Vietnam Investment Guide - Faculty of...
Transcript of Vietnam Investment Guide - Faculty of...
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Vietnam Investment Guide
July 2017 World Business Advisory Center
World Business Division
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Table of Contents
Country & Economic Overview
Key Industries & Opportunities
Doing Business in Vietnam
KASIKORNBANK’s Support
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Why Vietnam?
The 3rd largest population (over 90 million)
In ASEAN, Vietnam has
Large pool of inexpensive workforce Attractive consumer market, which is increasingly urbanized.
The highest international trade increment Rapid industrialization driven by foreign direct investment Favorable trade terms (GSP, AFTA, EU-FTA) to integrate with
global markets
Source Data : IMF
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Country Overview
Timeline and Milestone:
Modern Industrialized Country
Country Name: The Socialist Republic of Vietnam
Area: 331,150 sq.km
Population: 95.3 million (2017)
Government: Single party system by Vietnamese Communist Party (VCP)
Currency: Vietnamese Dong (VND) USD 1 VND 22,678 (May 2017)
GDP (Current Price): USD 215.8 billion (2017) - half of Thailand’s total GDP
GDP per capita: USD 2,306 (2017)
Data Source: IMF, World Bank and The Economist Group Compiled by KResearch
Doi Moi Economic Reform
ASEAN Membership
WTO Membership
South Korea-Vietnam FTA
2020: 1986: 1995: 2007: 2014:
1990 2000 2010 2020
Vietnam has undergone drastic economic reforms since the mid-1980s. It now has the goal to become a “Modern Industrialized Country” by 2020.
Signed EU-Vietnam FTA
2015:
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Table of Contents
Country & Economic Overview
Key Industries & Opportunities
Doing Business in Vietnam
KASIKORNBANK’s Support
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25 17
37 39
39 44
0%
20%
40%
60%
80%
100%
2000 2016
Economic Overview
Vietnam’s steady growth at over 6% since 2015 makes it one of the fastest growing markets in the world, buoyed by rising domestic demand, booming foreign direct investment and the country’s increasing attractiveness as a global export hub.
Source: IMF, Central Intelligence Agency, General Statistics Office of Vietnam
Key factors contributing to economic growth:
► Rising consumer spending and macroeconomic stability has lifted domestic consumption and consumer confidence.
► Boom in foreign investment particularly in manufacturing sector has boosted exports.
GDP and Economic Growth Outlook, 2015-2018 Changes in Economic Composition, 2000 and 2016
Industry and services sectors continue to expand:
► Construction sector expanded rapidly from growing property market and spending in basic infrastructures.
► Retail and financial sector are also growing due to a surge in middle income class and more urbanized population.
Agriculture
Services
Industry
191.3 201.3 215.8
232.6
6.7 6.2 6.5 6.3
0
1
2
3
4
5
6
7
8
0
50
100
150
200
250
300
350
2015 2016 2017F 2018F
Per
cen
t
USD
Bill
ion
GDP (USD billion) GDP Growth (Percent)
7
64% 8%
7%
21%
Foreign Direct Investment
FDI inflows in Vietnam has seen a steady and strong growth, mainly from other Asian investors. This enables Vietnam to emerge as a manufacturing hub in the region, thanks to its favorable labor market and trade privileges.
Source: FIA, Vietnam Briefing and Government Statistic Office of Vietnam compiled by AECplusadvisory
Top Foreign Investors and Registered Capital*
1st
2nd
3rd
South Korea USD 50.7 billion
Japan USD 39.8 billion
Singapore USD 36.7 billion
9th
11th
China USD 11.4 billion
Thailand USD 8.2 billion
1 2 4 3
Large pool of affordable workforce
Favorable trade terms with major economies
Strategic location: proximity to East Asia
Political stability
Vietnam’s Key Competitiveness:
► South Korea has been the top investor since 2014 due to their large scale investment in the electronics sector.
► About 80% of Thai business there is in manufacturing sector, and some has flown into retail sector by acquisition.
FDI Inflows by Sector, 2016
Manufacturing USD 15.5 billion
Automotive USD 2 billion
Real Estate USD 1.7 billion
Others USD 5.2 billion
USD 24.4
billion *Accumulation as of 2016
9% Growth
Compared to 2015
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Vietnam Trade Overview
Trade balance has been improving as FDI inflows come to fruition in boosting its exports. Vietnam is working to improve its trade terms by closing bilateral and multilateral FTA deals with major economies and integrating itself into the global market.
Source: Trade Map compiled by AECplusadvisory
Thailand ranks 7th among Vietnam’s top trade partners in 2016, accounting for 3% of Vietnam’s total trade.
Key Imports 2016
Machinery & Equipment (11%)
Telephone & Computers (36%)
Garment & Footwear (23%)
Key Exports 2016
Electronic products & Parts (23%)
Plastic & Polymer Materials (5%)
Electronic Products & Parts (6%)
Most exports are final products produced by foreign investors such as telephones, computers, footwear, articles of clothing and machine and its parts.
