International business: a spotlight on Thailand and Vietnam
Foreign investment, tech and ESG in ASEAN
Thailand and Vietnam stand out as two of the ASEAN region’s burgeoning markets, both attractive locations for international corporations looking to set up business and take advantage of the opportunities that abound here. However, given current global volatility, both countries must remain competitive while addressing some of their own challenges.
Franz Murr, Regional Head of Asia-Pacific, Ha Bach, Chief Representative in Vietnam, and Thira Nuntametha, Senior Representative in Thailand, explore emerging trends in two of ASEAN’s fastest-growing economies.
Vietnam’s recent development and the opportunities for foreign investment
Ever since the US embargo was lifted and Vietnam opened its doors to Foreign Direct Investment (FDI) almost 30 years ago, it has remained an attractive location for multinational corporations looking to take advantage of low-cost labour and favourable government policy. Since then, it has become a prolific manufacturing hub, accounting for 70 percent of the country’s exports. Currently, it is the main production centre for global brands like Samsung, LG and Intel. And with the tensions around China, major suppliers for big US firms like Apple are setting up in Vietnam too.
Sitting at the crossroads of other major ASEAN nations, bordering China, and with a long coastline that makes it a natural hub for shipping, Vietnam is uniquely positioned both geographically and logistically. The country boasts a fast-growing and young population, reaching almost 100 million, resulting in a strong labour force. It is also one of the few nations to experience positive GDP growth since the pandemic. Politically, Vietnam is also considered quite stable compared with its neighbours.
Big areas for FDI in Vietnam include manufacturing, processing, real estate, electronics, pharmaceuticals, the automotive industry, fast-moving consumer goods (FMCG) and, increasingly, renewables. There remains a lot of foreign interest in Vietnam’s infrastructure too, particularly from the EU, such as the new metro lines and international airport developments.
When it comes to attracting FDI within the ASEAN region, the competition between markets is fierce. The EU is an essential trading partner for Vietnam. It is the third largest partner for exports and the fifth for imports. Vietnam has built special, long-standing relationships with various individual nations within the EU over the years. This includes Germany, which is by far the country’s largest trading partner, responsible for a third of all exports coming out of the EU and into Vietnam.
Thailand’s changing trading relationships with the EU
As another of ASEAN’s rising stars, Thailand is a popular location for foreign investment in the region for many of the same reasons as Vietnam. In its international trading partnerships, particularly with the EU, the relationship has recently evolved from a one-way arrangement to one in which Thai businesses are looking to invest in EU-based projects. Notable examples include investments in department stores in Italy and offshore wind farms in Germany.
Germany is also Thailand’s largest EU trading partner. In the last decade, however, Thailand has consistently lost out to Vietnam when attracting investment from the likes of China, Korea, Japan and the US. While the Thai labour force remains skilled – especially in electronics and automotive parts – and the government continues to support these areas, costs have become much higher. Combined with increased political instability in recent years, foreign investors are now wary.
Developing infrastructure and shifting to a skills-based economy
In a bid to shift away from labour-intensive industries to a more skills-based economy, Thailand is now focusing on developing its infrastructure and embracing new technologies. Through the construction of a high-speed rail link, Thailand aims to connect its ports and industrial areas with the rest of the country and allow it to better compete with Vietnam as well as other ASEAN powerhouses such as Indonesia and Malaysia.
The Vietnamese government, meanwhile, has introduced appealing tax incentives to encourage more businesses within ASEAN to set up there. Vietnam recently began a strategic partnership with South Korea, which would bring billions of dollars of investment for the country. Samsung, for example, has already pumped nearly US$18 billion into Vietnam.
Japan is also one of Vietnam’s long-standing trading partners within the region. In the past ten years, Japanese companies have moved factories and production capabilities to Vietnam as part of the popular ‘China plus one’ diversification strategy. Canon, for example, has since tripled the size of its factory near Hanoi. Japan also provides finance for some of the big infrastructure projects in Vietnam.