00 billion in 2010 to USD480.17 billion in 2018, and especially, in Jun 2019, the first time the total of exportation value of Vietnam was over Thailand’s one becoming the second largest nation in Southeast Asian in term of exportation value (report of Vietnam Customs Office in 2011 and 2019).

 

2.4. Easy doing business

In 2015, a number of amended laws such as Law on Investment, Law on Enterprises, Law on Land, and Residential Law will take effect, assuring to help foreign investors to overcome bureaucratic bottlenecks and create an equal legal system to attract high-quality investment projects (Hanh Vu, 2018). In term of easy doing business, Vietnam increased 14 spots from 82 ranked in 2016 to 68 of 190 counties ranked 2018 (Vietnam Briefing report, 2018).

 

2.5. Workforce and Demographic dividends of Vietnam

According the General Statistics Office of Vietnam, the population of Vietnam on 10th October 2019 is 97.685.701, in which, 70 percent of the population is under 35 years of age, with a life expectancy of nearly 73 years (The World Bank, 2019). The workforce is young and large and shows no sign of decrease. In addition, the country also invests more money in education than other developing countries. Indeed, there, recently, are around 1.5 million students who are studying in Vietnam and parents are paying more and more for their children for study abroad at around USD 3 billion per year and the number of students who are going to study abroad gradually increase by 8% per year as the research from HSBC. On the other hand, the labor cost in Vietnam is much cheaper than some countries including China, Japan, Korea, Taiwan, or Hong Kong. All of above signals prove that the qualification of Vietnamese workforce has improved day by day and will be able to meet all requirements of recruiters with low cost as well.

 

2.6. Social Infrastructure

The transportation infrastructure system in Vietnam consists of roads and highways, railways, ports, harbors and airports. At present, Vietnam has 21 commercial airports and 10 of them are international airports with modern facilities and equipment, connecting Vietnam with 41 destinations around the world including ASEAN countries, China, Japan, South Korean, the United States, France, Germany, and Australia. To travel to other countries in the region such as China, Cambodia, Laos and so on, business travelers can easily choose other means of transportation such as cars, buses and trains. The national road system is completed and advanced making it possible to travel to everywhere in the country. In big cities, public transportation, taxis, and “xe om” (motorbike-taxi) are widely available and reasonably priced, catering to the needs of all local people, tourists, and business travelers. In addition, over ground trains have been constructed in Hanoi and HCMC and will be finished and operated in next few year leading the movement of citizens easier, quicker, and more convenient.

 

With its deep-water seaports and a commercial history, Vietnam has also long been an international logistics and shipping hub. In 2014, the total cargo throughputs handled by Saigon Port reached 109 million tons, while that number for Hai Phong Port was over 55 million tons.

 

Regarding to State-of-art communications, the system of post and telecommunication in Vietnam is of international standard, providing fast, reliable and high quality services such as ADSL, rapid data transfer, wide broadband MAN. The Internet service in Vietnam is also among the cheapest in the world. Recently, Vietnam is one of five countries being China, Japan, Korea, and India that have had researched and developed the 5G system with research content reaches over 60%.

 

In order to give good options for investors from the North to the South, Vietnam has established a range of industrial zones, economics zones, and high-tech parks. Now, Vietnam has over 300 industrial parks, economic zones, and high-tech parks across all the cities and provinces. When investing in the industrial zones and export processing zones, businesses can benefit from various incentives policy such as lower tax rates and other investment supporting services.

 

2.7. Natural Resources

 

Vietnam has an abundance of natural resources including oil, gas, coal, and various mineral resources and it enjoys increased attention from international exploration companies, particularly in the oil and gas sector. In addition, Vietnam is also bestowed with other natural resources including significant hydropower, solar and wind power potentials, marine resources, tropical forest, and agricultural potential. Realizing the paradoxical “resource curse”, in the past decade, Vietnamese government has tried to shift its economic activities from plain natural resource extraction to other higher value-added activities and toughen their environmental protection policy.

 

2.8. Political and Macroeconomic stability

Vietnam emerges as a safe haven for investment, steadily revamping its economy as well as maintaining its political stability. Within the Asian region, as the political situation in many countries such as Thailand, Indonesia, and China, or recent case of Hong Kong has become complicated and uncertain, causing concerns among investors, many foreign investors consider moving their capitals and resources to Vietnam to utilize its social stability, sound economic growth, and increasing favorable conditions for businesses.

 

According to report from IMF (2019), extensive market reforms since the dawn of the Doi Moi era in 1986, and strict commitment to macroeconomic stability more recently, have laid the ground work for rapid, inclusive growth that averaged 6.6 percent per annum during 2014–18 and reached a 10-year high of 7.1 percent in 2018.

 

2.9. Successes from the reputed multinational corporation

Since Vietnam opened its economy and alter its institutional and legal framework to create a stable investment environment, foreign investors are excited to explore this appealing investment destination. The first wave of FDI to Vietnam took place from 1991 – 1997 with more than 2,000 registered projects and a committed capitals of USD 33 billion (Hanh Vu, 2018). Many leading transnational corporations established their presence in Vietnam during this period such as BP, Shell, Total, Toyota, Ford, Coca-Cola, Pepsi and Sony. The recent years also witness more world-recognized reputable companies moving to Vietnam such as Intel, Metro, Samsung, LG, Yamaha, Honda, etc. Most companies prosper on Vietnam’s low costs of doing business, rich pool of labors, innovation, growing domestic demand and plentiful development potentials.

 

 

 

 



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