Most imports are machinery for production and intermediate goods such as electrical components and raw materials such as plastic polymers.
Vietnam International Trade, 2010-2016
72
115
150
211
85
114
148
198
(50)
-
50
100
150
200
250
2010 2012 2014 2016
USD
Bill
ion
Export from VietnamImport by VietnamTrade balance
Top Import Partners 2016
1. China (31%)
Top Export Partners 2016
2. South Korea (16%)
3. ASEAN (12%)
1. USA (21%)
3. EU (14%)
2. China (18%)
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Thailand – Vietnam Trade
Source: Trade Map compiled by AECplusadvisory
Key Import Products by Vietnam
Refined Fuel (6.3%)
Telephones and Television (41%)
Key Export Products from Vietnam
Motor Car & Parts (11%)
Machinery & Equipment (6.4%)
Thailand – Vietnam Trade, 2010-2016 Top Trading Products, 2016
Recent Trends:
► Vietnam to become Thailand’s top export destination in ASEAN: Vietnam needs not only more intermediary components and capital equipment for industrial sector but also consumption goods.
► Cross-Border Trade: Different from the overall export picture; they include mostly consumer products and electronics appliances.
Opportunities:
► Potential export products to Vietnam: automobiles and parts, plastic pellets, air-conditioners and parts, refined petroleum products, chemical products, fruits and beverages.
► Tapping into Vietnam’s growing consumer market and take advantage of its preferential trade and investment policies.
Bilateral trade between Thailand and Vietnam is set to continue to strengthen; Thai-Vietnam trade surplus has been growing due to surging Thai investment and trade in the Vietnamese market.
5.6 5.8
7.1
9.3
1.2
2.8 3.5
4.4
0
2
4
6
8
10
2010 2012 2014 2016
USD
Bill
ion
s
Export from ThailandImport by ThailandTrade balance
Machinery & Equipment (16.6%)
Electronic Products & Parts (9.1%)
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Infrastructure - Overview
Single north-south railway line connecting
to China. New route (Thailand – Laos –
Vietnam) under construction.
Railway
Vietnam is one of the world’s busiest sea cargo lanes with a coastline length of 3,260km. Recent move to privatize key seaports is aimed at improving efficiency.
Maritime Major transportation means. Carries 94% of passenger traffic and 77% of freight traffic. Connects to Cambodia, China and Lao PDR.
Road
4 International Airports: 1. Tan Son Nhat Airport (HCMC) 2. Noi Bai Airport (Hanoi) 3. Da Nang Airport (Dan Nang) 4. Cat Bi Airport (Hai Phong) New
Aviation
Logistics costs in Vietnam represent 20-25% of annual GDP, owing to the lack of adequate infrastructure and logistics facilities; however, the situation is improving as more private firms, especially large global firms, see opportunities in entering the sector.
Dense river and canal network mainly supports energy sector and provides alternative transportation mode for cement, fertilizer and paper sectors.
Inland Waterway
Telecommunication
Penetration Rate in 2016
Mobile: 147%
Internet: 53%
Ranked best performing logistics in ASEAN in 2016, closing the gap with Thailand. However, the logistics sector in Vietnam still face several challenges:
► Needs for infrastructure upgrades ► Undersupply of professionals ► Unreliability in supply chain (delays, lack of planning,
lengthy procedures, etc.).
4th
New Long Thanh Airport (Dong Nai) To begin operations in 2025
Average Freight Transport Composition, 2016
Road 77.7%
Maritime 4.7%
Inland Waterway 17.1%
Others 0.4%
Source: General Statistics Office of Vietnam, Vietnam Telecommunications Authority, The World Bank, Vietnam Logistics Business Association
Freight transport via air and road had fast-growing volume of carriage, comparing to 2015.
1.3 billion tons
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Road Infrastructure
Other Key Roads
QL5B • Major road linking Hanoi to Hai Phong,
where Hai Phong port is one of Vietnam’s major ports which sees the highest cargo traffic. Hai Phong is also home to a number of industrial zones.
• The route is used extensively for Vietnam’s international trade.
GMS Network Roads
QL1A • Part of Eastern Economic Corridor. Though
it runs the entire length of the country, only parts around Hanoi and Ho Chi Minh City are used heavily for trade
• From Hanoi, the road leading to Lao Cai border is an important entry point to China.
QL9 • Part of East-West Economic Corridor.
Used for transport of Lao-Vietnam trade as well as Transit goods from Thailand’s Mukdahan through Laos.
• Provides Laos and Thailand access to Danang Port.
QL19,22,51 • Parts of the Southern Economic Corridor. • The southern arm serves as a key link
between Bangkok, Phnom Penh and Ho Chi Minh City. Traffic congestion is often a problem, especially around Ho Chi Minh city.
• The other significant portion is from Ho Chi Minh City to Vang Tao and Cai Mep port.
• QL19, the northern arm to Quy Nhon, is not often used since the Quy Nhon is not currently a major trade hub.
QL80 • Part of Southern Coastal Economic
Corridor that runs from Bangkok through Cambodia’s biggest deep sea ports and industrial zones: Sihanoukville and Koh Kong.
