China and Thailand continue to prevail over other destinations as Vietnam
’s largest competitors for foreign investment, according to the Provincial Competitiveness Index (PCI
) 2015 survey jointly conducted by the Vietnam Chamber of Commerce and Industry (VCCI) and USAID.
In the survey, just about half of the foreign-invested enterprises (FIEs
) currently in Vietnam considered other countries (most commonly, China, Thailand, and Indonesia) before selecting Vietnam as their ultimate destination.
Each of these shares has increased above last year and has nearly doubled from 2013, the survey says.
The survey finds out that, among eight factors that are important to investment success, Vietnam has four strengths namely tax rates, expropriation risk, policy influence, and policy uncertainty.
Notably, policy uncertainty has held steady. Over 60% of FIEs believe Vietnam has greater stability and predictability than almost all of its competitors. These findings are critical, as FIEs value policy environments that enable them to make long-term strategic plans.
Meanwhile, FIEs evaluate Vietnam to be significantly less attractive when it comes to corruption, regulatory burdens, quality of public services and the quality and reliability of infrastructure.
The survey notes that Vietnam appears to rank even worse than every possible competitor when it comes to corruption and the regulatory burden.
38% of FIEs Reported Losses in 2015
According to the survey, up to 37.8% of FIEs in Vietnam reported losses in 2015, the highest percentage since 2010. Meanwhile, 55% of them reported profits, marking the lowest percentage since 2010.
Foreign operations in Vietnam are growing but remain quite small by international standards. The median size of an FIE is about 125 employees, and 73.5% of FIEs in Vietnam have fewer than 300 employees.
The typical FIE in Vietnam remains relatively small, export-oriented, and operates a low-margin business that is subcontracting to a larger multinational producer, and is therefore usually situated among the lowest nodes of a product’s value chain.
With respect to origin, investors from South Korea, Taiwan, Japan, and mainland China account for 68 percent of the active businesses surveyed.
“It is important to note that a great deal of U.S. investment is listed as originating in Hong Kong and Singapore for a variety of logistical and tax-based reasons, thus U.S. investment is probably understated,” says the report.
Optimism Remains Pretty Strong
The PCI survey shows that FIEs’ optimism remained robust last year as 11.3% of them increased their investments in existing operations and 62.4% added new employees to their payrolls.
The PCI-FDI Business Thermometer points out that nearly 50% of FIEs were planning to expand over the next two years.