Is Vietnam a goldmine for Korean companies

02-Nov-2019 Intellasia | KoreaTimes | 8:16 AM Print This Post

With the market of Korea’s largest trading partner China becoming more saturated, Korean companies have found a more sustainable alternative: investing in Vietnam.

Companies have been advancing into Vietnam since the 1990s, mainly Hanoi and HCM City.

Since the mid-2000s, Korean investment to Vietnam has changed from the light industries of textiles and garments to heavy industries such as electronics, according to foreign direct investment data.

Demand for an alternative destination has risen, as many companies attempting to gain a foothold in China began encountering problems related to acquisitions and other deals.

The changing global value chain as a result of the ongoing trade war between the United States and China has also pushed companies to speed up investment in Vietnam.

“Korean companies are scrambling to open offices, set up joint ventures and build factories in Vietnam, as they chase opportunities in the region,” said Lim Jae-hoon, Korean consul general to HCM City. “They are riding the wave of Vietnam’s rapid development.”

Vietnam’s economy has been growing between 6 and 7 percent annually in recent years, whereas Korea’s economy has been wobbling in the 2 percent range.

Korea is the largest foreign investor in Vietnam, with their trade volume reaching $63.9 billion in 2017.

“After Korea and Vietnam signed a free trade agreement (FTA) in 2015, their trade volume increased by 40 percent,” Lim said.

Attractive investing destination

Major conglomerates like Samsung Electronics, LG Electronics, Hyosung Group and Kumho Asiana Group have been investing in large production complexes.

In 2018, Hanwha Group invested $400 million in Vietnam’s biggest private company Vingroup. Meanwhile, SK Group invested $470 million won in another Vietnamese company, Masan Group.

Lotte Group has expanded its hotel and real estate business with the development of Lotte Hanoi Hotel and the acquisition of Legend Hotel Saigon in HCM City.

Apart from property development businesses, the company has rolled out plans to increase the number of its discount store chains (Lotte Mart) to 60 by 2020.

Another retail giant CJ Group has been strengthening its presence across the food, entertainment and logistics businesses. This year, CJ Cheiljedang completed construction of a food processing plant in Hiep Phuoc Industrial Park in HCM City to produce Bibigo dumplings, kimchi and home meal replacements as well as other frozen food items.

CJ CGV, the largest cinema chain in Vietnam, currently operates 457 screens at 78 theaters.

CJ Logistics has acquired a majority stake in two shipping and logistics subsidiaries under Vietnamese logistics company Gemadept Corporation in 2017. It also teamed up with a Vietnamese budget carrier to cooperate in air freight business in 2018.

Not only conglomerates, but commercial banks have been flocking to Vietnam to attract card customer and provide loans to local borrowers.

Shinhan Bank Vietnam currently runs 36 branches across the Southeast Asian country and has expanded its presence there by launching a commercial investment bank headquarters and introducing a private wealth management service.

Pros and cons

Industry analysts explained that Vietnam is an attractive investment destination for firms because it has a favourable business environment.

Most administrative procedures have been reformed to provide the best conditions for production and business activities, according to the Korea Trade and Investment Promotion Agency (Kotra).

Vietnam also has geographical advantages in the region located on the sea route connecting to Europe and other Asian countries. Its labour market with young workers is another attractive point, it said.

“A few years ago, the Vietnamese government simplified customs and taxation procedures to encourage more investment from foreigners,” said Yoon Joo-young, a director general at Kotra HCM City.

“Low salaries are certainly a factor that brings Korean firms here, but the main reason is to ensure quality, as well as logistics operations,”

Yoon mentioned that as Vietnam’s biggest city and a regional financial hub, HCM City’s GDP per capita is $5,538, higher than the $3,500 of Hanoi and the country average of $2,215.

“Because HCM City is richer than other cities and houses a middle class, it has been able to attract a number of high-profile companies,” he said. “Also, the consumer behavior of the Vietnamese is very similar to that of Koreans.”

The so-called 8X and 9X generation (born in the 1980s and 1990s) are the main consumers here, and so the services sector is also booming.

“Currently, the majority of high spenders are those in their 40s. They spend money on education, daily necessities and electronic devices,” Yoon said. “Those in the middle-and-upper class have a tendency to spend money on purchasing cars and property, just like Koreans.”

According to him, the entry of Korean firms to Vietnam has contributed to the Southeast Asian’s transformation of its industrial structure.

“We are witnessing the transition from light industry to heavy industry. Whether the country can continue its rapid economic growth in the future or not depends on how well Vietnam undergoes such a transformation,” he said.

However, Yoon pointed out that Vietnam’s business landscape has some weaknesses as well, such as a fragile banking system, incomplete reform of the public sector and a lack of infrastructure.


Category: Korea

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