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Seaport Infrastructure
Central Vietnam’s cargo throughput: 408,296 TEUs
Northern Vietnam’s cargo throughput: 2.9 mil TEUs
As Vietnam is a lengthy coastal country, and sea transport infrastructure is imperative to its evolving international trade.
Major Ports in Vietnam, 2015
Annual Capacity (million tonnes)
Container (million TEUS)
Tourist Travelers (million people)
2015 480 – 590 13 - 16 1.3 – 1.6
2020 820 – 1080 24 – 30 1.9 – 2.4
2030 1400 - 2100 50 – 60 4.0 – 5.9
Share of Port Capacity, 2015
Seaport Usage in Vietnam
Overview Sea transport is an important driving force behind Vietnam’s economic growth due to its strategic geographical position and long coast line.
However, challenges still remain: (1) Inadequate facilities (2) Poor management of operating system
Development Plan 2020 In the face of rapid growth in international trade volume, there is particular focus on international gateway ports: (1) Hai Phong in the North (2) Ba Ria – Vung Tau in the South
Hai Phong Component B should come into operation in 2018
The newly operating “Tan Cang – Hiep Phuoc Seaport” in Southern Vietnam is the 1st port that is able to handle 50,000 DWT vessels.
Saigon New Port 24%
Hai Phong Port
Tan Cang – Cai Mep
Others 51%
Hai Phong Port
Da Nang Port
Hanoi
Ho Chi Minh
Southern Vietnam’s cargo throughput: 7.8 mil TEUs
Saigon Port
11 Million TEUs
6.4%
6.1% 4.6%
4% 3.9% Cai Mep Port
VICT Port Dinh Vu Port
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Table of Contents
Country & Economic Overview
Key Industries & Opportunities
Doing Business in Vietnam
KASIKORNBANK’s Support
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Key Industries and Opportunities
Electrical & Electronics
Textile & Apparel
Fishery Processing
Construction &Construction
Material Retail
With its plentiful supply of labor, natural resources as well as an expanding middle class and retail market, Vietnam offers attractive opportunities for both trade and investment.
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Electrical & Electronics
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22
36
77
0 20 40 60 80
2012
2014
2016
Billion USD
Electronic equipment & parts Electrical appliances and parts
Electrical & Electronics - Overview
Source: International Trade Center, Forbes
E&E represents the fastest growing industry in Vietnam, owing to the surge in foreign direct investment by global companies, attracted by Vietnam’s abundance of youthful, affordable workforce, trade terms, and open investment environment.
Top Electronic Device and Parts Exports, 2016
Phones & Parts (53%)
Computers & Laptops (31%)
Printers (25%)
Top Electrical and Machinery Exports, 2016
IC & Micro Assemblies (19%)
9th largest electronics exporter in the world (Move up 3 rank from 2015) 43% of Vietnam’s total export value in 2016 comes from E&E products.
Surge in Electronics Manufacturing and Export
Growth driven by FDI 90% of E&E exports are produced by foreign-owned companies, especially firms from Japan, South Korea, Taiwan and Singapore.
Vietnam E&E Equipment Exports, 2013 – 2015
Top Export Destinations, 2016
Top Import Destinations , 2016
Key Trends
Mostly assembled products such as mobile phones, computers, cameras
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2
3
China (16%)
USA (14%)
South Korea (6%)
1
2
3
China (29%)
South Korea (28%)
Singapore (7%)
Mostly components and parts for assembly and heavy machinery for production
FDI from S.Korea has boosted trade value which; • Export value surpassed Hong Kong to
become the 3rd largest export destination of South Korea
• Import value gain larger share (from 14% to 28%)
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Electrical & Electronics - Opportunities
Source: Vietnam Electronic Industries Association and International trade Center
Trade Opportunities Investment Opportunities
Export Opportunities:
1 Household Electrical Appliances
Tap into increasing urbanization and growing purchasing power in Vietnam.
2 Electronic Parts and Components
Absence of local supply chain in Vietnam despite rapid growth in electronics sector.
Electrical Appliances Production
► Produce / assemble household appliances in Vietnam to effectively capture the growing local demand.
► Long term opportunity: make Vietnam an export hub for electrical appliances.
Electronics Parts Production
► Manufacture electronic parts and enter the supply chain of major electrical and electronics appliances producers;
► This is feasible especially for suppliers of foreign investors (such as Japanese and South Korean) based in Vietnam.
Vietnam - Thailand E&E Trade by Product Type, 2016
1,552
852
287
1,827
-
500
1,000
1,500
2,000
Electrical Appliances & Parts Electronic Equipment & Parts
USD
Mill
ion
Vietnam's Imports Vietnam's Exports
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Textile & Apparel
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Textile and Apparel - Overview
.
Source: International Trader Center, Textile World Asia, VPBS and WSJ
Jerseys & Pullovers 8.5%
Women’s suits & Dresses 7.7%
Cotton Yarn
6.1%
Key Export Markets, 2016 Top Apparel and Textile Exports, 2016
International Brands Produced in Vietnam:
Nationalities of Major Foreign Firms
China
Hong Kong
Taiwan
60% of export revenue is produced by foreign-owned companies
Total export value has grown by 7% from 2015 to 2016 alone due to export growth in finished goods.
