The three-legged tripod of Korea - Japan - America in attracting FDI

Research results of the Foreign Investment Agency (Ministry of Planning and Investment) on overseas investment trends of Vietnam's leading investment partners show that Korea - Japan - America will continue to create a "stool" in Vietnam's FDI attraction. Not all, but together with other leading partners, such as Singapore, Taiwan, Thailand, Malaysia..., all three investors will make an important contribution to promoting both the quality and quantity of FDI capital flows into Vietnam.

Not only the Foreign Investment Agency, but experts in this field all share the same opinion that FDI capital from Korea - Japan - America will continue to flow strongly into Vietnam in the near future. The problem lies not only in Vietnam's inherent advantages, but also in the vast opportunities opened up after the Vietnam-Korea Free Trade Agreement (FTA) was approved, as well as the Trans-Pacific Partnership Agreement (TPP) that may be signed next year. The fact that Vietnam has and will participate in a series of other FTAs, as well as join the ASEAN Economic Community (AEC) is also expected to create a push for Vietnam to attract investment from these countries.

The common point of all three Korean - Japanese - American investors when investing abroad is to search for markets. With these investors, Vietnam not only has a potential domestic market, but also has opportunities to expand through FTAs.

Korea – the strongest stirrups

Of course, the top partner will still be Korea. In the first 11 months of 2015, Korean investors committed to invest in Vietnam over 6.39 billion USD, bringing the total FDI capital from this country to Vietnam to over 44 billion USD, standing firmly in the position of No. 1 investor in Vietnam, either this year or cumulatively.

Minister of Planning and Investment Bui Quang Vinh, in his conversation with Korean investors, has always highly appreciated FDI capital flows from this country, not only because of quantity, but also because of quality.

According to statistics from the Foreign Investment Agency, almost all major Korean companies on the FORTUNE 500 list have had investment projects or business activities in Vietnam, such as

Samsung, LG, GS, POSCO, Hyundai, KEPCO, SK... And the contributions to Vietnam's economy and society of these investors are beyond dispute.

“The Korean government always encourages Korean enterprises to invest in Vietnam, considering Vietnam a strategic investment area,” said the Foreign Investment Department.

With forecasts, FDI capital from Korea to Vietnam will increase sharply in the near future, not only from opportunities due to FTAs, but also because of the trend of Korean investors withdrawing investment from China and Japan, the Foreign Investment Agency believes that the fields of electronics industry, distribution, retail, real estate, energy, textiles and garments will receive the attention of leading Korean enterprises, such as Samsung, LG, Lotte, Shinseghe, E Mart, Shinha, Woori…

However, warnings have also been issued. That is, although it is commendable that Korea continues to promote investment in Vietnam, there also needs to be balance and diversification. This warning comes from the fear of dependence on Korea, when FDI from traditional partners such as Japan, Singapore, Taiwan... declines; Attracting FDI from G7 countries... has not shown positive signs.

America – hidden power

America has always received great expectations from Vietnam. For a long time, there have been many statements about the US becoming the largest investor in Vietnam. However, looking at the figure of 226 million USD that American businesses invested in Vietnam in the past 11 months, or the accumulated figure of over 11.2 billion USD, even though the US is still ranked in the top 10 foreign investors in Vietnam, it still has a long way to go to reach the number 1 position.

According to the Foreign Investment Agency, the reason why FDI capital from the US into Vietnam is still limited partly stems from factors related to transparency and corruption. Up to 69% of American businesses questioned responded that corruption is one of the biggest problems in Vietnam.

In addition, Government-business cooperation is still fragmented in efforts to restructure the economy to increase competitiveness and adaptability to the WTO environment for both state-owned enterprises and small and medium-sized enterprises, which is also one of the prominent reasons.

Limitations in infrastructure and lack of high-tech human resources also make US investment in Vietnam not as expected.

In addition, increased costs over the past 5 years, including labor costs, office rent, housing... have not satisfied many investors.

