Savills Vietnam: Vietnam raises its position in the global value chain

In 2023, Vietnam will continue to attract significant FDI inflows from the US and Europe, especially in high value-added industries such as manufacturing, technology and pharmaceuticals.

The EU-Vietnam Free Trade Agreement (EVFTA) and good relations with the US have increased interest and investment from investors in the computer, electronics and telephone sectors.

Savills Vietnam experts assess this as a positive signal for Vietnam's economic development and international cooperation; at the same time, this is also clear evidence of Vietnam's efforts in the process of improving its position in the global value chain.

Investment capital poured into production, high technology

According to statistics from Savills Vietnam, by June 2023, there were a total of 2,508 foreign direct investment (FDI) projects from European Union countries in Vietnam, with a total registered investment capital of up to 28.91 billion USD.

This is a significant increase from 1,623 projects in 2016, with a compound annual growth rate (CAGR) of 7%, while the number of projects grew at 6%. European countries have played an important role in driving Vietnam’s economic development through FDI.

Specifically, the Netherlands leads with 427 projects and a total investment capital of 14.1 billion USD, equal to 49% of the European Union's investment capital in Vietnam.

Dutch investors include big names such as FrieslandCampina, De Heus, Unilever, Philips, AkzoNobel, Shell and Damen. Dutch suppliers, such as chipmaker ASML Holding, have visited Vietnam to assess the possibility of setting up new manufacturing facilities in Southeast Asia.

France holds the next position with 3.8 billion USD in total investment capital; in which, Sanofi has invested heavily in the pharmaceutical industry in Vietnam.

Germany and Denmark have also contributed greatly to Vietnam's development, promoting large manufacturing and investment projects. LEGO has invested 1 billion USD in a toy factory in Vietnam, opening the way for other European manufacturers to increase investment in this market.

Mr. John Campbell, Deputy Director, Head of Industrial Services, Savills Vietnam, said that in 2023, Savills Vietnam's team will carry out 3 deals with German businesses, namely Fuchs, Farmas and J. Wagner.

According to the Vietnam Industry Highlights 2023 report released by Savills in mid-October, Vietnam has signed 15 Free Trade Agreements (FTAs) and is negotiating three more. Vietnam is involved in more trade agreements than most of its regional partners, which is impressive given that ASEAN is considered one of the most globally integrated regions. The EVFTA, which took effect in 2020, marked an important milestone in trade and investment relations between Vietnam and European countries.

EuroCham's Q3/2023 Business Confidence Index report also said that more than two years after its implementation, the EU-Vietnam Free Trade Agreement (EVFTA) continues to have a strong positive impact on Vietnam's business landscape.

More than 60% of businesses said the agreement was beneficial; the top benefits were tariff reductions, followed by improved competitiveness in Vietnam, reduced trade barriers, expanded partnerships with local companies, and increased access to the Vietnamese market.

As for the US market, President Joe Biden's recent visit, along with Vietnam and the US upgrading their comprehensive cooperative relationship, is expected to see a positive increase in interest from investors from this market in the coming time.

“Although this event only took place about a month ago and it will take time to see clear impacts, in the recent past, Savills Vietnam real estate services department has met many American investors visiting projects in Vietnam; in which, the majority are in the manufacturing, processing and electronics technology industries,” Mr. John Campbell shared.

In particular, Mr. John Campbell said that September 2023 is also the time when Apple announced that it had completed the transfer of 11 factories producing audio-visual equipment to Vietnam. Along with that, Google also said that Vietnam is on the list of potential markets that the company is considering investing in Southeast Asia in the near future.

Elevating position in global value chain

According to Savills research, the sharp increase in electronics and telephone exports from 2016 to 2022 fully reflects Vietnam’s upgrading its position in the value chain as an economy exporting high value-added products. Specifically, the export value of electronics, telephones and machinery increased by 193%, 68% and 336% respectively during this period.

Vietnam has been working hard to move up the value chain for many years and has been rewarded in recent years with the opportunity brought by the US-China Trade War in 2018. Along with that, the COVID-19 pandemic in 2020-2022 has accelerated the diversification and re-establishment of factories by multinational electronics manufacturers outside of China to Southeast Asia.

“In essence, Vietnam’s goal is not to replace China on the world manufacturing map. Vietnam is focusing on attracting these high value-added investments by improving its workforce and infrastructure while facilitating SMEs and supporting industries. The importance of technology transfer from foreign investors in Vietnam’s value chain development, especially in relation to upgrading the workforce, cannot be underestimated,” Mr. John Campbell analyzed.

These efforts have been recognized by many major investors and have included Vietnam in their future development plans. JP Morgan estimates that by 2025, Apple will move 65% of its AirPods production, 20% of its iPads, 20% of its Apple Watches, and 5% of its MacBooks to Vietnam.

Intel is also expanding the second phase of its chip testing plant in Ho Chi Minh City by 2025 with a major investment of up to $4 billion. Other US companies such as Boeing, Google and Walmart have announced plans to expand their supplier networks and manufacturing facilities in Vietnam after studying the market.

Similarly, the quarterly Business Confidence Index conducted by the European Chamber of Commerce in Vietnam (EuroCham) shows an upward trend in the third quarter of 2023, bringing a ray of hope to Vietnam's business environment after a turbulent year.

The confidence index rose to 45.1 points in the third quarter of 2023 from 43.5 points in the previous quarter. Although the figure has remained below 50 points for four consecutive quarters, this small increase has shown a positive sign in the economy.

According to EuroCham, Vietnam’s global investment attractiveness remains strong, with 63% of surveyed businesses ranking Vietnam in the Top 10 FDI destinations.

Notably, 31% ranked Vietnam in the Top 3; of which, an impressive 16% praised Vietnam as a top investment destination. Further reinforcing this belief, more than half of the respondents predicted that foreign direct investment in Vietnam will increase as 2023 draws to a close.

“Nearly a third of our members ranking Vietnam as one of the top three investment destinations sends a strong message of our confidence in this partnership,” EuroCham Chairman Gabor Fluit commented on the Q3 2023 Business Confidence Index.

However, Mr. Gabor Fluit also noted that while we saw promising GDP and FDI growth in Q3, issues remain – particularly in exports and real estate. Addressing administrative burdens, regulatory ambiguity and licensing barriers is critical to making progress.

Similarly, Mr. John Campbell also recommended that to attract these world-leading large companies, industrial park developers in Vietnam should focus on value-added services and incentives beyond price and rent such as market entry services, human resources and legal support, management services, sustainability initiatives and working with professional industrial real estate agencies.

According to VNA/Vietnam+

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