- March 22, 2023
China is no longer the preferred destination for many businesses due to rising costs, and Vietnam has emerged as a serious competitor. Recent trends indicate that the number of orders shifting from China to Vietnam has increased significantly.
For example, China’s Pearl River Delta, long known as a key manufacturing centre for the world’s manufacturers (particularly those from Hong Kong), has now become prohibitively expensive for many firms to remain in the region.
In recent years, an increasing number of companies have relocated their operations from China to Vietnam in order to avoid rising costs and an increasingly complex regulatory environment.
Given the recent trade war between China and the United States, as well as recent free trade agreements such as the RCEP, EVFTA, and UKVFTA, Vietnam is becoming increasingly open to international trade and investment.
Vietnam is an ideal export hub for foreign companies with operations throughout Southeast Asia, as it is strategically located.
In comparison to other developing markets in the region, Vietnam is emerging as the clear leader in low-cost manufacturing and sourcing, with the manufacturing sector accounting for 25% of total GDP in 2021.
The country’s collection of free trade agreements is another driving force behind Vietnam’s growing popularity.
The RCEP, which went into effect on January 1, 2022, has also encouraged the entry of goods exported into and out of Vietnam by lowering costs, improving market access, and streamlining customs procedures.
In terms of regulatory and financial incentives, Vietnam has become more investor-friendly in recent years, with the government reforming its financial sector, streamlining business regulations, and improving workforce quality.
Since the mid-2000s, the Vietnamese government has provided extremely competitive financial incentives to businesses looking to establish operations in the country, including a zero percent withholding tax on dividends remitted overseas and a low corporate income tax (CIT) rate of 20 percent. Because of these advantages, Vietnam has emerged as a premier “sourcing economy” in the eyes of many businesses.
Current state of Vietnam’s economy
Vietnam is experiencing rapid growth across the board. The continued expansion of Vietnam’s domestic consumer market, which has been growing at a breakneck pace, has piqued the interest of investors.
This expansion is expected to last for some time, with domestic consumption increasing at a rate of 20% per year. With a population of over 97 million people and the fastest-growing middle class in Southeast Asia, Vietnam clearly represents an important market for foreign goods. In comparison to 2017, the United States has surpassed China as Vietnam’s largest export market.
Export Markets Export Value (2021)
US US$96.3 billion
China US$56 billion
South Korea US$22 billion
Japan US$20.1 billion
Hong Kong US$12 billion
Import Markets Import Value (2021)
China US$109.9 billion
South Korea US$56.2 billion
Japan US$22.7 billion
Taiwan US$20.8 billion
US US$15.3 billion
While Vietnam is well-known for being a prime location for textile investors, the country is also seeing significant growth in many other business sectors. Interestingly, Vietnam is well on its way to becoming a key location for high-tech manufacturing, with multibillion-dollar investments from companies such as Samsung, LG Electronics, Nokia, and Intel. Information and communications technology, automotive, and medical devices are some of the other business sectors.
According to the General Department of Customs, bilateral trade between Vietnam and the United States reached a new high in 2021, totaling US$111.56 billion, an increase of nearly US$21 billion year on year.
The United States also had the second-highest import-export turnover with Vietnam, with US$100 billion, trailing only China.
You can view all these information on Vietnam in here on our platform: https://data.cic-tp.com/asia-trade-data/vietnam-import-export-data
Top Exports Export Value (2021)
Phones US$57.5 billion
Electronic goods/Computers US$50.8 billion
Machinery US$38.3 billion
Textiles US$32.8 billion
Footwear US$17.8 billion
Top Imports Import Value (2021)
Electronic goods/Computers US$75.4 billion
Machinery US$46.3 billion
Phones US$21.4 billion
Fabrics US$14.3 billion
Plastics (in primary form) US$11.7 billion
Textiles and Garments
Textiles are one of Vietnam’s leading export industries, with over 6000 textile and garment manufacturing companies employing over 2.5 million people. The growth of the garment industry has been impressive, and it plays an important role in the country’s economic growth. Vietnam will overtake Bangladesh as the world’s second largest exporter of ready-made garments in 2020. (RMG). Furthermore, the industry had a 7.05 percent export market share in 2020, up from 5.54 percent in 2016.
