09:27 | 03/10/2019 Investment
(VEN) - Foreign direct investment (FDI) inflows into Vietnam are on the rise, but Vietnamese businesses need to make careful preparations to take advantage of its opportunities.
Prof. Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE), said foreign investors began the “China-Plus-One” strategy a decade ago when China attaches much importance to domestic investment, promotes outward investment, reduces FDI incentives, and strictly controls activities of the FDI sector. Production costs in China are getting expensive, resulting in a move out of mainland China to new locations.
According to IMA ASIA calculations, wages in China increased from US$2.01 per hour in 2010 to US$3.9 per hour in 2016, much higher than the average salary in Vietnam, which ranges between US$1-1.4 per hour.
For these reasons, Samsung Electronics announced to stop operating a mobile phone manufacturing factory in China at the end of 2018 and shift its production to Vietnam. As of mid-2019, there were more than 200 suppliers for Samsung Electronics Vietnam, including 29 tier-1 vendors. Samsung’s local content rate jumped from 34 percent of total product value in 2014 to 57 percent in 2018.
In March 2019, LG Electronics halted phone manufacturing in the Republic of Korea. The production will be moved to Vietnam at its factory in Hai Phong City by the end of 2019. In addition, Foxconn also announced land lease in Vietnam in January 2019.
Thanks to FDI inflows into Vietnam, the FDI sector has become the most dynamic driver of growth and played an increasingly important role in Vietnam’s socioeconomic development. Currently, the FDI sector accounts for 22-25 percent of total capital on social investment, 55 percent of total industrial value, and 70 percent of total export turnover, while creating about 3.7 million jobs.
FDI provides significant development opportunities for domestic businesses, including support industry businesses. Thanks to FDI, businesses have more abundant financial resources to expand their trade and production activities. Investors have also conducted technology transfer and promoted training of human resources, contributing to improving production and management capacity.
However, only 14 percent of Vietnamese businesses have succeeded in attracting investment from foreign businesses. Of which, 21 percent of them have become suppliers in the global value chains.
The linkage between FDI and domestic businesses in value chains is yet to yield desired results. Therefore, tightening the linkage between domestic and FDI businesses has become crucial to Vietnam.
State management agencies need to provide guidance and strengthen supervision of FDI businesses to detect law
violations and handle cases to ensure investors’ commitments.