Production activities at Rhythm Precision Vietnam

In 2020, Vietnam received more FDI than any other Southeast Asian market, barring Singapore and Indonesia. It also received more than major economies such as France and South Korea.

Over a quarter of HSBC’s survey participants already had operations in Vietnam (26%). While proximity to China naturally facilitates Sino-Vietnamese business relations, US-Vietnamese commercial and strategic ties have also strengthened in recent years in the face of geopolitical tensions. As such, while 37% of Chinese companies in HSBC’s survey stated that they already had operations here, it is unsurprising that the second most likely home market of international businesses with operations in Vietnam is the USA. 29% of the US firms participating in this study have Vietnamese operations. Vietnam is seen as an important destination for further growth. Some 17% of respondents stated that their business was intending on expanding into this market over the next 2 years.

Opportunities to attract FDI

On average, international companies found Vietnam’s skilled workforce to be the most attractive feature of the market, with 3 in 10 stating this attracted them. An optimistic economic outlook, competitive wage prices, and the resilience demonstrated by Vietnam during the pandemic were all seen as attractive by companies in assessing their business expansion; over a quarter of respondents (27%) mentioned these.

"Different countries perceive Vietnam’s advantages in different ways. Indian companies were approximately twice as likely to find their developed infrastructure as attractive for their international expansion. The difference was especially stark between Indian and UK firms; where 39% of Indian companies stated they were attracted by Vietnam’s infrastructure, only 5% of UK firms did. UK firms were much more likely to be attracted by Vietnam’s skilled workforce—29% said they found this particularly attractive", HSBC said.

HSBC’s survey shows Indian, Chinese, and US companies were similarly enthusiastic about Vietnam’s supportive government and regulatory environment. 49% of Indian companies mentioned this, making it the single most attractive factor for companies from the country; 33% of US companies, and 30% of Chinese companies also selected this. By contrast, only 15% of UK firms, and 8% of those from Germany considered this an attractive feature of Vietnam.

Enthused by Vietnam’s regulatory environment, US companies were very attracted by the opportunity Vietnam affords to test and develop new products and solutions, with 36% stating they found this attractive. German companies were most likely to be attracted by the supply chain ease and social and political stability of Vietnam, with a quarter of German respondents selecting both as positive features of the market. The French were particularly attracted by the optimistic outlook on the economy, with 30% selecting this.

Major challenges

The disruptive impact of the COVID-19 pandemic, and the challenges of adapting to contemporary sustainability requirements were the top issues faced by international businesses with operations in Vietnam.

"Vietnam's hardline COVID-19 containment policies, which were in place at the time the survey was conducted, are reflected in the fact that one in every three international companies reported pandemic-related supply challenges as being especially acute for their business," HSBC said.

Besides, HSBC said cultural issues were also a major concern. 31% identified this as a particular challenge of doing business in Vietnam; interestingly, and despite their geographic proximity, Chinese companies were more than twice as likely as those in the UK to raise this as an issue.

Sustainability considerations

Vietnam has been striding forward in recognition and application of the sustainability agenda. In October 2021, it approved the National Strategy on Green Growth. This measure is an important step forward. It is aimed at encouraging green growth and facilitating the transition to a net-zero economy.

Vietnam is a regional leader in its progress towards achieving the 17 UN Sustainable Development Goals (SDG). Ranked 51st out of 162 countries by the SDG Index, it is thus rated as having greater success than all other Southeast Asian countries barring Thailand.

Sustainability is a many-faceted concept. Among the international companies participating in HSBC’s survey, 45% of those with Vietnamese operations stated that the most important sustainability actions they could take were improving energy efficiency; a further 42% underlined the importance of supporting local communities.

HSBC’s survey also showed some 31% of respondent companies operating in Vietnam worried that new regulations and rules on carbon reduction could impact them. It is therefore unsurprising that in order to achieve their sustainability goals, 3 in 10 international firms with Vietnamese operations pointed to a need for further improvement in their internal sustainability expertise; naturally, therefore, 36% flagged the difficulty of hiring employees who possessed the correct sustainability credentials and knowledge. Provided adequate training, it is clear these barriers can be swiftly removed.