Key Trends
USA 42%
EU 10%
Japan 12%
South Korea 4%
China 11%
Other 21%
Vietnam’s exports of textile and garments have grown continuously as the country becomes more competitive. However, most exports are of foreign brands from large foreign firms while local firms are restricted to doing contract work for those larger firms.
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4.9
3.8 3.6 2.9
5.2
3.7 3.2 3.1
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1
2
3
4
5
6
Knitted orCrocheted
Fabric
Cotton ManmadeStaple Fibres
ManmadeFilaments
USD
Bill
ion
2015 2016
Textile and Apparel - Opportunities
The Vietnamese textile sector offers opportunities such as (1) raw materials exports and (2) investment in textile production for export purposes and to cater to the domestic market.
Vietnam still needs to import most of its raw materials for apparel production, mostly from China.
1 Export Raw Materials
2 Invest in Textile Production
There is growing demand for raw materials for textile production; Thai products enjoy 0% tariff compared to 2-5% for Chinese products.
• Benefit from the cost advantage (affordable workforce) and trade incentives (e.g. GSP, other FTAs) to export across the world.
• Firms could also produce apparel products that suit local tastes to serve the domestic market.
Investment Incentives for Textile Industry
As the Vietnamese government is pushing for more value added activities, investment in the textile industry may not enjoy attractive tax incentives except for large scale investments.
Source: International Trade Center
Textile and Garment Raw Material Import, 2015 and 2016
Top Sources of Raw Material Import, 2016
Potential Business Opportunities
1
2
3
China (53%)
South Korea (13%)
Taipei (10%)
8 Thailand (2%)
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Fishery & Processing
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Fishery Processing - Overview
With its long coastline, branches of rivers and over 3,000 islands offshore, Vietnam’s landscape provides plenty of resources for fishery processing industry and it is the 5th largest aquatic product exporter in the world.
Source: International Trade Center, Viettrade, OFCO
► Vietnam’s fishery exports are mostly raw materials and primary processed products with low value-added.
► With the Vietnamese government’s aims to increase value-addition for natural resource exports, secondary processing will gain more share in the future.
Moving forward, more value added
2010
USD Billion
5
2016
USD Billion
6.1
CAGR
3.4%
Seafood Production Area (mainly in the South)
Vietnam’s Fishery Products Exports, 2016 Vietnam’s Fishery Exports Value
Top Seafood Export Products, 2016
Seafood Products Export Destinations, 2016
Preliminary Processing 70.5% Secondary
Processing 29%
1
2
3
USA (24%)
Japan (14%)
Korea (10%)
4 Thailand (4%)
5 Germany (3%)
Thailand is now Vietnam’s 4th largest export market, up from 6th place in 2014
Non-Processing 0.5%
1 Fish fillets & pieces (fresh, chilled or frozen) 31%
2 Crustaceans 28%
3 Crustaceans & molluscs (prepared/preserved) 20%
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Fishery Processing - Opportunities
Foreign businesses could consider to invest in (1) fishery processing, especially high value-added activities and (2) supporting industries such as fishing / aquatic farming equipment, cold storages, and packaging materials.
Supporting Activities
• Fishing equipment and supply (feed) • Cold storages • Material for packaging
Processing Factory Higher value-added
• Canned products • Ready to eat foods
Potentially serve:
1. Domestic market – to serve the increasingly urbanized and growing middle income groups.
2. Exports market – benefit from the tariff privileges that Vietnam has with major trading economies. Vietnam has been exporting seafood products to over 130 countries.
Lower value-added • Frozen products
• Demand of these supporting activities would grow in tandem with the expansion of the fishery processing industry.
Key Considerations:
1 2 3 High Competition Food Safety Certificates Technology Adoption
Most players are large firms. Should meet international standards. Slow technology adoption among local firms; needs to be upgraded.
Potential Business Opportunities
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Construction and Construction Material
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Construction - Overview
Data Source: General Statistics Office of Vietnam, Vietnam News, Financial Times
► In the period between 2011 and 2014, private sector consistently contributed to more than 80% of total construction output and was key in stimulating industry growth.
► Private investment contributes to development of not only residential sector, but also infrastructure segment via Build-Transfer, Build-Operate-Transfer, Build-Own-Operate and Public-Private-Partnership contracts
Top Investors, as of 2014
1
2
3
South Korea: 21%
Singapore: 17%
Taiwan: 13%
The construction sector in Vietnam is developing rapidly. Vietnam now allows full foreign ownership for investment in the construction sector, and the relaxation of the law for foreign property ownership will stimulate sector growth.
Construction Output by Economic Sector, 2008, 2011 and 2014
Construction Output by Sub-segment, 2014
Residential 40.6%
Industrial 18.3%
Infrastructure 41.2%
► Key infrastructure development projects are transport infrastructure, energy and utilities, while key residential project is mainly in affordable housing projects.
