Remove roadblocks to lure foreign investment into Vietnam: HSBC exec
Vietnam's strategy to attract additional FDI into Vietnam should start with understanding the competitive landscape between Vietnam and the rest of ASEAN, writes Tim Evans, CEO of HSBC Vietnam.
The world is shifting at an unprecedented pace and it is important to read and interpret the underlying changes that are re-shaping the global and regional economies. Heightened geopolitical conflicts, rising protectionism, pronounced climate change risks indicate that whilst the previous era was governed by globalization, the world is now becoming more multipolar and Asia whilst it has benefited in becoming a global trade hub over the past few decades is now facing new challenges that will need to be navigated.
We believe that supply chains will continue to evolve and shift. One theme that will be more prevalent is a move by many economies to de-risk their trade with China. This is despite the fact that close to 70 countries globally regard China as their top source of imported goods. ASEAN is benefiting from this diversification trend and Vietnam is a key player in this space. Western businesses are also looking to reduce reliance on China by diversifying sourcing to other Asian markets such as Vietnam and India.
The region is now attracting more FDI than China and most notably in the manufacturing sector. China is also building out supply chains in neighboring countries such as Vietnam which is a trend that HSBC is supporting given our strong presence across both markets.
According to a recent AmCham survey in China, 60% of U.S. companies are increasingly concerned about bilateral tensions and more than 40% have responded that they are looking to invest more in their supply chain resilience. Over 50% have also responded that Southeast Asia remains their top destination for redirecting investment from China.
A EuroCham survey also indicates that European companies operating in China are continuing to review their supply chain strategies with ASEAN being selected as the top destination for these shift in investments.
Vietnam and ASEAN story is a supply chain shift story
The government’s strategy to attract additional FDI into Vietnam should start with understanding the competitive landscape between Vietnam and the rest of ASEAN and also looking at other markets such as India/Mexico. Singapore and Malaysia are leading the semiconductor ecosystem with Singapore as the wafer fabrication and front end equipment hub and Malaysia as the packaging and back end testing hub.
Thailand has become the established auto supply chain and power supplier for EVs. Indonesia is targeting the EV ecosystems with its abundance of nickel and a large domestic auto market. Vietnam is slowly venturing into both EV and semiconductors as it aims to focus on more high value added goods but continues to perform well in enticing large electronics manufacturers into the market off the back of competitive pricing, stable and consistent government support, the large number of FTA agreements in place and the work ethic of the Vietnamese.
Next step is to identify the biggest ‘pain points’ as perceived from a foreign investors’ perspective and set a comprehensive and implementable action plan in place to address these. We see three areas that stand out from our discussions with customers.
First, it is the quality and accessibility to labor and the ongoing need to improve their productivity as Vietnam moves up the quality curve. Vietnam still ranks behind other major ASEAN markets in terms of labor productivity with output per hour worked being relatively low at 9.7 compared to a range of 10~26 for other ASEAN nations.
Second, Vietnam’s logistics performance index also lags behind China, Malaysia and Thailand with gaps shown in logistics capacity, delivery time, traceability, etc. Logistics infrastructure currently falls short of meeting the expected international standards and road transport commands 74% share of overall transport means whilst the demand is actually skewed towards sea transport and port space that supports the export story from Vietnam.
Finally, regulatory navigation continues to be a critical consideration for investors looking to invest into Vietnam. According to the latest HSBC Global Connections survey, regulatory developments are among the top two challenges for foreign firms operating in Vietnam in which 30% of surveyed companies pointed to the challenge of adapting to fast-changing regulations and policies within the market. A more consistent and easy to comprehend regulatory framework would be a positive step in attracting new parties to invest into the market.
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