Country’s investment attractiveness is on the rise, helped by carefully planned areas such as Binh Duong.
Continuous inflows of foreign direct investment (FDI) to Vietnam have helped fuel economic growth of around 7% annually and are transforming the country into a key manufacturing centre in Asia with robust exports.
Modern infrastructure and a carefully planned new city in Binh Duong have helped the province attract more investment than any other location in Vietnam except Ho Chi Minh City. Photo courtesy of Becamex IDC
While the majority of investments have flowed into Ho Chi Minh City, a small province located just north of the country’s largest city has emerged as a new investment destination and manufacturing hub.
Located at the centre of the Southern Key Economic zone, around 40 kilometres from Ho Chi Minh City and Saigon Port, Binh Duong province boasts smart city planning, high-tech industries, new industrial zones and gross domestic product (GDP) growth surpassing the national average.
“The Vietnamese government and provincial leaders have attempted to make Binh Duong an ideal place for business and investment by creating a conducive environment for foreign investors,” said Bui Minh Tri, chairman of the Binh Duong Industrial Zone Authority.
After 20 years of development, Binh Duong is now surpassed only by Ho Chi Minh City in terms of investment value, he added.
As of October 2017, Binh Duong had attracted more than 3,000 foreign-backed ventures worth a cumulative US$29.5 billion from 60 countries, accounting for 9.4% of the total FDI capital pledged to Vietnam. The province’s GDP growth was 14%, surpassing the national rate of 7.5%.
“The industrial zone in Binh Duong is an ideal manufacturing hub and investment destination close to Ho Chi Minh City,” said Piyakul Suwansumrit, the Thai representative in Binh Duong of Becamex IDC, a state-owned industrial estate and infrastructure development conglomerate. “The province is equipped with developed transport and telecommunication infrastructure, power and water systems and smart urban planning.”
Strategically located in Ben Cat district, 30km from the airport and 40km from the port, Binh Duong New City is accessible by National Highway 13 — a six-lane highway that connects to major routes nationwide — with convenient public transport including buses, rail and metro lines.
“The proximity to major transport hubs will help businesses reduce logistics costs substantially in comparison to other existing transport routes,” said Mrs Piyakul.
Currently, Binh Duong is home to 29 industrial parks spread over 10,000 hectares with an occupancy rate of 71%, according to the investment consultancy Dezan Shira & Associates. In addition, there are 11 industrial clusters covering 802 hectares with an occupancy rate of 55%. The provincial government’s master plan calls for an additional 34 parks covering 15,000 hectares by 2020.
My Phuoc Industrial Park (MPIP), a 7,400-hectare industrial zone developed by Becamex in Binh Duong, is now home to 450 companies from 34 countries, representing an investment of $5.4 billion. They include Tokyu Corp, Colgate-Palmolive, Kingtech, ECS Electronics, Vinamilk, Kubota, Lotte, SAB Miller and Kumho Tire, to name a few.
“The key to Binh Duong’s success as the industrial estate is the collaboration between the private and public sectors with international cooperation,” Mrs Piyakul said.
With the aim to become the country’s premier “smart city”, provincial leaders have collaborated with international businesses and research institutes to create an enhanced urban ecosystem, improve transport and infrastructure and attract high-tech manufacturing industry with less-labour intensive and more environmentally friendly industries.
“Smart urban planning is an attractive characteristic that makes Binh Duong an outstanding location for businesses and residents,” added Mr Tri.
Working with Intelligent Community Forum (ICF), a New-York-based group that helps to design inclusive, sustainable and livable cities, and Brainport Eindhoven, a leading Dutch technology company, the Vietnamese government designed Binh Duong New City based on a “triple helix” concept that focuses on innovation driven by universities, industry and government, with an international university and citizen-friendly one-stop government services.
“Binh Duong is an emerging city with rapid growth. It’s now an attractive FDI destination for technology and manufacturing,” said Kriengkrai Thiennukul, vice-chairman of the Federation of Thai Industries (FTI).
Several Thai companies have established footholds in Binh Duong, among them the Siam Cement affiliate Vina Kraft Paper Co Ltd, Srithai Vietnam, BJC Vietnam and Toshiba Vietnam, he added.
Vietnam will continue its growth trajectory and attract more global investors over the next decade, experts agree. Key driving factors are the size of its domestic market of 93 million with an abundant young workforce and rising middle class, increasing political stability with a strong government socio-economic development plan, competitive production costs and favourable trade agreements across Asia.