► With 9.1 percent growth in 2016, the industry had been driven by the economic recovery and the increased issuance of building permits.
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Construction Material - Overview
Source: UN International Trade Centre, Vietnam News
Cement Sanitary ware Brick Tile
Top Import Destinations, 2016
China Thailand Malaysia
80% 8% 4%
Although local firms in Vietnam export certain materials to the overseas market, there are still gaps to fill, especially in higher-end and more sophisticated products, for which imports are growing.
Vietnam Construction Material Imports and Exports, 2016
Market Tips
Demand for construction material usually spikes two months before Tet (Vietnamese new year, lunar calendar) when developers speed up construction of housing projects and people renovate their houses prior to the New Year.
Key Construction Material Products
► Most local manufacturers are small and mid-sized companies.
► There is insufficient technological and financial capacity to meet the high-end segment with more sophisticated demand.
► Still heavily reliant on imports, especially in ceramic tiles.
► Growing FDIs to this sector to exploit raw material, affordable wage rate and trade privileges
Current Situation
403
129
87
0
34
307
41
14
0 100 200 300 400 500
Cement
Ceramic Tiles
Sanitary ware
Brick
USD Million
ImportExports
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Construction and Construction Material - Opportunities
Vietnam’s infrastructure sector still has ample room for development.
Property sector demand is booming with the implementation of the new foreign property regulation.
Demand for construction equipment would increase in tandem with expansion of the construction sector.
1 Construction Projects
3 Construction Material
Invest in construction projects: infrastructure or residential.
Operate as contractor / consultant / architecture and design service provider.
Supply construction equipment to Vietnam
Rationale: Opportunities:
2 Construction Equipment
Vietnam’s construction sector offers opportunities for construction project developers, service providers as well as market opportunities for construction equipment and materials.
Local firms still lack technology and know-how to produce high-end, high-quality and aesthetic construction material.
Export high quality construction material to construction projects or distribute to households.
Invest in manufacturing plant to produce locally with advanced technology
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Retail
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Retail - Overview
Source: GSO Of Vietnam Compiled by KResearch, World Bank. The International Osteoporosis Foundation (IOF), UN Population Data,
CEICE, Insider Retail Asia and Vietnam Retailers Association
Vietnam’s retail sector is evolving fast due to the bourgeoning middle class and expanding retail sector with the entrance of foreign players attracted by the country’s various trade pacts.
Modern Retail
2020 2014
91 million 96 million
12 million 33 million
171 USD 269 USD
Type Number
Supermarket 800
Shopping Center 160
Traditional Market 8,600
Vietnam Basic Demography, 2014 and 2020 Major Cities for Retail Sector
Number of Retail Stores, 2016
Traditional Markets
Shift in trend towards modern retail
► Modern retail’s share in consumer spending is around 20-25%.
► Modern retail currently accounts for 25% of retail market. This is expected to increase to 45% by 2020.
► Vietnam’s ultra-rich population is growing faster than any economy in the world.
► Rising demand for consumer products and electrical appliances, following their higher income.
Current Situation
Population
Middle Affluent Class
Per Capita Monthly Income
E-Commerce sector
• Several foreign-based e-commerce websites such as Lazada and Zalora have entered Vietnam market.
• Key products: fashion, electronic goods, books and food.
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Retail - Opportunities
Data Source: Nielsen, PwC Doing Business in Vietnam
Foreign investors could venture into Vietnam’s retail market by (1) investing in trading / wholesale / retail businesses, or (2) exporting products to distributors based in Vietnam.
Investment Opportunities Export Opportunities
Invest and expand in trading / wholesale / retail activities in Vietnam.
Export products (especially food and beverage, apparel and electronics) to local market.
Regulations
Key Considerations
► 100% foreign-owned firms are able to operate one retail outlet only under business license.
► To operate multiple retail outlets, they need to pass an Economic Need Test (ENT) which considers several local market criteria.
► Lack of transparency and clarity in ENT. ► High rental cost in major cities, especially in
key commercial areas. ► Intense competition with international giants
and local players. ► Regional difference in terms of consumer
behavior.
Regulations ► Firms could export to importers who possess (1) rights to import, and (2) distribution rights.
► Products such as food and beverage should have product standard publication certificates to fulfill Vietnam’s requirements for food hygiene and safety.
Key Considerations
► Seek local importers who has extensive networks and are able to collaborate in marketing activities.
► Consider challenges such as fragmented distribution between North and South Vietnam.
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Consumer Behavior
Owing to their political and geographical differences, consumers in the North and the South have different consumption patterns and product preferences.
‘Demographic sweet spot’ –
most of the population is entering
working age and
leaving poverty
Tips / Key Recommendations
► Vietnamese consumers are attracted by promotional campaigns such as discounts and free gifts.
► Better quality and healthier products become more popular as more people have stronger purchasing power.
Northern Behavior
Spend more carefully; more price sensitive.
Do NOT have window shopping habit.
Look for convenience, go to local stores near home / office.
Conservative; prefer to shop at traditional markets and purchase fresh products.
