The Reasons Why Many International Brands Choose Vietnam

In recent years, Viet Nam has emerged as a country poised for economic modernization and is participating actively in competitive, export-oriented, and service industries. Since joining ASEAN, Viet Nam has enjoyed years of robust growth and macroeconomic stability, a relatively stable exchange rate, and strengthening external trade relations.

Come and explore Viet Nam’s potential and find out what the country, its market, and its people have to offer.

1. Vietnam’s Growth Journey

Viet Nam, the largest economy in the CLMV group, is projected to reach US$327 billion in GDP by 2022, recording a growth of 6.2% annually between 2016 and 2022. While this is slightly lower than the average growth of 6.4% achieved over the last 20 years from 1997 to 2017, it is noticeably higher than the projected growth for the ASEAN 5 group as a whole and Singapore. 

Growth is expected to be driven by improvements in domestic consumption, rising foreign direct investments (FDI), and growth in manufacturing exports over the coming years.6 For example, 2017 marked a successful year for trade with export turnover reaching $214 billion, up 21% from 2016 – the highest ever year-on-year increase. 

Vietnam’s economy and GDP growth

Viet Nam is among the few countries in ASEAN to consistently record positive FDI growth in recent years, mainly led by growing investments in manufacturing. Policy reforms designed to attract further FDI will be key to finance growth in the future, especially in sectors such as infrastructure and manufacturing where productivity is a concern – shifting focus over time from labor-intensive production to higher value-add segments such as electronics and automotive.

Viet Nam’s current population is over 94 million and is expected to grow at an annual rate of 1.3% to around 110 million by 2050.

Viet Nam’s labour force, in millions

Among the fastest growing economies in ASEAN, in terms of: 

2. Financial Market

The Vietnamese banking industry consists of a wide range of players, from large state-owned and joint-stock commercial banks to small privately held banks. 

  • Vietnamese banks are open for foreign investments but foreign ownership is limited to 20%.
  • Joint-venture and 100% foreign-owned banks account for a relatively small market share of 10% of total assets, but a higher market share of 22% in terms of charter capital.

Growing internet penetration and the proliferation of affordable smartphones, coupled with lower data costs and higher bandwidth (speed) are accelerating the growth of digital banking services across Vietnam.

A steadily increasing economy means bigger income which, in turn, will result in a growing middle class. A market research firm Nielsen estimates the middle class in Vietnam to grow to 44 million residents by 2020 and to 95 million by 2030. This will support consumerism making Vietnam a profitable target for foreign investors.

3. Consumer Goods

Viet Nam is forecast to lead in terms of growth, with a CAGR of 10.2% from 2016 to 2030

Viet Nam’s strong consumer confidence and rising household income levels have contributed to an overall increase in consumer spending.

  • Food and beverages – The largest proportion of household spending in Viet Nam goes to food and drink, followed closely by housing, utilities, and transport spending.
  • Premium goods (including health goods) – Viet Nam’s consumers are more likely to buy premium goods to improve their quality of living, especially organic and healthcare products.
  • Quality of product – Consumers are more concerned about the quality and potential health effects of products. This is largely due to scandals involving low-quality foodstuffs, toys, and personal care products. These concerns also extend to clothing, footwear, and electrical appliances, as well as household items.
  • Other consumer goods – Nearly half of all consumers would spend their income on clothes (49%), and holidays (44%). Two-fifths of all consumers spend their income on technology products (40%), apart from home entertainment (41%) or home improvements (42%)
  • International brand presence – Due to growing demand for foreign goods and higher disposable income, many global brands are more likely to distribute their products through dealers or using their own channels. Consumers have many options to choose from, including a variety of trendy products from foreign and local brands in major cities like Ho Chi Minh City and Hanoi.

One of the fundamental growth drivers for the consumer sector in Vietnam is the adoption of digital technologies for consumption.

Viet Nam is rapidly developing its online marketplace, but its e-commerce sector is still relatively nascent. The Vietnamese e-commerce market is expected to grow in revenue from $1 billion in 2016 to $2.3 billion in 2020, with a CAGR of 23%.30 In comparison, the retail market is only expected to grow at a CAGR of 6% between 2010 and 2020. 

Buying behaviours – the likelihood of purchasing groceries online

However, online retail makes up only 1% of the total retail market in Viet Nam, compared with 14% in the US and China31. Although there is still a long way to go for the Vietnamese e-commerce market to develop, foreign companies have invested in the country early to get ahead in the market.

4. Infrastructure – Transportation

Viet Nam has the second highest spending on transport infrastructure and it is projected to increase to US$11 billion in 2020 and US$17 billion by 2025. The government sees transportation as an integral strategy to position the country as a regional manufacturing hub. This is critical in cutting down travel time and costs across the supply chain from the industrial centers to the ports.

ASEAN-6 transport infrastructure spending (road, rail, sea, and airports)

Breakdown of Viet Nam’s transport infrastructure investment needs, forecast 2016-2040

The government plans to increase the 1,290 km of the national highway by 5,000 km by 2030. It will also improve road surfaces and increase connections to major ports and airports. The ambitious 1,800 km Ho Chi Minh City – Hanoi highway, which will facilitate transport and goods movement across the country, is being built.

In terms of aviation, Vietnam has 22 airports (for civil use) out of which 12 are international and 10 domestic. The Long Thanh International Airport in Dong Nai which will eventually replace Ho Chi Minh City’s Tan Son Nhat International Airport is expected to be completed for the first phase in 2025.

Viet Nam has an opportunity to enhance the private sector’s role in the economy by developing a supportive ecosystem conducive to doing business. This will help to ensure the efficient use of available capital for growth and development. 

5. Vietnam’s Free Trade and Tax Agreements

Vietnam’s 2007 accession to the World Trade Organization (WTO), marked the country’s ascension in the global community as a strong and committed trade partner. 

a) Free Trade Agreements (FTA)

Vietnam’s membership in the ASEAN bloc makes it a party to the following significant multi-regional FTAs:

  • RCEP (The Regional Comprehensive Economic Partnership)
  • CPTPP ( The Comprehensive and Progressive Agreement for Trans-Pacific Partnership)
  • EVFTA (The EU – Vietnam Free Trade Agreement)

Vietnam has signed more than a dozen bilateral or multilateral Free Trade Agreements. These agreements offer direct trade benefits with the following countries and regions: Australia Brunei, Burma Cambodia, Canada, Chile China, Indonesia, Japan Laos, Malaysia, and Mexico.

b) Double Tax Avoidance Agreements

Double Tax Avoidance Agreements treaties effectively eliminate double taxation by identifying exemptions or reducing the amount of taxes payable in Vietnam.

Why do Foreign Businesses invest in Vietnam?

  • Vietnam has a long track record of high growth relative to other low-cost nations.
  • Vietnam’s decision not to close its borders or to lock down any previously in-place quarantine or lockdown policies has made it more accessible to business, travel, normal living, and mobility.
  • Many industrial zones offer a workforce and labor supply, as well as lower labor costs. There is also a relative openness for foreign direct investment.
  • Vietnam is the top destination “China plus 1” for dealing with rising Chinese costs and unpredictability such as trade shocks. Vietnam is a top choice for foreign investors to complement their China operations due to its low-cost inputs and alternative markets. It also has a convenient geographical and supply route location to China.
Top 10 Reasons to Invest in Vietnam

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