Located at the heart of Southeast Asia, Vietnam is the third largest market in Southeast Asia and one of the fastest-growing economies in the world. Low costs and regulations that encourage foreign investment are only some of the key elements that at
Located at the heart of Southeast Asia, Vietnam is the third largest market in Southeast Asia and one of the fastest-growing economies in the world. Low costs and regulations that encourage foreign investment are only some of the key elements that attract foreign entrepreneurs. In this article, we present you the 9 reasons why approaching to Vietnam is a smart move for foreign investors to tap into this growing and flourishing Asian market:
1. Strategic location
Vietnam owns a strategic location which is located in the center of ASEAN. It is close to other major markets in Asia and the most notable neighbour of them is China.
Its long coastline, direct access to the South China Sea and proximity to the world’s main shipping routes give perfect conditions for trading.
Two major cities in Vietnam are Hanoi and Ho Chi Minh City. Hanoi, the capital, is located in the North and has extremely convenient trading opportunities. Ho Chi Minh City, the largest city by population, is situated in the South and is the industrial mecca of Vietnam.
2. Doing business is getting easier every year
Vietnam has made numerous amendments to its regulations to make investment in Vietnam more transparent.
In terms of ease of doing business, Vietnam ranked 82 out of 190 countries in 2016. Compared to the previous year, the ranking has improved by 9 positions.
Based on their economic models, Trading Economics predicts that Vietnam will rank 60 by 2020. Hence, the future prospects of ease of doing business in Vietnam are very promising.
3. Trade agreements
Another indication of openness to the global economy is the numerous trade agreements Vietnam has signed to make the market more liberal: Member of ASEAN and ASEAN Free Trade Area (AFTA), Member of World Trade Organisation (WTO), Bilateral Trade Agreement (BTA) with the US, Free Trade Agreement with the European Union.
All these treaties show that Vietnam is eager to promote the country’s economic growth and will continue its commitment towards trading with other countries.
4. Stable GDP growth
Over the last few decades, Vietnam’s economic growth has been one of the fastest in the world. This rapid development was first due to the economic reform launched in 1986 and the rise has been continuous ever since.
According to the World Bank, the GDP in Vietnam has experienced a stable growth, averaging 6.46 % a year since 2000.
5. Openness to foreign investment
Geographical advantages and growing economy are not the only attractive features for investors. Vietnam has always been welcoming foreign direct investment (FDI) and encourages it by constantly renewing regulations and providing FDI incentives.
The government of Vietnam offers several incentives to foreign investors who invest in certain geographical areas or sectors of special interest, for example, in high-tech or healthcare businesses. These tax benefits include: Lower corporate income tax rate or exemption from the tax, Exemption from import duty, e.g on raw materials, Reduction of or exemption from land rental or land use tax.
In July 2015, Vietnam also implemented Decree 60/2015 which allows foreign investors to invest in more business fields than before.
Vietnam recorded $24.4 billion of foreign direct investment in 2016, according to the government. Giants like Samsung, Nestle, and LG are among the largest investors contributing to this number.
6. Vietnam is the next China?
According to the World Bank, the economic growth of Vietnam has transformed the country from one of the world’s poorest one to a lower middle-income country over the past three decades. If the economic rise of nearly 7% a year will continue, Vietnam’s economic development could be compared to what Chinese economy experienced a decade ago, as predicted by economic analysts.
Rising labour costs in China has increased the prices of products as well, giving Vietnam a good opportunity to become the next hub for producing labour-intensive goods. Industries that used to flourish in China are now moving to Vietnam.
For example, Vietnam is becoming the hotspot of manufacturing instead of China. In addition to top manufacturing sectors such as textile and clothing, Vietnam’s manufacturing is also taking a more high-tech direction.
7. Young demographics
Unlike in China where the population is ageing rapidly, the demographics of Vietnam is young.
According to GSO, the median age in Vietnam is 30.8 in contrast to 37.3 in China. GSO has also estimated that 60% of Vietnamese are under the age of 35.
The workforce is young and abundant, and shows no sign of decrease. In addition, the country also invests more money in education than other developing countries. Thus, besides being vigorous, the labour force in Vietnam is skilled as well.
8. Competitive labour costs
Despite the yearly increase of minimum wage, Vietnam is still a country with low labour costs. Minimum wages in Vietnam remain less than half of what the wages in China are.
The rise of wages in China has forced manufacturers to look for a market with lower labour costs. Vietnam with its low minimum wage and growing economy is a great low-cost alternative to China and more and more investors have decide to set up their factories in Vietnam.
9. Vietnam is much bigger than what people think
Vietnam’s population is larger than most of major countries in Europe:
These are the 9 main reasons for approaching Vietnam. Naturally, there can also be risks, as there will be when investing in any other country. However, these risks can be minimized with a well-elaborated plan.
For example, as the first step, make sure you know well about Vietnam’s economic environment when entering Vietnam as it is one of the top contributors to your company’s future success.
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