Vietnam’s magnetic appeal lures TNCs

Nguyen Duc Tiep, deputy head of the Quang Ninh Investment Promotion Agency’s Investment Promotion Division, told VIR that several transnational corporations (TNCs) were eyeing the province as a production base and a launch pad for exporting their products worldwide.

He said Yazaki Vietnam, under Japanese-backed Yazaki Group, was expected to raise its existing investment capital in Quang Ninh in the near future. Yazaki recently inaugurated its US$35 million automotive components factory, also the fourth in Vietnam, after its three operational factories in the northern port city of Haiphong, and in the northern and southern provinces of Thai Binh and Binh Duong.

Tiep also revealed that another TNC, Hong Kong’s Texhong Group, was nearing completion of its second production factory, worth about US$300 million, which was located at the province’s US$953.6 million, 3,300 hectare Hai Ha industrial zone (IZ). Notably, the IZ itself is also being built by Texhong.

“The IZ and facilities will come into operation in the coming months. Texhong is calling upon many fabric and textile investors from Hong Kong to invest in the park and supply materials for its two factories,” he said, adding that Texhong would build a power plant at the zone to supply sufficient power to the textile and garment factories there.

The group’s first textile factory, also worth about $300 million, has already been operating at the province’s Hai Yen IZ for several years.

A lucrative investment spot

According to the United Nations Conference on Trade and Development’s World Investment Report 2014, Vietnam ranks 9th in the list of the world’s top prospective host economies for 2014–2016, based on responses from 164 TNCs. As of 2014, there were 415 TNCs operating in Vietnam, including 106 of the world’s top 500 TNCs as named by Fortune magazine. As of late 2013, there were about 500 TNC projects with total registered investment capital of about US$140 billion, largely focused on research and development, high technology, electronics, and automobiles.

Many of the TNCs come from Japan, such as Toyota, Canon, Honda, and Panasonic which invest in capital-intensive manufacturing industries in Vietnam. Attracted by low labour costs and good growth prospects, Japanese TNCs invested about US$1.8 billion in Vietnam in 2011, and as much as US$4.4 billion in 2012, according to the report.

According to Tiep, South Korean electronics giant Samsung is also expected to implement another colossal project in Quang Ninh’s Dong Mai IZ.

In early August 2015, Bac Ninh provincial authorities granted an investment certificate to Samsung Display Vietnam for a US$3 billion expansion of its existing US$1 billion project licensed in July 2014. With this project, Samsung has raised its total investment capital in Vietnam to US$14.2 billion, making the group Vietnam’s biggest foreign investor.

Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, said Samsung was a typical story in terms of TNC’s operations in Vietnam.

“Never before has Vietnam found its conditions so favourable for attracting investment from TNCs so they can set up production bases here. Many TNCs have been operating well here for some time, such as Samsung, LG, Microsoft, GE, and Intel,” he said.

For example, Microsoft has shut down its two Nokia mobile phone manufacturing plants in China to move to Vietnam. It will expand its existing US$200 million mobile phone producing factory in Bac Ninh province’s Vietnam-Singapore Industrial Park. It will also triple its employees from the current 5,000 to 15,000 in the near future.

In another case, Nguyen Viet Phuong, deputy general director of Swedish-backed ABB Ltd., told VIR that his company had invested $80 million into one factory in Hanoi and another in Bac Ninh. Last year, the company’s revenue reached US$150 million, including US$90 million from exports. This year, however, the company expects these figures to reach US$170-180 million and over US$100 million, respectively.

An improved and favourable investment climate

According to the Ministry of Planning and Investment’s Foreign Investment Agency, an increase in foreign investment into Vietnam, including that of TNCs, is attributable to the fact that Vietnam has enacted two new laws on Investment and Enterprises and is strongly reforming its business and investment climate via simplifying administrative procedures, and reducing operational costs for investors.

Political stability, infrastructure improvements, and cheap labour are also major attractions to foreign investors. Additionally, Vietnam has low investment costs within Asean.

According to the Japan External Trade Organization, Vietnam has a minimum monthly salary of just US$123, far lower than that of most other Southeast Asian nations. Additionally, Vietnam’s electricity rate is one of the lowest within Asean at 0.4 US cent per kilowatt hour.

Administrative improvements have also helped. “Previously, it would take 30-45 days for a project to be licensed. Now, the time is only 15 days,”  said the agency’s director Do Nhat Hoang..

Kim Young Sun, secretary general of the Asean-Korea Centre also commented that “Vietnam’s new laws on Investment and Enterprises allow certain foreign investors to acquire more than a 49% stake in a Vietnamese public company, and entitles foreigners to purchase real estate in Vietnam.”

“These positive changes are expected to stimulate potential Korean investments in Vietnam and make it easier to enter the market,” he stressed.