Largest Investor
Vietnam is rising as a manufacturing hub for South Korean companies. While electric and electronic industries are leading investments in Vietnam, many textile and shoe companies are returning to Vietnam from China. As consumption increases with higher income levels, large distribution companies are also actively investing in Vietnam.
On June 19, Foreign Investment Administration in Ministry of Investment Planning of Vietnam announced that investment from South Korea during January-March period in 2014 reached US$765.6 million, which accounts for 22.9 percent of the entire investment amount in Vietnam.
When it comes to new investment amounts and the number of investments, South Korea recorded 26 percent and 30 percent, respectively. This made South Korea the #1 investor in Vietnam out of a total of 32 countries. Traditional top investor Japan, with a cautious attitude towards new project investments, has become the #2 country, as the total investment amount was counted at US$414 million.
As South Korean companies increase the investments to Vietnam, South Korea is rapidly following Japan in terms of accumulated investment amount as well. The total accumulated investment amount of South Korea is now US$30.4 billion, right behind the Japanese at US$35.3 billion.
South Korean investment is particularly outstanding in the electric and electronic industries. According to KOTRA, 23 out of 76 new investment projects until this March are into electronic components and mobile phone accessories, which is 34 percent of the entire investment amount.
Especially, as Samsung and LG are increasing their investment in Vietnam, their subcontractors are also going to Vietnam. According to the Vietnam office of Samsung Electronics, 55 subcontractors of Samsung Electronics entered Vietnam as of March 2014, and their accumulated investment amount recorded US$2 billion.
The whole Samsung group has a very keen interest in Vietnam. Samsung is looking for new business opportunities in Vietnam not only in electric and electronics, but also in construction and shipbuilding. The Vietnamese government wants to invite Samsung, who already invested US$5.7 billion, into many of big projects such as the Vung Ang 3 thermoelectric power plant, Long Thanh airport in the west, and Khanh Hoa shipyard.
LG Electronics will also build a new factory in Haiphong with US$300 million by 2020. In this factory, LG will manufacture air conditioners, refrigerators, and washing machines targeting the Vietnamese domestic market.
It is very remarkable that Korean traditional industries, including textiles or shoemaking, as well as distribution businesses also enter Vietnam. The textile and shoe industries account for 11.48 percent of the total Korean investment in Vietnam, whereas material production (paper, plastics, cardboard, thermostable film) does 11.01 percent.
This phenomenon is closely related to the recent trend that the above companies move their factories from China to Vietnam, as labor expenses are relatively cheaper in Vietnam. Kim Ko-hyun, a regional manager at the Korea International Trade Association (KITA) Ho Chi Minh, mentioned that the minimum wage in China has been doubled in the past 3 years, and that more and more companies move their factories to Vietnam where labor expenses are cheap.
The fact that Vietnam has enough human resources who are economically active invites more South Korean companies. The population of 15 to 64 year-olds with high productivity will reach 70.8 percent by 2015 from 70.0 percent of 2010.
Many large distribution companies have started to invest in Vietnam directly. Lotte Mart is operating 7 stores in Vietnam, and Shinsegae International has a plan to invest US$65 million to open stores in Ho Chi Minh.
The population of 15-24 year-olds in Vietnam, which will be the main consumer segment in the future, is 20.1 percent, and this outnumbers India (19.0 percent), China (17.8 percent), and other emerging countries. Vietnam’s consumption market will be getting bigger and bigger.