Summary of Research Findings

Vietnam is drawing attention as the most promising country for those companies taking a “China Plus One” strategy, the business strategy to avoid investing only in China and diversify business into other countries. At the same time, Vietnam is proactively attracting foreign companies aiming at encouraging the growth of its own manufacturing industry, which brought about multiple companies from overseas, centered on South Korea, to enter the markets in Vietnam.

As a result of major manufacturers of electronic components such as Intel, Samsung, LG Electronics, Panasonic, etc., placing their production bases in Vietnam, the country became the second largest exporter by products export value in ASEAN companies in 2019, following Singapore.

The reasons why South Korean companies as well as Japanese companies have chosen Vietnam to enter the market are inexpensive labor cost, the nature of Vietnamese people, and high affinity with Confucian cultured companies. In addition, Vietnam has promoted the Free Trade Agreement which is bringing about a favorable business environment for its exporting products. On the other hand, the challenges for the manufacturing industry to enter Vietnam are regarded as low rate of local procurement of components and raw materials, mass hiring by large corporations is making it difficult to secure personnel, shortage of industrial parks, and increased land price and rents. In particular, the northern parts of Vietnam face occupancy rates for rental factories getting tighter due to concentration of South Korean and Chinese companies.

Noteworthy Topics

Investment in Research and Development Institutions by Foreign Companies in Progress

While many foreign affiliated companies perform assembly manufacturing processes of automobiles, smartphones, household electric appliances, copying machines, electronic equipment, etc., at their respective production sites in Vietnam, not enough suppliers of components and raw materials are grown in Vietnam yet. Therefore, the Vietnamese government is offering preferential treatment to encourage investment in research and development facilities in order to promote technological transfer from foreign affiliated companies.

In response to this, Samsung plans to build an R&D center in Hanoi, which will be the largest of its kind in Southeast Asia, and LG Electronics begins building its second R&D center in Da Nang. Because R&D centers require relatively smaller sizes in location area and in number of employees than manufacturing factories, building such a center is considered to be one of effective methods for foreign affiliated companies to succeed in Vietnam where it has become difficult to secure industrial parks as well as human resources.

Research Outline