With a population of 90 million, cheap labour costs, and an abundance of natural resources, Vietnam is seen by many as ‘the next China’ in terms of offering an affordable manufacturing base with a pool of skilled workers. With wages continuing to rise in China and the working age population there contracting, it’s no wonder that so many businesses are looking to expand their operations into Vietnam.
However, while the country undoubtedly offers a number of benefits to foreign investors, it also comes with its own unique set of challenges for those who choose to invest in this emerging market. Read on to find out more about investing in Vietnam and whether this could be the perfect destination for your business venture.
What makes Vietnam so appealing to foreign investors?
As Chinese companies flood into neighbouring countries in the Southeast Asian region to set up manufacturing facilities, many investors are turning their attention towards Vietnam. The country offers a number of significant advantages over its rivals in the region, including a large and growing domestic market, a relatively skilled workforce, a high literacy rate, and low labour costs. Vietnam is also a highly promising eCommerce market, with much of the population still not having access to traditional banking services and therefore likely to spend a large portion of their income on goods purchased online.
The Pros of Investing in Vietnam
The country’s strong demographic profile, including a rapidly expanding middle class and rising average income, make it an attractive proposition for investors looking to set up a manufacturing base in Southeast Asia. Vietnam’s favourable climate, abundant natural resources, and low labour costs also make it an appealing destination for foreign companies looking to source goods for worldwide distribution. Vietnam’s accession to the Trans-Pacific Partnership (TPP) trade agreement has further strengthened the country’s position as an attractive and competitive production base. While Vietnam’s accession to the TPP and the removal of import tariffs has made the country an even more appealing investment opportunity, it has also created a more level playing field, in which a greater number of countries can now offer low cost manufacturing and an attractive base for international businesses.
The Cons of Investing in Vietnam
While Vietnam offers a number of significant advantages, it also comes with its own unique set of challenges for investors. The most important thing for investors to remember is that any decision to base a manufacturing facility in Vietnam should be carefully considered, taking into account all aspects of the business operation. While wages in Vietnam are significantly lower than those in China, it’s important to remember that labour costs also vary significantly across different cities and provinces within the country. Investors need to consider the salaries and living costs in the areas in which they plan to operate, to ensure they can still make an attractive profit margin. The Vietnamese government also has strict rules and regulations governing manufacturing, import/export, and distribution operations, and foreign investors need to ensure their operations are compliant with all applicable laws. The government also has strict rules governing the amount of foreign ownership of businesses operating in the country, although these can partially be mitigated by partnering with a local company.
Vietnam is definitely a country to keep an eye on, particularly if you’re looking to expand your operations into Southeast Asia. While it’s not yet the manufacturing paradise that China was 10–20 years ago, it does offer many of the same advantages, and has the potential to become the next big manufacturing hub for companies around the world. The most important thing to remember when investing in Vietnam is that you need to do your research and find a suitable manufacturing facility and distribution partner.