China is the only country that outperforms Vietnam in terms of net garment exports to the United States. However, manufacturers and investors are shifting their focus to Vietnam, where the economic conditions are more favourable than in China.
Within ASEAN, Vietnam is the most competitive in absorbing China’s low-value-added textile and apparel manufacturing. In comparison to other leading textile exporters in the region (Indonesia, Thailand, and Malaysia), Vietnam’s textile export share of total exports has increased in recent years.
Vietnam has emerged as a significant electronics exporter, with electrical and electronic products surpassing coffee, textiles, and rice to become the country’s most important export item. Samsung is Vietnam’s largest exporter, contributing to the country’s first trade surplus in many years.
Smartphones and computer parts are now worth more in terms of export earnings than oil and clothing. Samsung has transformed Vietnam into a global manufacturing base for its products, accounting for nearly one-third of the company’s output. As of 2021, Samsung has invested more than $17.5 billion in the country.
In addition, Samsung has agreed to work with the Vietnamese government to help develop the country’s domestic support industries. This represents a significant business opportunity for foreign technology firms to establish operations in Vietnam and sell components to companies such as Samsung.
The pharmaceutical industry in Vietnam appears to have a bright future. The pharmaceutical market in Vietnam is expected to grow to $7.7 billion in 2021 and $16.1 billion in 2026. The Vietnamese government’s goal of achieving universal health coverage, combined with a growing market of consumers seeking accessible healthcare, is driving market growth.
According to IQVIA (2021), the industry’s volume size in 2020 was US$6.4 billion. There are approximately 250 manufacturing plants, 200 import-export units, 4,300 wholesalers, and another 62,000 retailers serving the pharmaceutical industry throughout the country.
Vietnam is quickly becoming an important auto sales market, with the Vietnamese automobile market expected to sell 1.7-1.85 million units by 2035. In the near future, an estimated 750,000-800,000 units will be sold by 2025.
Despite the fact that the country’s per capita car ownership rate is still much lower than in other Asian markets (only about 5.7 percent of Vietnamese households owned a car in 2020), Vietnam has been one of the countries with the fastest-growing purchasing power for personal cars over the last ten years. By 2025, 9 percent of Vietnamese households are expected to own a car, which is comparable to the current levels in India and the Philippines. Car ownership will reach 30% by 2030. Growth is attributed to tax cuts on imported cars and increased income.
Despite the ASEAN region’s increasingly competitive auto market, Vietnam has stated that it intends to work aggressively to develop its own domestic auto industry. One of the main reasons for this goal is that the auto industry has the potential to create thousands of jobs for locals while also establishing a strong system of supporting industries.
Furthermore, Vietnamese automakers such as VinFast have begun to launch some of their first automobile models to the foreign market, indicating a promising future for cars exported from Vietnam.
Vietnam currently ranks second in the world in terms of coffee exports, trailing only Brazil. Vietnam’s coffee export value will reach US$3.1 billion in 2021. The industry is important in Vietnam’s agricultural economy and is export oriented, with more than 90% of production volume exported. The government has been promoting the shift from exporting beans to processed coffee in order to increase its value.
Many experts believe that Vietnam, with its favourable climate and lower-cost production, has the potential to overtake Brazil.
Vietnam is quickly becoming a popular destination for foreign e-commerce investment. The country’s rapidly expanding economy and middle class have resulted in a strong consumer culture and rising levels of disposable income. The pandemic has increased demand for electronic retail as delivery, ride-sharing, and e-wallets become more common among Vietnamese, particularly among the youth.
Vietnam’s e-commerce business increased by 18 percent to US$11.8 billion in 2020, making it the only Southeast Asian country to experience double-digit growth during the pandemic. This bodes well for the country’s e-commerce expansion.
Vietnam, as a signatory to 13 FTAs, also offers favourable conditions for investors to start an e-commerce business, with reduced or zero customs tariffs on commodities imported or exported from other countries.
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