Vietnam's foreign investment attraction in the new era: From cost advantage to institutional trust

No longer competing mainly on cost, Vietnam's core asset, according to many foreign investors, is its reputation in attracting more investment capital from partners around the world . Photo: Duc Thanh. Graphics: Dan Nguyen

Repositioning investment advantages

For decades, low labor costs and an abundant labor force have been two key competitive advantages that helped Vietnam attract investment flows. Today, a more sustainable and convincing factor is gradually replacing it, which is “institutional prestige”. This fundamental shift is no longer just a theory, but in reality there is clear evidence to show it.

According to data from the Foreign Investment Agency ( Ministry of Finance ), in the first 6 months of 2025, foreign direct investment (FDI) inflows into Vietnam increased sharply by 32.6% over the same period, reaching 21.52 billion USD. This figure shows that Vietnam is affirming its role as an important investment destination in the region, in the context that countries such as Thailand also recorded an increase of 34% in the first 5 months of the year.

However, what is remarkable is not only the numbers, but also the profound changes in policy reform, infrastructure upgrades and a culture of administrative transparency that are reshaping Vietnam's entire investment ecosystem.

Vietnam’s investment environment has long been characterized by dynamism and potential. Now, Vietnam is proactively moving toward predictability, transparency, and trust-building. The shift from informal, ad hoc arrangements to a clear rules-based system is changing the way investors view and interact with the Vietnamese market.

This is not only a condition to attract more capital, but also the key to attracting strategic investors with a long-term vision - those who value certainty and a transparent operating environment. Vietnam is gradually transforming itself from a "low-cost factory" into a destination for quality capital flows, with high added value and sustainability.

Vietnam is vigorously promoting administrative reform, reflecting two parallel forces: domestic demands for improved governance efficiency and international expectations in an increasingly complex global investment context, especially following developments related to the Base Erosion and Profit Shifting Policy (BEPS 2.0).

The government has taken drastic actions. According to the Ministry of Home Affairs , a major restructuring of central administrative agencies was carried out in 2025, thereby cutting the number of ministries and ministerial-level agencies by about 20%. Notably, 5 ministries, 4 specialized management agencies and 5 national press agencies were merged.

These efforts are not mere formalities, but represent a fundamental redefinition of the role of the State – from a traditionally cautious “gatekeeper” to a flexible, transparent and responsive “facilitator”. This is an important turning point, marking the transition from an informal, discretionary operating system to a clearly structured and predictable mechanism. This is the foundation for building sustainable institutional trust in the long term.

Vietnam is gradually transforming itself from a “low-cost factory” into a destination for quality, high-value-added and sustainable capital flows. Photo: Duc Thanh

Restructuring to strengthen trust

The journey to build a “smart government” in Vietnam is laid down by the Strategy for E-Government Development to 2030, issued since 2021. The goal is to completely digitally transform public services by the end of 2025, building a digital government and society by 2030.

Operational aspects are specified in regulations such as a unified set of standards and a deadline for administrative procedures issued in 2024. Areas that used to be major “bottlenecks” for investors – licensing and land management – are undergoing detailed process redesign. While ambiguity and discretion were common in the past, Vietnam is now moving towards standardized, repeatable processes and the integration of digital technology.

Vietnam is putting transparency, consistent processes and an enforceable legal framework at the heart of its strategy to attract foreign investment.

While implementation varies across localities and still faces many technical challenges, the overall approach is clear: substantial, continuous reform, linked to infrastructure modernization and adapted to local contexts. This transformation creates a soft infrastructure layer, called “trust infrastructure” - which helps strengthen the relationship between the State and investors.

Vietnam is placing transparency, consistent processes and an enforceable legal framework at the heart of its foreign investment attraction strategy. The legal environment has been adjusted to be more aligned with environmental, social and governance (ESG) priorities and digital transformation goals. Criteria for priority sectors and strategic projects are now clearer, instead of being too broad as in previous ASEAN common agreements.

Two prominent advantages from this change, including increased compatibility with global tax standards, especially the OECD regulations on global minimum tax (Pillar Two), have been legalized by Vietnam in 2023, thereby helping businesses reduce fiscal uncertainty and avoid the risk of international tax disputes and sending a strong message to strategic investors that Vietnam is serious about institutional reform and respects the rules of the game.

For many large investors, institutional and regulatory certainty is now as important as traditional factors such as labor, location, or supply chain integration. This suggests that Vietnam no longer needs to be the easiest market, but can be the most trustworthy. The new competitive advantage is in raising transparency standards, not lowering barriers. And this model will appeal to businesses with a true long-term vision.

Investing successfully in Vietnam today depends on navigating regulatory complexity as well as identifying market potential. Accordingly, high-performing investors are increasingly adopting a “three-pillar strategy”.

The first is Digital Due Diligence, which uses digital tools and data analytics to thoroughly assess legal, market and operational risks. This includes physically checking the effectiveness of online licensing systems, procedural consistency and infrastructure quality at each local level, not just in form but in day-to-day operations.

Second, partner with reputable local legal consultants. Local experts understand regulatory interpretations, unspoken practices, and informal expectations. They play a key role in translating regulations into effective operational strategies.

Third, a robust ESG framework is indispensable. ESG reporting will be mandatory for listed companies from 2021. Vietnam is also developing a broader disclosure framework, although it has not yet announced a full roadmap. Proactive ESG monitoring helps businesses comply with both current standards and future requirements.

Investors who are willing to delve into Vietnam’s institutional realities and patiently learn the unique mix of policy and practice are likely to outperform in the long run. Local insight, acquired through the journey, is a valuable asset in addressing complex issues and unlocking new opportunities.

Speed up, but don't rush

Vietnam today bears the appearance of the reform spirit of the 1980s, pragmatic, progressive and non-ideological. Instead of being passive in the face of external pressure, Vietnam proactively builds a solid and trustworthy institutional foundation. The government proactively builds a more solid and trustworthy institutional foundation, instead of simply responding to external pressure.

While the change may temporarily lengthen some administrative processes, or require new procedural adjustments, it also lays the foundation for something much more valuable – “sustainable institutional trust”.

This belief goes beyond simply mitigating short-term risks, to creating an environment where domestic and international investors can confidently make long-term commitments. Vietnam no longer competes primarily on cost. Vietnam’s core asset is reputation.

This strategic shift is a prerequisite for Vietnam to attract and retain high-quality capital flows, serving the goals of sustainable development, technological innovation and comprehensive growth. In the context of moving towards deeper integration with global standards systems, including expanding the ESG disclosure framework, Vietnam is sending a clear message: “Vietnam is not only open for business, but also committed to building a strong enough institution to realize the greatest economic aspirations”.

Source: https://baodautu.vn/thu-hut-du-tu-nuoc-ngoai-cua-viet-nam-trong-thoi-ky-moi-tu-loi-the-chi-phi-den-niem-tin-the-che-d335283.html