Vietnam: what the world’s smartphone factory can mean for UK business June 2014
Published 25 June 2014
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0.1 Summary
Despite the obstacles, the UK commercial footprint is expanding in Vietnam. New supply chain opportunities reflect Vietnam’s transition to a global manufacturing powerhouse and the benefits of working with third-country investors.
0.2 Detail
New opportunities are emerging within the supply chain for Vietnam’s manufacturing industry, highlighting some broader issues underpinning our trade and investment strategy in Vietnam.
Firstly, these opportunities reflect Vietnam’s remarkable and rapid transition from an economy driven by agriculture exports such as rice and coffee to a manufacturing powerhouse and a critical node in global supply chains. Exports of smartphones and electronics increased by 50% to reach 24% of total exports in 2013. With almost $5bn invested near Hanoi, Samsung now produce over 35% of its smart phones in Vietnam. If expansion plans proceed, Vietnam will become Samsung’s largest overseas production base, bringing further supply chain opportunities for UK companies. Others investing heavily include Panasonic, LG, Canon and Intel. Vietnam has aspirations to move up the value chain, from assembly to more knowledge-intensive activities.
Secondly, these opportunities reflect the influence of East Asian investment in Vietnam. Japan and Korea are the leading sources of both foreign direct investment and official development assistance. If UK companies are to win business from such projects, they need to be connected beyond Vietnam, in Japan and Korea. This is the basis for our strategy to develop closer ties with Korean and Japanese partners, for example through an HVO-focused UK-Korea rail workshop in Ho Chi Minh City in May.
Thirdly, despite Vietnam’s reputation as a challenging place to do business (99th on the World Bank’s Ease of Doing Business Index), projects can happen quickly. We have seen some significant projects fast-tracked, particularly where they feed into Vietnam’s export potential.
Vietnam is also an increasingly important retail market, recently reported to be Apple’s hottest globally, after figures showed that sales tripled in the six months to April 2014. This growth is driven by the increasingly affluent middle class. Boston Consulting Group has forecast Vietnam’s middle class to double to 33 million by 2020. UK retailers are getting in on the act. Tesco’s fashion outlet F&F recently opened in Ho Chi Minh City, adding to a number of high street brands such Karen Millen, River Island, Topshop, Topman, Oasis and Coast. Other big names are expected to open in the coming months. It is a good moment to be considering this large market: WTO commitments require Vietnam to open up to wholly-foreign owned retailers (currently required to operate via joint venture or a franchise model) from January 2015.
0.3 Comment
Vietnam’s economic problems are far from over. Inefficient state-owned enterprises and a banking sector burdened with bad debt still need reform. But business sentiment is improving, and the Government is working hard to convince foreign investors that it is serious about reform. After a difficult few years, our own commercial relationship seems to have turned a corner, with a pipeline of new companies looking at Vietnam for the first time. In addition to our longer-term high value opportunity projects, we will pursue other supply chain opportunities with third-country investors to catalyse further success.
0.4 Disclaimer
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.