Southern Behavior
Spend more recklessly;
Weekend bulk shopping; spend family time at department stores.
Look for pleasure.
Open to new things; eager to try new products and shop at modern retail stores.
Data Source: World Bank and Primary Research
Vietnam Population Pyramid, 2017 Consumer Behaviors in Northern and Southern Vietnam
60 20 20 60
0-4 5-9
10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+
Million people
Male Female
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Major Cities for Business Activities by Region
Agriculture Forestry
S OUTHERN Key commercial centre; busiest trading port and manufacturing hub.
C ENTRAL Still less industrialized; touristic resources such as beaches, highlands and historical sites.
N ORTHERN Administrative centre; location of the capital city - Hanoi; increasingly industrialized.
Da Nang
Hub for Central Vietnam Tourism
Da Lat
Tourism
Ho Chi Minh City
Packaging Industry Food & Beverage Retail E&E
Lao Cai
Retail Food & Beverage Textile & Garment E&E
Ha Noi (Capital) Hai Phong
Construction Material Real Estate E&E Logistic
Da Lat
Binh Duong
Hai Phong
Lao Cai
Da Nang
Ho Chi Minh Vung Tau
Ha Noi
Binh Duong
Manufacturing Chemicals Garment Footwear
Vung Tau
Oil and Gas
Mekong Delta
Agriculture (Rice) Fishery Retail
E&E Supporting industry
Bac Ninh
Mekong Delta
Bac Ninh
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Table of Contents
Country & Economic Overview
Key Industries & Opportunities
Doing Business in Vietnam
KASIKORNBANK’s Support
34
Major Costs – Labor and Utility
Utility USD
Electricity for industrial sector 0.064/kWh (at standard Hours)
Electricity for business sector 0.097/kWh (at standard Hours)
Electricity for general usage 0.068-0.12/kWh
Water for business sector 0.24-0.64/cu.m
Water for business sector 0.15-0.45/cu.m
Gas for business sector 0.95/Kg
Gas for business sector 1.15/Kg
Region Covered Areas Minimum wage
1 Urban Hanoi and Ho Chi Minh City USD 165
2 Rural of Region 1 and urban Can Tho, Da Nang and Hai Phong
USD 145
3 Bac Ninh, Bac Giang, Hai Duong and Vinh Phuc USD 127
4 The remaining localities USD 113
The minimum wage in Vietnam differ by region (1-4), depending on the location’s level of industrial and infrastructure development and living costs.
Current range: VND 2.5 – 3.7 million (USD 113 – 165)
Data Source: Dezan Shira & Associates, Vietnam news, DITP compiled by KResearch
Minimum Wage in ASEAN, 2017 Vietnam’s Minimum Wage Rate by Region, 2017
Utility cost
USD
263
209
171
140
113
113
87
81
0 50 100 150 200 250 300
Thailand
Malaysia
Philippines
Cambodia
Vietnam
Lao PDR
Indonesia
Myanmar
233
165
195
227
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Tax System
Type of Tax Tax Rate
Corporate Income Tax
20%
Value Added Tax 10%
Withholding Tax
Dividends
No tax, unless paid to individuals where a 5% tax rate is imposed
Interest 5%, unless the rate is reduced under a tax treaty
Royalties 10%, unless the rate is reduced under a tax treaty
Monthly Employment Income (VND Million)
Tax Rate
0-5 5%
5-10 10%
10-18 15%
18-32 20%
32-52 25%
52-80 30%
Above 80 35%
Source: Deloitte, PWC, KPMG and Ernst & Young and HSBC
Personal Income Tax (PIT) Corporate Taxes
* VAT T is also applied on the duty paid value of imported goods and payable at the same time importers pay import duties. Residents are subjected to PIT either in the case of:
1. Residing in Vietnam for 183 days or more or
2. Having permanent residency in Vietnam. Double Tax Agreement (DTA): Vietnam has more than 65 DTAs including one with Thailand.
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Investment Incentives - Tax Incentives
Source: KPMG, Am Cham Vietnam, Vietnam Foreign Investment Agency
VAT exemption for imported machinery, equipment and materials which are:
Not yet able to be produced domestically Required for direct use in scientific research and
technological development activities. Allowance of tax loss up to 5 consecutive years.
Tax Exemptions
Import duty exemption on machinery and equipment, raw materials and components for the manufacture of goods for export.
Export duties are charged mainly on natural resources.
Import / Export Duties Exemption
CIT Rate Criteria
Newly established enterprises in: Period
Applicable CIT
Exemption
50% CIT reduction when CIT exemption
period expired
10%
Locations: 1. High-tech zones
2. Economic Zones (EZ) 15 years and 17%
CIT at 16th year
First 4 years
9 years (5 years for socialization sectors that do not operate in specially difficult socio-economic conditions)
Encouraged Sectors such as: 1. High technology, scientific research and
technology development 2. Infrastructure facilities development 3. Production of software products. 4. Processing of agricultural products
Large manufacturing projects: • Minimum revenue of VND20
trillion/annum within 5 year of operation. Or • Head count of more than 6,000 within 5
year of operation
15 years (maximum 30 years)
Socialized sectors (health, education) Whole
operation period
17% Locations: Difficult socio-economic conditions Whole
operation period
2 years 4 years
Corporate Income Tax (CIT) Exemptions Tax incentives such as CIT reduction and exemption are offered according to location and activities of the foreign investment.
