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German companies in Vietnam are optimistic about the business environment

German companies in Vietnam are optimistic about the business environment

Wednesday 14, 07 2021
The AHK World Business Outlook Survey showed that more than 50% of German companies in Vietnam believed in an economic recovery that can happen in 2021.

Optimistic about the economy

Despite the development of COVID-19, German companies want to expand investment in Vietnam. Although the survey was conducted before the fourth pandemic outbreak in Vietnam, German companies’ optimism about economic recovery seems to remain unchanged. Mr. Marko Walde – Chief Representative at AHK Vietnam, explained the trend of German companies expanding their business in Vietnam amid the pandemic. He also gave an analysis about factors that control the business activities of German companies in Vietnam.

German companies in Vietnam stay optimistic about the country’s economic growth in 2021. Most German businesses expressed optimism about the Vietnamese economy in the medium and long term. Three factors explain that belief.

Optimistic about the economy

First is the firm investment framework and conditions of Germany in Vietnam. The Vietnamese government also had a good method of handling the pandemic. Therefore, German companies trusted the Vietnamese government.

Second is the fact that Vietnam and the European Union signed a free trade agreement, and Vietnam was the second country in ASEAN to participate in this agreement. That gave Vietnam a very favorable position, especially when compared to neighboring ASEAN countries such as Thailand, Malaysia, Indonesia, etc.

Finally, there is the “China Plus One” strategy. Many multinational enterprises, German ones included, have been investing in China for the last 15 to 20 years. China was their only investment in Asia, which is not enough. The “China Plus One” strategy is to diversify the business into countries other than China, and that diversification is a needed action to react in time to challenges. Aside from keeping business activities in China, enterprises need a new destination in Asia, especially in ASEAN.

The trend of German business expansion in Vietnam can be considered a part of the restructuring supply chain. While that trend can be seen as a kind of restructure, it leans more toward diversifying the supply chain, to ensure a safer and more flexible supply chain.

Challenges for German companies in Vietnam

The result of the survey indicated that the three biggest factors that would hold back the economic growth of German companies in Vietnam in the next 12 months would be market demand, human resources, and economic policies. Mr. Marko Walde gave a detailed analysis of those three factors as follows.

Most German companies’ production activities in Vietnam serve the needs outside of the country, such as customers in North America, Singapore, or partners in the textile industry in Europe. When the pandemic hit, the market demand is not what it used to be, which is a challenge.

In addition to the textile industry, the automobile industry and the manufacturing industry have also suffered from the pandemic.

Human resources is also an obstacle to German companies' economic growth. To ensure a long-term investment plan, companies will purchase equipment of the highest quality and employ high skilled laborers in charge of operating that equipment. The labor force in Vietnam, however, has yet to meet the German employers' expectations. What the labor market in Vietnam is failing to provide is middle-class labor, skillful workmen.

Challenges for German companies in Vietnam

47% of German companies in Vietnam tend to expand their business in Vietnam, and 50% of that number plan to employ more labor in 2021-2022. However, the shortage of qualified workers in Vietnam is becoming a factor that somewhat hinders the development of German enterprises. If in 2020 only 18% of German businesses thought that they were having difficulty finding high-quality human resources, in 2021, this number has increased to 42%.

Economic policy is the third-ranked biggest obstacle for German companies in Vietnam. The rapidly changing regulations applied for short periods is the primary problem for German firms. However, those regulations are implemented to fend off the pandemic. Therefore, this is understandable.

Another example of policy problems is work permits and visas for expatriates working in Vietnam. While the law requires expatriates a bachelor's degree and at least three years experience in the field they would work in, some particular positions cannot demonstrate through degrees. The mindset of looking at degrees does not match the needs of German investors. The mindset of looking at degrees does not match the needs of German investors.

According to Mr. Walde, by this fall, Vietnam's economy can witness better growth. Europe and America both reopened their economies, meaning that market demand will consequently increase. The chief representative is also optimistic about the possibilities of Vietnam figuring out effective vaccination plans, thus gradually remove anti-COVID-19 regulations.

 

Source: zingnews.vn, tuoitre.vn

Compiled by VietnamCredit

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