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V
IETNAM
B
RIEFING
|
December 2014
With its rising costs, China is no longer the go to destination for
many businesses, and Vietnam has arisen as a serious competitor.
Recent trends show that the number of orders shifting from China
to Vietnam has seen a significant increase. For example, China’s
Pearl River Delta, long known as one of the key factory centers for
the world’s manufacturers (particularly those from Hong Kong) has
now become too costly for many companies to stay in the region.
In the past three years alone, a growing number of businesses have
relocated their operations from China to Vietnam in an attempt
to escape rising costs and an increasingly complex regulatory
environment. Located in a strategic position for foreign companies
with operations throughout Southeast Asia, Vietnam is an ideal
export hub to reach other ASEAN markets.
Compared with other developing markets in the region, Vietnam
is emerging as the clear leader in low-cost manufacturing and
sourcing, with the country’s manufacturing sector now accounting
for 25 percent of Vietnam’s total GDP. Currently, labor costs in
Vietnam are 50 percent of those in China and around 40 percent of
those reported in Thailand and the Philippines. With the country’s
workforce growing annually by around 1.5 million, Vietnamese
workers are inexpensive, young, and, increasingly, highly skilled.
Another driving force behind Vietnam’s growing popularity is the
country’s collection of free trade agreements (FTAs)—most notably,
the soon-to-be-signed Trans-Pacific Partnership (TPP) and EU-
Vietnam FTA. Additional FTAs currently under negotiation include
the Regional Comprehensive Economic Partnership (RCEP) and the
ASEAN Economic Community (AEC). When these trade agreements
come into force, Vietnamese exports will be freely accessible to
many of the world’s largest markets with few tariffs or restrictions.
In terms of regulatory and financial incentives, Vietnamhas become
increasingly investor-friendly in recent years –the government has
taken such actions as reforming its financial sector, streamlining
business regulations, and improving the quality of its workforce.
Since the mid-2000s, the Vietnamese government has offered
extremely competitive financial incentives to businesses seeking
to set up operations in the country, in addition to a zero percent
withholding tax on dividends remitted overseas and a low corporate
income tax (CIT) rate of only 22 percent (set to drop to 20 percent in
2016).These advantages have enabledVietnam to become a premier
“sourcing economy” in the eyes of many companies.
The current state of Vietnam’s economy
Vietnam is seeing strong growth on multiple fronts. Of particular
interest to investors has been the continuing growth of Vietnam’s
domestic consumer market, which has been developing by leaps
and bounds. This growth is expected to continue for some time to
come - domestic consumption is predicted to increase at a rate of 20
percent per year.With a population of over 90million and Southeast
Asia’s fastest growing middle class, Vietnam clearly represents an
important market for foreign goods. Following alongwith this trend,
in November, consumer confidence levels inVietnamexceeded 100
points for the first time since 2012.
An Introduction to Vietnam’s
Export & Import Industries
– By Dam Thi Phuong Mai and Edward Barbour-Lacey, HCMC Office
Brazil
United Arab
Emirates
India
Hong Kong
Australia
Taiwan
Japan
Korea
United States
EU
ASEAN
P.R. China
Top Importers/Exporters to Vietnam
Export from Vietnam Import into Vietnam
Source: General Statics O ce of Vietnam
40
30
20
35
25
15
10
5 0
First 10 months of 2014, US$ Billion