[Southeast Asia] Export Potential in Vietnam (PART I)

With its rising costs, China is no longer the go-to destination for many businesses, and Vietnam has arisen as a potential competitor. Recent trends show that the number of orders shifting from China to Vietnam has seen a significant increase.

For example, China’s Pearl River Delta, long known as one of the key factory centers for the world’s manufacturers (particularly those from Hong Kong) has now become too costly for many companies to stay in the region.

(Source: BusinessSweden)

In the past three years alone, a growing number of businesses have relocated their operations from China to Vietnam in an attempt to escape rising costs and an increasingly complex regulatory environment.

Located in a strategic position for foreign companies with operations throughout Southeast Asia, Vietnam is an ideal export hub to reach other ASEAN markets.

Here in the second edition of the Southeast Asia analyzing series, we take a look at Vietnam and why you should consider this vibrant market for e-Commerce exports and sourcing products.

Vietnam export overview

Vietnam has made rapid and constant economic progress since launching its first major economic reforms in 1986.

It continues to develop from a low-cost labour economy to a higher value, high-quality enterprise marketplace. Vietnam is forecast to be one of the top 10 fastest growing economies in the next few decades.

Vietnam is currently one of the most vibrant economies in Asia, with a large market for capital goods and a growing domestic market for consumer goods. It has an ambitious programme of major infrastructure developments, including new urban railway networks, a new international hub airport and expansion of regional airports.

(Source: VietnamEconomicTimes)

Increasing numbers of regional companies are following the footsteps of well established brands like Standard Chartered, HSBC, Karen Millen and Oasis into the market. Rolls Royce motor cars, Mini and Marks and Spencer established a presence in 2014.

Incentives for companies exporting to Vietnam include:

• One of Department for International Trade (DIT)’s 20 High Growth Markets
• Forecast to be one of the top 10 fastest growing economies in the next few decades
• Continuing liberalisation of its economy
• Member of Association of Southeast Asian Nations (ASEAN) and its free trade area

Strengths of the Vietnamese economy include:

• Young population of 90 million
• Continuing economic reforms with sectors such as retailing being liberalised to attract foreign investment
• Amongst the highest internet penetration in Southeast Asia, with almost 32 million having broadband access

Challenges

Vietnam is currently sitting at 68th in the World Bank’s Ease of Doing Business ranking.

The main challenges of doing business in Vietnam are:

• Inadequate infrastructure
• Corruption
• Lack of skills
• Bureaucracy
• Grey areas of Vietnamese law
• Lack of Intellectual Property Rights (IPR) enforcement
• Language barrier means translators and interpreters are often needed

Transparency International rated Vietnam 107th in its Corruption Perceptions Index.

Growth potential

Economic growth

Vietnam’s Gross Domestic Product (GDP) is USD 223.86 billion. Per capita purchasing power is around USD 6171.

GDP increased 6.28% in 2017. An average of 6.79% growth a year is forecast from 2017 to 2019.

Retail trade grew 11.7% in 2017.

Free Trade Agreements (FTAs)

Vietnam is a member of the World Trade Organization and ASEAN.

The ASEAN Economic Community (AEC) was officially launched on 31 December 2015. Overall, the AEC will benefit companies operating in the region.

The AEC agenda helps promote reform and raise economic growth in the region. Improved trade facilitation, regulatory reform and financial development will benefit all domestic and foreign firms. Firms producing and shipping within the region can benefit from intra-ASEAN tariff reduction.

ASEAN has signed 6 regional FTAs:

• China
• Japan
• South Korea
• India
• Australia
• New Zealand

There are also a bilateral FTAs with Japan, South Korea, Chile, and the Eurasian Economic Union.

Negotiations for the Trans-Pacific Partnership and the EU-Vietnam Free Trade agreement were concluded late 2015.

If your company is in a contract with a Vietnamese buyer, goods and services provided by your overseas subsidiary in these countries will benefit from preferential import duties.

->> Tramping down import/export barriers for a smooth business expansion.

TO BE CONTINUED…

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