Q: Vietnam has been an FDI success story of late, whereas little portfolio investment has come in. Is it going to remain this way?
A: I think FDI will remain a key driver for Vietnam’s growth. It reflects the state of the country’s development; we are moving from a low-income country to a middle-income country. A lot of focus falls on how to produce employment for our big population of 97 million people.
Within this context, manufacturing will continue to grow and allow the country to take advantage of its labour pool and develop its own industry. So far manufacturing has been FDI-dominated – we haven’t seen many local companies develop as has been the case for other Asian countries in the past, such as South Korea. We need to develop a more sustainable domestic manufacturing sector.
[This is also important] because in the future foreign investors might consider Vietnam to no longer be cheap, and move production to other countries. Yet something is happening in this regard. There are some big, local family businesses that are growing very quickly, [growth that is being] helped by the slowdown of state-owned enterprises. That’s a positive development for Vietnam.
Q: Can the development of a local manufacturing base be accelerated by increasing links between foreign investors and domestic suppliers?
A: Yes, it is happening already and we hope that it can happen faster. The government recognised the need to better integrate FDI and local companies. There is more pressure on foreign companies on this particular point. At the same time, there is still a gap regarding what is required to become part of a supply chain.
Local companies still think it is just a matter of supplying goods at the cheapest possible price. But the perspective of foreign companies is that they have to adhere to environmental and labour standards too. More than 95% of Vietnamese companies are SMEs; they don’t fully understand how to do it yet.
Q: Will the ongoing outflow of production and capital from China into Vietnam continue to propel the national industry and economy as a whole?
A: To move a supply chain to another country, a company needs to find an ecosystem in place. Today, Vietnam has got a big garment industry, but 80% of its production inputs are still sourced from China. And one day the US might slap tariffs on production [locations] that source their raw materials in China, causing big disruption to the whole supply chain. Luckily, Vietnam is part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which requires specific rules of origin, and we are starting to see a lot of projects to produce things such as yarn, dyes and other goods forming the supply chain.
Overall, I see scale for Vietnam to develop full, sustainable supply chains in textiles, footwear, electronics and, potentially, automobiles. We don’t have big potential for other sectors in Vietnam. It really comes down to how much is there in place already to attract a supply chain shift into the country.
Q: Do you believe Western investors will play a bigger role in the future Vietnam?
A: It is really about understanding the market. I travel to the US and Europe, and people don’t know much about Asia beyond China and India. Investors in the West need more information. But also the reason why Asian investors have been more successful in Vietnam – investors such as the South Koreans – is that they know how to adapt and they understand that every market has got a different way of doing business.
This is critical. In Vietnam, things are different. If you look at the whole Asean region, there are 10 countries – and [so] interested investors have to do their homework 10 times, not just once.