91% of German firms plan Vietnam expansion

What role does Vietnam play as an investment destination for German businesses?

German investors’ trust in the Vietnamese market has been increasing as a result of thriving development here and the government’s support.

The AHK World Business Outlook Spring 2023 study shows that 91% of German companies in Vietnam intend to further expand their investment. Notably, 57% of German companies here are seeking new and additional suppliers in Vietnam as they diversify their supply chains.

According to a report from the Vietnamese Ministry of Planning and Investment, German investors poured $159.4 million of registered capital into Vietnam through 18 new projects from January 1 to June 20, 2023.

What other factors are attracting German investors?

The country offers loads of opportunities for German investors such as a large and young population, a strategic location in the region, a stable political system, and a favorable business environment.

The EU-Vietnam Free Trade Agreement has been boosting trade and investment flows between Vietnam and the EU, particularly in sectors such as manufacturing, renewable energy, agriculture, and services.

From the perspective of German businesses, Vietnam benefits from the “China plus one” strategy as well, which aims to diversify manufacturing supply chains away from China and towards competitive hubs in Southeast Asia.

German businesses have high expectations for the prospects of their businesses here and a strong commitment when investing in Vietnam.

Can you name a German investor as an example?

Stada Vietnam is a leading pharmaceutical manufacturer. It is opening a new office in Ho Chi Minh City in August 2023.

This shows Stada’s engagement in improving healthcare in Vietnam and investing in the region for the long term. The company also aims to export high-quality "Made in Vietnam" products, with European Union Good Manufacturing Practices certification, to the global market, contributing to the expansion and development of the pharmaceutical industry in Vietnam.

This also reflects the confidence and responsibility of German investors in the Vietnamese market, and its green and sustainable economic development.

In addition, German carmaker BMW has partnered with Thaco of Vietnam to start local production of the BMW 3 and 5 Series as well as BMW X3 and X5 at Thaco’s Chu Lai production hub in Quang Nam province in the central region.

In Binh Dinh province in the same region, Leonhard Kurz, a German company in hot-stamping and thin film technology, has invested roughly $40 million to establish their factory. In May, Germany’s Deutsche Bank almost doubled the allocated capital for Deutsche Bank Vietnam to over $200 million.

In any market both advantages and disadvantages exist. How about the Vietnamese market?

While Vietnam offers many opportunities for German businesses, it also poses some threats. According to the AHK World Business Outlook Spring 2023 survey, the main challenges for German companies in Vietnam are low market demand, human resources, economic policy, travel restrictions, and supply chain disruptions.

These challenges affect the growth prospects, profitability, and competitiveness of German businesses in Vietnam. Therefore, German businesses need to adopt flexible and resilient strategies to cope with the changing market conditions and regulatory environment in Vietnam.

They also need to collaborate with the Vietnamese government and local stakeholders to foster mutual benefits. Collaborating with business associations and joining trade fairs, seminars, and online platforms to establish contacts and build trust are also highly recommended.

Does your organization serve as a support tool?

Being active in promoting German foreign trade and providing market entry and development services in Vietnam since 1994, AHK Vietnam has a robust network and has been assisting various German companies with staff recruitment and training, finding business partners, and market understanding. We offer guidance, marketing support, and networking events to support companies throughout their journey to business success.

You mentioned thriving developments here. What are they?

Vietnam is one of the fastest-growing economies in Southeast Asia, with an average annual growth rate of 7.1% from 2016 to 2019. Although the Covid-19 pandemic caused a global crisis and different obstacles, the country managed to achieve robust growth of more than 8% in 2022 thanks to a rebound in domestic consumption and export-oriented manufacturing.

In the first seven months of 2023, growth has moderated to 3.7% as the services sector slowed and higher inflation and interest rates affected household and German investors’ confidence.

To cope with these difficulties and the impact of global complications, the Vietnamese government has made efforts to outline and implement action plans to support economic recovery and facilitate business activities. A handful of favorable policies in different fields have been given the green light, including the commitment to net zero carbon emissions by 2050, along with the approval of the long-awaited Power Development Plan VIII for 2021-2030.

On the other hand, Vietnam's new visa policy, which comes into effect on August 15, has received positive feedback from international tourists.

The national economy is now showing positive signs moving into the second half of the year. After the first seven months of 2023, Vietnam recorded a trade surplus of about $15.2 billion, an increase of 1.3% year-on-year. The total import-export value hit $374.2 billion, up 13.9%.

In terms of foreign direct investment, Vietnam received $16.2 billion of registered capital accumulated by July 20, 2023. The number of newly licensed projects increased by 75.5% year-on-year to 1,627, worth $7.9 billion.

These positive signs reflect Vietnam's resilience and potential to resume rapid economic growth over the medium term as a key beneficiary of the shift in global manufacturing supply chains toward competitive Southeast Asian manufacturing hubs.

What do you think about the significance of FDI in Vietnam?

Besides the enrichment of exporting goods to countries around the world, Vietnam has successfully maintained its positive economic growth partly thanks to FDI.

Vietnam has attracted significant FDI inflows over the past few decades, which has helped to sustain its economic upswing, create jobs, and enhance technology transfer. Vietnam's market is also open and integrated with the regional and global markets.

As a result of various FTAs, most notably the EU-Vietnam Free Trade Agreement, the investment climate in Vietnam has improved significantly.