Risk factors: market demand, skilled labor shortage worry German firms in Vietnam

Low market demand and shortage of skilled labor are the biggest risk factors that German firms see in Vietnam over the next 12 months, a new study says.

The latest edition of the World Business Outlook 2023 report, prepared by the German Industry and Commerce (AHK), collected responses from over 3,600 German businesses, branches, and subsidiaries worldwide between September 25 and October 20.

As many as 49% and 41% of survey respondents affirmed that market demand and shortage of skilled workforce were major risks in Vietnam.

Other factors of concern that the respondents identified included supply chain disruptions (37%); energy prices (24%); economic policy (24%); funding (22%), commodity prices (20%); trade barriers (20%); labor costs (12%); exchange rate (12%); legal uncertainty (12%); and infrastructure (12%).

Asked about significant planned investments in Vietnam, the top responses were production and manufacturing (41%); distribution and marketing (38%); services (35%); logistics (31%); and research and development (23%).

On motivations for German firms to invest in Vietnam, the main factors included market size/development (50%); customer proximity and localization (43%); availability of skilled workers (37%); capital availability (23%); and investment incentives and economic policy (20% each).

High costs at German locations were cited by just 7% of the respondents.

The AHK report forecasts global GDP growth at 2.5% in 2024, the lowest since negative 3% in Covid-stricken 2020. The report estimates that world trade would increase 3% next year, an improvement from 1.5% in 2023 but lower than 10.1% in 2021 and 5.1% in 2022.

Germany was the 11th-biggest foreign investor in Vietnam in the first 10 months of this year at $221.5 million, up 177% year-on-year, according to the Ministry of Planning and Investment. As of end-October, Germany had invested $2.54 billion in 459 valid projects in Vietnam, the 18th-highest figure.