Investors who invest in preferential sectors and/or location may also apply for:
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Key Economic Zones (KEZ)
The Northern KEZ: • Hanoi • Hung Yen • Hai Phong • Quang Ninh
The Central KEZ: • Thua Thien • Hue • Quang Nam
The Southern KEZ: • Ho Chi Minh City • Binh Duong • Ba Ria – Vung Tau • Dong Nai
• Hai Duong • Ha Tay • Bac Ninh • Vinh Phuc
• Quang Ngai • Binh Dinh • Da Nang
• Tay Ninh • Binh Phuoc • Long An
Data Source: Runckel & Associates
Industrial Zone (IZ) 1
2 Export
Processing Zone (EPZ)
3 Hi-Tech Zone (HTZ)
Production of industrial goods or provision of services for manufacturing goods that will be mainly sold in the country.
Production of goods to be exported and related activities. There are currently 4 EPZs.
Research, development and application of high technologies; training of hi-tech human resources; manufacturing of hi-tech products.
Vietnam has 15 coastal and 28 border Economic Zones (EZ)
► Investment in EZs are entitled to tax incentives
► However, NOT all Industrial Parks in the specific zones are entitled to incentives. They need to fulfill certain criteria set by the particular EZ.
Types of Economic Zones in Vietnam:
Locations of Key Economic Zones:
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Non-Tax Incentives and Trade Privileges
Non-Tax Incentives
Guarantee Lawful assets of investors shall neither be nationalized nor confiscated by administrative measures.
Guarantee relating to remittance of assets of foreign investors abroad.
Business investment guarantees in event of changes in laws or policies.
Protection on foreign investors’ intellectual property, market access and the right to remit their capital and assets out of Vietnam.
Protection
Trade Agreements
ASEAN: Association of Southeast Asian Nation
WTO: World Trade Organization
GSP (Generalized System of Preference) [Implemented] Preferential trade to export to advanced nations such as Japan, US and EU.
Source: ADB, KPMG, Am Cham Vietnam and Australian Department of Foreign Affairs and Trade, KResearch
FTAs Under Negotiation Bilateral Trade Agreement with 55 countries, including all 10 ASEAN members, Russia, China, Japan, India, South Korea and European Union*new.
• RCEP (Regional Comprehensive Economic): A deeper liberalization of trade among 10 ASEAN countries, China, Japan, South Korea, India, Australia and New Zealand, covering 3.4 billion people and which may emerge as the alternative to the TPP.
• Eurasian Economic Union (EEU) • European Free Trade Association (EFTA)
• US • Switzerland
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Forms of Investment
Source: Economic Research Institute for ASEAN and East Asia (ERIA), KPMG, Kasikorn Reseasch and Ministry of Foreign Affairs of Vietnam
Wholly Foreign-owned Enterprise
1 Business Co-operation Contract (BCC)
3 2 Joint Venture (JV)
Representative Office (RO) Branch Legal Entity
• A common form of initial establishment for foreign business.
• Able to do market survey and commercial promotion activities.
• Unable to do direct profit-making activities.
• Not that popular form of commercial presence for foreign business.
• Limited to special business sectors such as non-life insurance, banking, securities, fund management and tourism.
Feature Required number of members/ shareholders Liability of members/ shareholders
Limited liability company One or more number of member Limited to the extent of the registered capital contributions into the company
Joint stock company
At least three shareholders; no restriction on maximum Limited to the extent of the registered capital contributions into the company
Partnership - Unlimited liability partners: At least two general partners - Limited liability partners: organizations or individuals - Unlimited liability partners - Limited liability partners
From June 2015, Foreign investors are allowed to own up to 100% shares of listed companies, except in industries operated under the government’s policy e.g. Banking (30% maximum)
Update: Forms of Foreign Investment
Forms of Commercial Presence
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Types of Economic Activities
Source: Economic Research Institute for ASEAN and East Asia (ERIA), KPMG, Kasikorn Reseasch and Ministry of Foreign Affairs of Vietnam
1. Promoted Sectors for Investment 2. Not Permitted to Foreigners 3. Permitted with Special Conditions
1. Manufacturing for exporting purposes. 2. Breeding, growing and processing of
agricultural, forestry and aquaculture products.
3. Use of high technology and advanced techniques; protection of the environment.
4. Labor-intensive industries. 5. Infrastructure construction and
development.
1. Activities detrimental to the environment, nation, health or national culture.
2. Projects that are related to the treatment of toxic wastes and manufacturing of hazardous chemicals that is banned by international law.