“Vietnam’s economy is growing robustly with strong fundamentals. The country offers great business opportunities in a vast array of industries,” said Tharabodee Serng-Adichaiwit, general manager of Bangkok Bank Vietnam. “With economic development at full speed, GDP in Vietnam will skyrocket with the economy tripling its size within a few years.”
The economic crisis in 2012 has long gone and the government has brought inflation under control while continuously improving infrastructure, he added.
The banking industry in Vietnam has become much healthier, thanks to prudent control by the State Bank of Vietnam, resulting in stable foreign exchange and low interest rates. Currency depreciation in the past (2008-11) was very high, from 6-8%, but since 2012 the rate has been stable at around 1% or even less. The Big Three credit rating agencies — Moody’s, Fitch and S&P — have a positive and stable outlook on the country.
The middle-class and affluent consumer (MAC) population will also explode in size between 2014 and 2020, from 12 million to 33 million, according to Mr Kriengkrai. Increasing purchasing power will lead to higher demand for high-quality goods including imports.
“The young local population will have a higher income and there will be an expansion of the middle class from 10% to 30%. Vietnam will experience more urbanisation and modern trade, more consumption and real estate development,” added Mr Tharabodee.
“This is the phenomenon of middle class consumption that will happen in Vietnam. Investment and consumption will skyrocket and exports will follow.”
Income per capita has already grown 3.5 times since 2004, doubling every three years from $607 in 2004 to $2,185, said Mr Tharabodee, citing data from the Asian Development Bank (ADB).
The consumer finance sector is also taking off, with outstanding credit of $25.5 billion in 2016, compared with $10.5 billion two years earlier, according to Stoxplus data.
Bilateral trade between Thailand and Vietnam, meanwhile, has grown enormously and will continue to expand, with further reinforcement by both governments.
“Vietnam is Thailand’s second-largest trading partner in Southeast Asia, while Thailand is Vietnam’s largest trading partner in the region,” said Tran Thi Thanh My, commercial counsellor with the Trade Office at the Embassy of Vietnam in Thailand. “Last year, bilateral trade reached $15.2 billion and is expected to reach $20 billion by 2020.”
The country also has attractive import and income tax incentives that apply to a variety of industries and projects, she added. Production costs and capital investment are also cheaper in Vietnam, making it a competitive production base with young, growing and educated workforce.
“The overall capital investment cost in Binh Duong compared to Thailand is about 1.5 times cheaper as the starting salaries for certain professions are much lower than in Thailand,” said Bunjong Chawalitruangrith, assistant vice-president of KSP Vietnam Co Ltd, a unit of Thailand’s Charoen Pokphand (CP) Group.
NO EASY BREAKTHROUGH
Despite the lure of a positive economic outlook, experts point out that entering the Vietnamese market takes time and dedication. Businesses must carefully study local regulations and culture in order to be successful.
“The execution is the most difficult part. It takes a lot of time and patience to learn and understand how to do business in Vietnam. Many businesses face losses in the first few years before being able to gain momentum,” said BBL’s Mr Tharabodee.
Among the key success factors, he said, is knowing and respecting local regulations and getting on the ground to thoroughly understand the Vietnamese culture.
“Go regional but know the locals and never assume things,” advises Montri Mahaplerkpong, deputy country director of SCG in Vietnam, who has led Siam Cement’s operations in the country for several years.
Businesses also need to understand how geopolitical factors have resulted in quite distinctive sets of beliefs and attitudes in the northern, central and southern parts of the country, along with completely different consumption patterns and preferences.
Networking is also very important, he said: know the locals and learn what is the right thing to do.
In terms of regulation and enforcement, authorities in Vietnam are stricter than those in Thailand so foreigners must carefully study the rules and abide by the laws. Locating within economic and industrial zones is highly recommended.
“Doing business outside industrial parks and economic zones is really a tough challenge,” said Mr Montri. For example, that could involve relocating hundreds of families, temples, graveyards and also searching for unexploded bombs from the US war of nearly 50 years ago. “So, try to stay in the industrial areas.”
While businesses may not experience an easy start, the hard work will pay off later.
“The growth in Vietnam is real, not a bubble. In the beginning, it was very difficult to do business there, but three or four years later, our business grew 200-300%,” Mr Bunjong noted.
- By TANYATORN TONGWARANAN, Bangkok Post