Expansive point of entry

Vietnam boasts several key advantages in investment, including political stability, a business-friendly government, a transparent legal framework, and a strong network of local partners, all of which create favorable conditions for businesses seeking to expand into the ASEAN market. At a panel discussion entitled “Growing in ASEAN through Vietnam”, held within the “Gateway to ASEAN” conference organized recently in Ho Chi Minh City by UOB, leaders from major companies and investment funds such as Warburg Pincus, BW Industrial, and Viessmann shared their experience in navigating the Vietnamese market and scaling their exports.

Vietnam an ideal gateway

Warburg Pincus, one of the world’s oldest and biggest private equity firms, with over $113 billion in assets across 40 countries and territories, has selected Vietnam as one of its top 5 global investment destinations and its third-largest market in Asia. Mr. Li Fan, Managing Director of Warburg Pincus, identified three main reasons why businesses and investors see Vietnam as an ideal gateway to Southeast Asia.

Firstly, its political stability and pro-business government set it apart. “Vietnam is excelling in this regard,” he told the discussion. “Among emerging markets in Asia, it is the only country following the East Asia growth model, alongside South Korea, Japan, China, and Singapore. Multinational companies consistently rank the Vietnamese Government highly for its business-friendly approach, which shows improvements year after year.”

He highlighted the government’s actions during the pandemic, such as signing multiple free trade agreements (FTAs) and encouraging investments in key strategic partner nations. Businesses operating in Vietnam benefit from established connections with other countries and territories and access to free trade zones as well as bilateral and multilateral agreements. Few countries have managed to successfully finalize FTAs with the US, Europe, and Japan in as short a time as Vietnam.

Secondly, Vietnam’s legal framework is increasingly clear and transparent. While some overlapping regulations remain, there have been encouraging initiatives to make the legal environment more transparent, equal, and accessible for businesses.

Vietnam’s attractive FDI policies and low labor costs, at approximately half of China’s, are also clear advantages. Additionally, many investors have yet to fully assess the “China+1” strategy when selecting market locations. With its shared border with China, Vietnam provides a convenient option for supply chain diversification and production shifts away from its northern neighbor, offering more benefits compared to other countries and territories. The Vietnamese Government has also significantly enhanced infrastructure investments in recent years, to around 6-7 per cent of GDP.

Thirdly, Mr. Li Fan said, Vietnam offers a robust network of local business partners. Warburg Pincus has developed a large and diverse investment portfolio in collaboration with local partners, such as industrial real estate developers and VinaCapital, one of Vietnam’s largest investment funds.

Mr. Gene King, Chief Investment Officer of the BW Industrial Development JSC, a leading provider of logistics and industrial real estate for lease in Vietnam, also emphasized that supply chains need to be diversified and decentralized post-Covid-19. “Most businesses understand this,” he said at the discussion. “Companies from Europe and the US are pushing suppliers and manufacturers to diversify, and Vietnam is seen as an attractive option. Today, SMEs [small and medium-sized enterprises] are more flexible with leasing terms and capital flows, allowing them to focus on business plans, manage costs effectively, and pursue sustainability. This is a trend that investors should be aware of when shifting operations to Vietnam.”

Most businesses at the discussion agreed that Vietnam’s investment climate offers numerous advantages, making it an ideal gateway for companies seeking to enter the broader ASEAN market. This is due to the country’s political stability, business-friendly government, transparent legal framework, and extensive network of local partners.

Global thinking, deep local understanding

Mr. Alexandar Ziehe, Managing Director in Southeast Asia and Oceania at Viessmann, said his company chose to invest in Vietnam because of a need for supply chain diversification. Vietnam has emerged as a strong contender within ASEAN, he explained, enabling the company to serve markets beyond Germany, such as Southeast Asia, with future potential for exporting to Europe, Australia, and elsewhere. Vietnam acts as a strategic hub for exports to various regions.

“Expanding our production and operations, establishing Viessmann’s first Southeast Asian factory, at the An Phuoc Industrial Park [in southern Dong Nai province], was absolutely the right decision,” he said. “The local supply chain network is very robust. Asian consumers tend to change rapidly, so the supply chain must evolve just as quickly. Viessmann’s products benefit from diverse supply sources, avoiding dependence on China. Another key to success is Vietnam’s large consumer base, which readily embraces foreign brands. This is an inspiring trend, and Viessmann aims to seize this opportunity.”

Viessmann undertook several steps to fully understand the market, including marketing efforts, gaining cultural insights, and hiring local talent. This was a gradual and challenging process, and it now has many Vietnamese employees in its research and development (R&D) department. “We apply global thinking while leveraging local talent,” he continued. “Therefore, local partnerships are critical, and having a well-established, high-quality supply chain network is essential to producing superior products and delivering them to the right consumers.”

Aligning with an approach of “global thinking, deep local understanding”, Mr. Li Fan emphasized that understanding local culture, laws, and tax benefits helps businesses gain deeper access to the ASEAN market.

However, Mr. Ziehe also noted that Vietnam faces sustainability challenges, particularly in the energy sector. Pursuing sustainable practices in operations, production, and influencing consumer behavior will elevate sustainability efforts, and both businesses and the government need to collaborate to overcome these challenges. “I believe the Vietnamese Government is open and business-friendly, having taken concrete actions to support sustainable growth,” he said. “The international business community will continue to collaborate with local partners, offering mutual support and sharing knowledge for effective outcomes.”