Letters from Vietnam: Summer 2024 – Are German companies underestimating Vietnam?
Letters from ...Facts and information about business and investments in Vietnam
Are German companies underestimating investment opportunities in Vietnam? And is Cambodia stealing the limelight from Vietnam? You'll find details about all this and more in our summer 2024 Vietnam newsletter.
Huong Thi Hoang, Director of our Bremeninvest office in Ho Chi Minh City, sends quarterly reports with the very latest overviews of trends, opportunities and new developments in the country.
Our topics for Summer 2024:
Are German companies underestimating investment opportunities in Vietnam?
Germany is Vietnam's largest EU trading partner (2023: 17.2 billion Euros), but is only ranked 17th in the list of foreign direct investors (FDI), putting it behind other European nations such as the Netherlands, the United Kingdom and France. For many years, Vietnam stood on the sidelines of German relocation activities abroad. It wasn't until the Vietnam-EU free-trade agreement was signed in 2020, and trading relationships between the USA and China deteriorated (as described in our China plus One report) that many companies rediscovered this country in South-East Asia.
For these reasons, Vietnam has seen a boost in investment activity from Germany, both in this year and in the previous twelve months. To date, around 472 projects have brought with them 2.8 billion Euros in FDI. Among the most recent examples of this is the Kärcher Group, which has invested 20 million Euros in a production facility in Quang Nam province, which opened in Summer 2024 to serve the Asia market. A few weeks prior to this, Ziehl-Abegg, the industrial ventilation system manufacturer, opened a plant in Vietnam's southern Dong Nai province, also to the tune of 20 million Euros. The country is now attracting increasing numbers of medium-sized companies, joining major players such as Bosch and Mercedes, which have already have a well-established presence. Example: Fuchs-Petrolub, the lubricant manufacturer, opened a new plant in Vietnam last year.
In addition to low wage costs and its attractive geographical position in South-East Asia, Vietnam also offers greater independence from international supply chains. These are all arguments that support having your own site there. As a result of the Houthi crisis, among other things, costs for sea containers have recently doubled or even tripled. This has led to an increase in export costs and is yet another reason that makes having a facility in Asia, which can supply the growing local market, even more attractive.
European companies now have a positive view of the investment climate in Vietnam, even if they still regard the country's high levels of bureaucracy, complicated tax regime, visa problems and data protection issues as obstacles and elements that create uncertainty.
The new Vietnam 2024 brochure issued by the Delegation of German Industry and Commerce in Vietnam gives an up-to-date overview of the country's economy and useful tips for investment opportunities: https://vietnam.ahk.de/infothek/publikationen/ahk-broschuere
Cambodia is striving for greater economic independence from Vietnam – new opportunities for both countries?
Vietnam's neighbour, Cambodia, has also experienced impressive economic growth in recent decades, driven forward by economic and political reforms coupled with investment in education. Although Cambodia is currently ranked 178 by GDP per capita (around 50 places below Vietnam), the country is working hard to improve its standing. However, reforms are still needed in many areas such as the economic and social spheres, before international investors can be attracted to make a long-term commitment.
In particular, Cambodia's infrastructure, especially its logistic networks, are need of major reforms. The country is currently very dependent on Vietnam because one of its primary transport arteries, the Mekong River, flows through Vietnam, from the Cambodian capital, Phnom Penh, before reaching the sea. Around 30 percent of imported goods currently use this route to enter the country. Although Cambodia has its own ports and road and rail links to Phnom Penh, these all involve significantly higher logistics costs for goods transportation than the inland waterways.
Cambodia aims to reduce this dependence in future. In summer 2024, it started construction on the Funan Techo Canal. This is a 1.8 billion dollar project that will create a canal to connect the coast of Cambodia directly with the Mekong River and therefore also the capital city. With a projected completion date of 2028, this canal will reduce the amount of goods transported through Vietnam by 70 percent.
All expectations are that the ports in South Vietnam will suffer a loss of transshipment trade and a potential drop in income. On the Vietnamese side, there are also concerns as to the environmental and geo-political effects that such an undertaking could bring with it. (This project is being supported by China.)
However, this project also offers new opportunities: being better connected to the global economy could further boost Cambodia's economic upswing. This would in turn open up new options for Vietnam for economic cooperation and bi-national trade resulting from the increased purchasing power in its geographical neighbour. This will make the entire Mekong region more attractive for Western and other Asian investors alike.
A good example of successful international cooperation could already be seen in Bremen in Summer 2024: Bremeninvest is currently supporting the first relocation project of a Cambodian company whose founders come from Cambodia and Vietnam. Bremeninvest's Vietnam office has already helped by providing contacts and information about every aspect of how to deal with local authorities.
Education connects – Bremen University of Applied Sciences (Hochschule Bremen – HSB) and HUFLIT sign a Memorandum of Understanding
Vietnam is a country with a young population and therefore has enormous potential as a source of technical experts. Internationalisation plays a major role in Vietnam's higher education system. Many institutions welcome guest students and, in turn, send their own students abroad. This is also an important step for attracting Western high-tech companies, which need a well-educated local workforce, to the country.
The successful cooperative venture between Bremen's University of Applied Sciences and the Ho Chi Minh City University of Foreign Languages – Information Technology (HUFLIT) is an excellent example of this. This university, with its courses in languages, IT technologies, tourism, business administration and law signed a Memorandum of Understanding with its Bremen counterpart in August 2024. In future, both institutions want to set up and run joint exchange programmes, visits, research projects and lecture courses.
Services provided by Bremeninvest helped to initiate contact. "At Bremen University of Applied Sciences, we engage in international and intercultural exchanges in many different ways. At the core are student exchange programmes with our partner universities throughout the world. By connecting with HUFLIT, we aim to work on global challenges and offer students, especially those on the IT courses in both institutions, an attractive opportunity to study abroad as part of an exchange semester scheme or as part of joint projects. We'd like to thank Bremeninvest for their tremendous support in initiating contact and networking with HUFLIT", said Birgit Averbeck, Head of International Affairs at the School of Electrical Engineering and Computer Science at Bremen University of Applied Sciences. She went on to say: "In a globalised world, international and intercultural know-how are essential elements of a successful professional career. Companies in Bremen will also see the benefit of "Young Professionals" who are able to handle these challenges and can gather international experiences."
A long kick – Werder Bremen continues its involvement in Vietnam
We've already reported about the German Football club, SV Werder Bremen's internationalisation strategy, involving Vietnam, in previous issues. The association further strengthened the ties, which were created during a reciprocal visit last year, by another visit this year. In June 2024, club representatives visited a number of schools in the Far Eastern country to promote football as a sport and physical exercise in general and also to give students an insight into Bremen itself.
The club is now working with the Football for All (FFAV) organisation in Vietnam on a cooperative venture that will help engage up to 3,000 children and young people in football and sport in general. The club will extend its activities to involve other institutions, such as the VJSS Football Academy. Always at your side: Bremeninvest, working as a partner to support Bremen's A-listers with expertise and local contacts.
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