Singapore firms show resurgent interest in Vietnam

Singapore

SINGAPORE firms are looking towards Vietnam again, after an earlier wave of interest was disrupted by the global financial crisis and a domestic slowdown.

The pull factors this time around are Vietnam's rising middle class, its business-friendly policies and expected gains from the United States-China trade tensions.

Chan Yoke Ping, who heads CLMV (Cambodia, Laos, Myanmar, Vietnam) at logistics giant YCH Group, said: "There is renewed interest of foreign direct investment shifts into Vietnam due to rising cost pressures from the US-China tariffs."

YCH entered Vietnam in 2009, during the first wave, but "conditions were not that favourable" at the time.

Vietnam's entry into the World Trade Organisation in 2007 fanned significant interest in it and brought in foreign direct investment, said Asean+3 Macroeconomic Research Office (AMRO) lead economist and Vietnam mission chief Seung-Hyun Hong.

But investments took time to bear fruit, and the global financial crisis weakened external demand. Then the domestic economy slowed down between 2011 and 2014. Ivan Tan, Enterprise Singapore (ESG) global market director for South-east Asia, said Singapore investors were more cautious during that period.

"It was only in the past two to three years that we have seen more interest from Singapore investors in Vietnam, as a result of stronger GDP growth and a few distinctive factors."

In a survey commissioned by Singapore Business Federation and HSBC, Vietnam was the third most popular Asean market for expansion among 1,036 Singapore-based firms.

The country clocked 6.8 per cent growth last year, making its economy one of the fastest-growing. Its currency, the dong, has been kept stable in the past four years, and new laws have improved the business environment; a corruption clampdown has boosted confidence. Even as leaders change, the government has been commited to free-trade agreements, making it a good export base.

The country's abundant labour, competitive wages and good connections to consumer and manufacturing hubs have long made it attractive to manufacturers. Dr Hong noted: "Over the years, Vietnam has moved up the value chain, with multinational firms producing more high-tech goods."

Standard Chartered Research identified Vietnam as 2016's top destination for firms planning to move capacity out of China; it was ranked second last year.

The US-China trade spat has given the country a fillip, said YCH's Ms Chan: "The country's skilled labour, geographical proximity to China and its free-trade agreements, including its pacts with the EU and South Korea, puts it in an ideal position to capitalise on the after-effects of the US-China trade war."

Even less traditional manufacturers are setting up there. Superfood juice producer Doki Dokichose Vietnam as a production base for its proximity to Singapore, access to fresh fruit and established manufacturing capabilities, said its CEO Alex Goh.

The manufacturing buzz is attracting other firms such as security provider Ademco, which entered Vietnam this year. Said group managing director Toby Koh: "Our MNC clients have indicated that they are considering Vietnam for the relocation of existing or building of new manufacturing bases. We need to go where the opportunities are."

Ademco also sees opportunities in developing of smart cities, and is in talks with the Hanoi city authorities on such solutions, he added.

ESG's Mr Tan highlighted Vietnam's broader infrastructure and urban-solutions sector, from master planning to water treatment, waste treatment and alternative energy.

Developer CapitaLand was ahead of the curve when it entered Vietnam in 1994. It is now one of the largest foreign real-estate developers there. The latest wave of interest is benefitting it too, said CapitaLand Vietnam chief executive officer Chen Lian Pang: "More companies setting up operations in Vietnam means more demand for vibrant, quality live-work-play spaces. As Vietnam urbanises, more opportunities will open up in the provision of urban solutions and consumer services."

Gaining from the building boom is concrete firm Pan-United, which ventured into the country in 2009. Its executive director Ken Loh said: "The local authorities are forward-looking and welcome our advanced concrete technologies, using them in construction and infrastructure projects."

Vietnam's fast-growing middle class has spurred growth in consumer sectors too. Select Group brought over its Peach Garden, Hong Kong Sheng Kee Dessert and Thematic Food Court brands in August, following earlier Singapore food and beverage players such as Ya Kun Kaya Toast, Tung Lok and Jumbo Group.

Peach Garden director of sales and marketing T C Ho said: "An impressive GDP growth rate, political stability, a growing middle class, rise in consumer spending and lifestyle changes have made Vietnam an ideal market for our group to venture into."

One big difference from a decade ago is Vietnam's tech scene. Michael Blakey and Will Klippgen, founders of Singapore-based venture capital firm Cocoon Capital, said: "The earlier boom was premature and lacked key technological infrastructure, resources and policies to sustain it. Fast forward a decade later, many things have changed."

Vietnam now has high mobile and Internet penetration, a growing pool of tech talent and a developed start-up ecosystem.

Although the first wave of interest a decade earlier did cool, there is reason to bet on Vietnam in the long run. ESG's Mr Tan said "inherent economic fundamentals" make it a good investment location" - its youthful demographic, cost competitiveness and its being pro-foreign investment.

Deustche Bank Asia chief economist Juliana Lee said the government remains on the path of reform and modernisation, even if "the speed of progress may shift at times".

There is also more support for Singapore firms venturing forth. ESG provides both financial and non-financial help through its offices in Hanoi and Ho Chi Minh City, and a network of local partners such as co-working space provider Toong.

ESG's Mr Tan said: "Although most of the sectors are already open to majority or full foreign ownership, partnerships still work well. Singapore companies should work with reliable Vietnamese partners as they have strong local networks and can help navigate the local business landscape and minimise language barriers."