South Korean businesses have been stepping up investment in Vietnam’s manufacturing sector not only to export the products but also to serve the Southeast Asian country’s thriving consumer demand, said Park Chul Ho, general director of the Korean Trade-Investment Promotion Agency (KOTRA
)’s Hanoi office.
South Korea has overtaken Japan to become the largest foreign investor in Vietnam, with a total of $54 billion as of March 2017, according to the Foreign Investment Agency under the Vietnam Ministry of Planning and Investment.
Korean companies have invested in 19 sectors in Vietnam, with a focus on processing and manufacturing ($35 billion), real estate ($8.2 billion), and construction ($2.7 billion).
This tendency is expected to continue in the years to come as a large number of Korean companies in China are considering shifting their production bases to Vietnam due to soaring costs, Park said at a press meeting last week on the Vietnam International Trade Fair 2017 (Expo 2017).
Other manufacturing-related services such as distribution, wholesale, retail, science-technology, and infrastructure are also set to gain momentum in the near future, the KOTRA representative added.
Park Chul Ho (second left), general director of the KOTRA Hano. Photo: Minh Tuan
Change in Tactics
Unlike Korean investors’ export-oriented investments previously, they have switch attention to Vietnam’s domestic market.
The Korean business community has seen Vietnam as a highly potential market, characterized by economic growth averaging 6%-7% per year and a population of nearly 100 million people, Park commented.
The middle-income class in Vietnam is forecast to double to 33 million, or one third of its population in the 2014-2020 period, according to Boston Consulting Group.
In addition, the Vietnamese government’s opening-up and pro-macroeconomic stability policies have lured an increasing number of foreign investors, Park said.
South Korean consumer goods are becoming increasingly favored in Vietnam thanks to their superior quality in comparison with peers from China or other countries, he explained.
He added that the rising popularity of the kimchi culture has been also an important factor that drives the appetite for Korean goods. Fans tend to buy cosmetics or clothes used by singers or actors they see in movies or musical video clips.
Vietnam spent $32 billion on importing goods from South Korea last year, including $123 million worth of food. Computers, electronic devices and home appliances accounted for the majority of the import value.
Samsung Vietnam posted revenue of $46.3 billion in 2016, of which its exports rose 9.9% year-on-year to $29.9 billion. This means that the tech giant raked in some $6.4 billion from selling goods in the Southeast Asian country.
Trade surged 90 times from $500 million in 1992, when bilateral diplomatic ties were established, to $45.1 billion in 2016, making South Korea the third biggest trade partner of Vietnam last year.
The Vietnam-Korean Free Trade Agreement (VKFTA
), effective from December 2015, has helped boost bilateral trade as import tariffs of many goods are set to be brought to zero.
Since the deal took effect, two-way trade increased 20% year-on-year in 2016. South Korea’s exports to Vietnam rose 17% while Vietnam’s exports to that market expanded 27%, Park said.
The two countries have aimed for bilateral trade to hit $100 billion by 2020. KOTRA will step up investment and trade promotion activities to realize the target, Park said.
To make Korean goods reach out to Vietnamese consumers, a number of retailers have expanded their foothold in the country.
Lotte Group, which is running 13 Lotte Mart supermarkets across Vietnam, has targeted to increase its network to 60 by 2020. It has reportedly acquired the Ciputra Hanoi Mall for $300 million.
Honorary Country at Expo 2017
South Korea will be the honorary country at Expo 2017, to be held in the Hanoi International Exhibition Center (ICE) from April 19 to 24, as the two countries celebrate the 25 anniversary of diplomatic relationship.
The event will draw the participation of over 500 companies with 600 booths from 16 Vietnam cities/provinces and 23 countries and territories such as India, Cuba, Taiwan, Germany, Russia, Japan, Thailand, China and Iran.
Up to 130 South Korean individuals and companies will display their products at 138 pavilions at the event. They will show products in the cosmetics, beauty, food & beverage, home appliance, machinery-electronics sectors.
Besides showcasing their products, the businesses will look for partners to improve the products as well as make long-term investments, Park said.