However, the future is bright as many believe that US FDI into Vietnam is likely to increase rapidly in the coming period. The reason is that, like European, Korean or Japanese companies, the biggest goal of American transnational companies when investing abroad today is to find markets, and Vietnam has all the elements to become an attractive market.

Besides, Vietnam's appeal also comes from low labor costs. Currently, skyrocketing labor costs in China are causing many US multinational manufacturers to turn their attention to cheaper places, including Vietnam.

In fact, more and more American businesses are looking for investment opportunities in Vietnam. A typical example is Microsoft, since the end of 2014, this enterprise has moved smartphone factories from China to Vietnam, turning Vietnam into a key point in the Group's global supply chain.

"US corporations have considered Vietnam as a strategic market for long-term benefits, not just for immediate benefits," the Foreign Investment Department commented, saying that in addition to Microsoft, a series of other corporations are also shifting their production focus to Vietnam, such as Intel, Jabil, Microchip...

Clearly, TPP is bringing great attraction to Vietnam. Since Vietnam negotiated to join TPP, the number of American companies coming to Vietnam to seek investment opportunities has increased. If in 2013, there were only 22 US businesses exploring the business environment, then in the first 6 months of 2014, there were 3 large business groups (including many famous US corporations such as Boeing, Apple, AIG, Exxon Mobil...) looking for investment opportunities in Vietnam.

"This interest will be even greater when Vietnam participates in TPP. This is a favorable condition for American companies to increase investment, including constantly expanding scale, increasing production capacity, and seeking profits," the Foreign Investment Department commented, saying that TPP will make Vietnam different from other investment markets in the region.

According to forecasts of the Foreign Investment Agency, Vietnam may also be the priority choice of US companies headquartered in Hong Kong in shifting investment outside of China.

Japan – solid support

One thing that cannot be denied is that FDI capital from Japan into Vietnam is slowing down. In the past 11 months, Japanese investors have invested just over 1.723 billion USD in Vietnam, bringing the total accumulated Japanese FDI capital in Vietnam to approximately 39.5 billion USD. Although far ahead of many other investors, Japan has fallen far behind the number 1 investor, South Korea.

The reason for the slowdown is that since 2013, most Japanese investment capital in Vietnam comes from Japanese small and medium-sized enterprises, so there are few large-scale projects. Even, according to the Foreign Investment Agency, this will be the reason why the total newly granted FDI capital from Japan to Vietnam may decrease in the short term. However, in the long term, investment capital from Japan into Vietnam will continue to increase.

Research by the Japan External Trade Organization (JETRO), one of the reasons why FDI from Japan to Vietnam has slowed down in recent times is due to the great need to rebuild the country after the earthquake and tsunami. Japan has called on Japanese businesses to promote business investment in the country to promote growth and create jobs.

Japan's loosening monetary policy and devaluation of the yen have also made the cost of investing abroad more expensive and caused Japanese investors to wait for the exchange rate to improve.

In addition to the internal hindering factors in Vietnam's investment environment, such as lack of uniform policies, bureaucratic procedures, high tax costs, underdeveloped supporting industries..., the fact that Vietnam's economy from 2012 up to now has not returned to good growth levels like previous years also makes many Japanese businesses have a waiting mentality and have not decided to invest in expansion.

However, those are only temporary difficulties. "The potential to attract FDI capital from Japan has many favorable factors from both Japan and Vietnam," the Foreign Investment Agency commented, saying that Japan currently has 4.7 million small and medium-sized enterprises, accounting for 99.7% of the total number of enterprises in Japan, with modern technology and techniques and is tending to invest abroad, while Vietnam is in need of developing supporting industries and attracting investment from these enterprises.

Even in a long-term vision, the Foreign Investment Agency believes that the Industrialization - Modernization Strategy to 2020 with a vision to 2030 that the two countries are cooperating with, with 6 cooperation focuses, will bring great opportunities for FDI capital flows from Japan. Policy cooperation will provide a "solid support" for FDI capital flows from Japan into Vietnam.