Korean firms in Vietnam face growing competition from China

From Samsung Electronics to LG, RoK companies have long led foreign direct investment in the nation, thereby making the country a critical manufacturing hub in global supply chains, according to a representative of the Korea Chamber of Commerce and Industry (KCCI) in the country.

"Looking at the cumulative amount of investment in Vietnam since 1988, the Republic of Korea (RoK) ranks first with US$85.8 billion, ahead of Singapore and Japan. However, in recent years, the Republic of Korea has been in a neck-to-neck competition with China," Kim Hyong-mo told Nikkei Asia in an interview.

Last year saw the RoK rank fourth in terms of foreign direct investment in the nation, lagging behind Hong Kong (China), China, and Singapore.

Among the RoK’s projects announced last year was LG Innotek's US$1 billion investment in Hai Phong to expand the production of camera modules.

However, companies from the RoK have been cautious about new investments due to the global economic slowdown, according to Kim. 

"Many Korean companies find it challenging to expand investments in Vietnam due to rising labor costs, especially as Chinese companies also increase their presence in the country," he said.

However, the open trade and investment environment locally, along with its geopolitical advantages and domestic political stability, will continue to position the country as an attractive investment destination, Kim noted. 

He referred to some challenges that have impacted investment momentum, including the rising minimum wage, which will increase by about 6% on average from July, as well as a general shortage of highly skilled workers.

Kim said the nation’s recent implementation of a global minimum corporate tax of 15%, in accordance with a global agreement, could undermine its attractiveness as an investment destination.

Due to the minimum tax rule, the nation’s tax revenue will reportedly increase by more than VND14.6 trillion, equal to roughly US$588 million, of which VND10 trillion will be borne by RoK companies in 2024.

Asked if the RoK’s companies will shift to other countries, such as India, Kim said, "Considering the background of many Korean companies moving from China to Vietnam in search of cheaper labor costs, it's inevitable that labor costs will also rise in Vietnam. However, while there is a need to explore alternative investment destinations to Vietnam, they won't be easily found."

He stressed that KCCI member companies he recently spoke to are not considering withdrawing from Vietnam or retreating on their investments despite a series of issues. "Korean companies have firmly established their position through trade, investment and continuing production activities in Vietnam,” he concluded.