Mobile phone production at Samsung Electronics Co., Ltd. (Photo: VNA)Seoul (VNA) – Since Vietnam and the Republicof Korea (RoK) set up diplomatic relations in 1992, bilateral ties have seenrobust growth in all fields, from politics, economy, security-defence toculture, education and science-technology.
Korean investment in Vietnam has been a success story.The RoK remains by far the largest foreign investor in Vietnam, having registeredto pour 65 billion USD into 7,080 foreign direct investment (FDI) projects inVietnam as of the end of July.
The FDI from the RoK has been a huge boon to Vietnam’seconomic growth as well as the country’s industrialisation and modernisation.
The RoK’s significant position in the Vietnamese economy isa result of long-standing bilateral commercial relations.
Korean FDI came to Vietnam in three waves, according tothe Korea Trade Investment Promotion Agency (KOTRA). Following theestablishment of diplomatic ties between the two countries in 1992, Vietnamexperienced a first wave of Korean investment with large construction firmslike Posco and Daewoo being pioneers.
The second wave started in the early 2000s after thesigning of the US-Vietnam Bilateral Trade Agreement and Vietnam’s accession tothe World Trade Organisation (WTO), characterised by increased investment in garmentand textile manufacturing.
Most recently, the third wave focused on electronic andconsumer goods with Samsung Electronics being the biggest Korean investor inVietnam. More than 73 percent of Korean FDI firms in the country operate inservice of the local market. Many of them hold key roles in spearhead sectors,such as electronics, energy, automobile, construction and garment and textiles.
Big Korean corporations have headed for northern Vietnamwhile the south has been favoured by the RoK’s small and medium-sizedenterprises. The central region has been a destination for FDI in tourism as alarge number of Korean tourists travel to central cities and provinces,particularly Da Nang.
Last year, the RoK’s registered FDI in Vietnam reached arecord high of more than 9 billion USD, landing in major projects inmanufacturing, real estate, energy, distribution and M&A.
According to economists, Korean firms favour Vietnam as adestination for FDI for seven reasons. First, Vietnam remains competitive overother regional FDI destinations because of a large pool of cheap labourers whoare viewed by Korean firms as hard-working, driving down production costs.
Secondly, Korean investors have been attracted by thelocal market of more than 96.6 million people, an expanding middle class andyoung population as well as a relatively fast-growing economy.
Third, the political stability compared with otheremerging economies in the region is attractive, boosting confidence in doingbusiness in the Southeast Asian country.
Fourth, the RoK government has shifted focus on growingties with India and Southeast Asia, highlighted by the latest “New SouthernPolicy” adopted by the administration of President Moon Jae-in. The policy isexpected to help the RoK diversify partnerships in addition to its traditionalreliance on the US and China, who have been involved in an increasing trade war,harming Asia’s fourth biggest economy.
Fifth, the strong FDI flows from the RoK resulted fromVietnam’s activeness in opening the local economy with administrative reformsand tariff incentives.
Sixth, many Korean companies have been shifting away fromChina, following China’s opposition to the RoK deploying the US Terminal HighAltitude Area Defence (THAAD) missile system. According to the Association ofHigh Potential Enterprises of Korea (AHPEK), the number of Korean FDI projectsand investment in China has seen a sharp fall since 2016 as Korean investorsare moving to Vietnam.
Lastly, the Vietnam-RoK Free Trade Agreement, which tookeffect at the end of 2015, has bolstered the two countries’ trade relations. Bilateraltrade ties are also set to grow thanks to the positive effect of other FTAsbeing negotiated or concluded by Vietnam, such as the EU-Vietnam FTA (EVFTA) andthe Regional Comprehensive Economic Partnership (RECEP).
Vietnam is emerging as a regional commercial hub, with afavourable location, making it easier for Korean companies to get access to theSoutheast Asian markets.
Vietnam is set to welcome more Korean investment owingto efforts by several Vietnamese cities and provinces to promote theirpotential and seek links with Korean firms. Furthermore, the country has a lotmore to offer in manufacturing, infrastructure development, energy, finance,pharmaceuticals, information technology, wholesale and retail, logistics andothers, also areas that the RoK has advantages in. Experts from KOTRA believe thatKorean FDI in these sectors would bring benefits for both sides.
Korean enterprises are looking forward to more supportfrom the Government of Vietnam in improving information transparency, reducingpublic administration burden and fighting commercial fraud to better smooththeir way to the local market.–VNA
VNA