1. Only permitted as BCC activities: Telecommunication, Telecommunication service and Post.
2. BCC or JV activities Allowed: Cultural products, Minerals, Transportation, Service Incidental to Forestry, Agriculture and Hunting, Tourism (restaurant &hotel), Advertising and Service Incidental to Mining
3. Required Prime Minister’s approval:
Activities that have at least USD 15 million registered capital and or are in conditional sectors
• There are 267 conditional business lines. • Companies doing business in conditional business industries are
required to fully satisfy the applicable conditions ; - minimum capital - foreign ownership limitation - requirement on facilities and personnel - operation license
Note:
• For JV activity, foreign investors are allowed to invest at least 30 percent, but not exceeding 70 percent.
• For investments in any condition sector via JVs with Vietnamese partners, foreign investors, who have shares not more than 51 percent, can directly apply for domestic investment registration without having to obtain an investment certificate.
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Procedure for Investment Approval (1/2)
Data Source: Dezan Shira & Associates and KPMG
Step 1. Pre-investment approval
Sectors: • Petroleum exploration • Nuclear power plant • Press and publication • Seaports & sea transport • Airports • Telecommunication • Development of infrastructure in economic zones
Required documents • Application • Financial statements • Detailed use of restricted technology • Proposed use of land • Environment impact assessment • Socioeconomic efficiency evaluation
Step 2. Apply for an “Investment Registration Certificate (IRC)”
Timeframe • 35-150 days
Importance of IRC • Being Required for all 100 percent
foreign owned investment activities • Being the right of the foreign
enterprise to invest in Vietnam
Required documents • Details of investment project • Lease agreements or outlined land use
needs • Financial statements
Timeframe • 15 days (25 days for PPP)
Licensing authority • For Legal Entity and BCC:
Provincial Department of Planning and Investment (DPI) or Management Board of special purpose zone
• For PPP: Ministry of Planning and Investment or Local People’s Committee
Form of investment: • Legal Entity • Business Co-operation Contract (BCC) • Public Private Partnership (PPP)
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Procedure for Investment Approval (2/2)
Step 3. Apply for an “Enterprise Registration Certificate (ERC)”
Importance of ERC • Being Required for all activities which
seek to set up new entities • Being accompanied by a number
which will double as the tax registration number of the entity
Required documents • Application • Company charter • List of all board members • List of legal representatives • Letters of appointment and
authorization
Timeframe • 3 days
Licensing authority • For Legal Entity and PPP: DPI • BCC needs to apply “Certificate of
Operation Registration” to DPI instead and takes15 days of timeframe.
Form of investment: • Legal Entity • Public Private Partnership (PPP)
Step 4. Post licensing procedures: Things needed for operating business, including:
Data Source: Dezan Shira & Associates and KPMG
Note: • Documents need to be in Vietnamese. • ERC and IRC can be applied concurrently.
Public announcement of company establishment
Seal carving
Bank account opening
Labor registration
Business license tax payment
Charter capital contribution
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Etiquette Tips for Doing Business with Vietnamese
Greeting:
• Handshakes are commonly used as a way of greeting and goodbye
• Traditionally, businessmen who are senior (in age or in rank) usually initiate the handshake. The other side then sticks out both hands to grasp the other’s hands.
• Prepare some gifts for your potential partners.
- Do use colorful wrapping paper for a gift
- Do not give a gift in black and white flowers
- Do not give a sharp weapon gift such as knives or scissors
Data Source: Compiled by KResearch, Ministry of Culture
Business negotiation:
• Enlist the services of an interpreter who is a native Vietnamese speaker and is knowledgeable about the nature of the business under discussion.
• Start with introduce yourself, topics for discussion and basic information of the company.
Making an appointment:
• English is common use language for business contacts with large or multinational corporations.
• Smaller outfits tend to do business in Vietnamese language.
• Making an appointment is essential and should be done 2-3 weeks prior to the desired date.
• Being on time is necessary.
• Business cards are also vital.
• When exchanging business cards, it is considered appropriate to show respect by paying attention to the card you receive.
During the talks, Vietnamese partners may gesture positively. However, these gestures do not necessarily mean that they will go along with everything, but are more of a way to express their attention.
Note:
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Table of Contents
Country & Economic Overview
Key Industries & Opportunities
Doing Business in Vietnam
KASIKORNBANK’s Support
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Hanoi and Ho Chi Minh City Representative Offices
Mr. Loedchai Thongvigitmanee
Chief Representative – Ho Chi Minh City
Tel. (+84) 122 325 4911
E-mail : [email protected]
Hanoi
Address: 14th Floor,
AB Tower, 76A Le Lai Street, Ben Thanh Ward,
District 1, HCMC, Vietnam
Tel: (+84) 838274147-8
Ho Chi Minh City
Mr. Ritthiwut Watthanachai
Chief Representative - Hanoi
Tel. (+84) 123 204 4650
E-mail : [email protected]
Address: Unit V807 8th Floor
Pacific Place Building, 83B Ly Thuong Kiet Street,
Hoan Kiem, Hanoi, Vietnam
Tel: (+84) 439460007-8
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Representative Office Support
Advisory Service Business Matching
Local Staff Support AEC+3 Linkage
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