With Vietnam’s strategy to increase the quality of foreign investment in the digital age, German businesses are eyeing green and high-tech projects in the country. Marko Walde, chief representative of the Delegation of German Industry and Commerce in Vietnam, highlights the movements of German investment in 2019 and future plans.

The year has been a great one for German-Vietnamese business relations. Some major projects in manufacturing as well as in green and clean energy sectors have come into being, using German technologies and know-how. German-invested enterprises expanded their investments in many provinces in Vietnam, not only in production but also in R&D, as well as training and technical centres, thereby showing their commitments in long-term investment in the Southeast Asian nation. German support has transferred technology and know-how to Vietnamese partners, helping them to effectively join the global supply and value chains.

According to Vietnam’s Ministry of Planning and Investment, up until last year, German financiers supported the country with nearly $2.1 billion of foreign direct investment (FDI) in 349 projects. Currently, German investment enjoys a great reputation in Vietnam and is welcomed by the government as well as local businesses. In the first 11 months of 2019, there were 33 German-invested projects in several sectors, from trade, consulting services to chemical production.

Many long-term investors such as Bosch and Siemens expanded their investment capital into Vietnam and act as typical examples of successful German investments.

Plans for digital transformation

In the wake of Vietnam’s focus on digital transformation, a number of German business missions have visited to study the market and prepare for future expansions to and in the country.

According to the results of our survey, AHK World Business Outlook conducted in April 2019, German investment in Vietnam can be predicted to grow further in 2020. As such, 55 per cent of German companies in Vietnam said they intend to expand their activities in the country and 59 per cent assume an increase in local employment.

Furthermore, German businesses expect that the EU-Vietnam Free Trade Agreement (EVFTA), and the EU-Vietnam Investment Protection Agreement would improve the economic policies in Vietnam in the long run. European and German companies can enjoy the protection of investments with trade facilitation and increase their activities in the Southeast Asian nation. The elimination of bilateral tariffs and export taxes, together with the reduction of non-tariff barriers affecting the cross-border exchanges of goods and services, is expected to boost bilateral trade considerably and create new opportunities to access markets across a range of sectors. This is particularly true in sectors such as automobile, green energy, electronics, IT, food processing, and healthcare.

Once the EVFTA comes into effect, German and European companies will bring their well-known technologies in management and training to Vietnam, allowing for improved production conditions while reducing waste of material and resources. I strongly believe that, in the long term, there will be significantly increased FDI flows for high-valued projects into Vietnam.

Moreover, the trade agreement will also pave the way for effective platforms for direct technology transfer between companies from our two countries – which are essential and required in order to speed up the digital transformation process in Vietnam.

Increasing attractiveness

We have seen the encouragement of the Vietnamese government by implementing the next-generation FDI strategy, with a vision towards 2030, as well as eight proposed breakthrough reforms. Bolstered with such incentives, the country would not only attract German investment to Vietnam but also sustain the country’s rapid economic development, competitiveness, and inclusive prosperity.

Based on our survey, German investors concede that the inconsistent economic policies of the past, as well as the shortage of skilled labour, are burdens for their growth in Vietnam. Also, a lack of integrated supply chains, qualified domestic suppliers, and effective policies to assist local firms in improving their competitiveness has hindered businesses’ capabilities in Vietnam.

It is essential for the country to solve these problems by building and developing domestic supporting industries. As such, typical industrial clusters with advantages of various regions can help to create collaborative opportunities among domestic and foreign businesses. Moreover, developing a practice-oriented vocational education system with a focus on learning by doing will help to build a new skilled generation of labourers with profound knowledge, practical, and communicative skills. Afterwards, Vietnam can achieve a competitive advantage which can assure the sustainable development in the long run.

In the field of renewable energy, especially offshore wind, we would recommend that relevant mechanisms and strategies for offshore wind farm development are further being pushed. Offshore wind energy is more complex than other renewable energy sources. Therefore, a separate power purchase agreement is required to guarantee bankability. The government can ease the risk burden by creating stable framework conditions. Once these strategies are successfully implemented, we strongly believe that Vietnam will attract an increasing number of German investors in this sector.

Lastly, entry into a foreign market also involves risks and pending issues. Particularly, the geographical distance and the cultural differences are already complicating interactions between businesses from Vietnam and Germany. With our expertise and qualified consultants, the Delegation of German Industry and Commerce in Vietnam with its two offices in Ho Chi Minh City and Hanoi will continue to build bridges, facilitate access, provide contacts, and solve problems. The final goal is to find suitable market entry strategies and reliable business partners for German businesses from a variety of fields.

In our German Business Incubator Vietnam, located in the Deutsches Haus Ho Chi Minh City, we create an ecosystem for German and Vietnamese startups and small- and medium-sized enterprises. while providing working spaces, meeting rooms, networking opportunities, and workshops.

Since 2013, we have been implementing the dual vocational training model according to German standards in Vietnam for eight different occupations, in collaboration with both German and Vietnamese companies. After their graduation, the first trainees will be ready to enter the labour force with professional skills, meeting the industry’s demands. With those projects, we show our commitment to support Vietnam in its endeavours for sustainable development.