07:51 (GMT +7) - Tuesday 20/03/2018


Continued flourish

Released at: 07:37, 25/12/2017 Vietnam - South Korea Relationship

Continued flourish

Photo: Viet Tuan

Already strong, trade and investment between Vietnam and South Korea will only grow in the future.

by Do Huong

South Korea and Vietnam are able to support each other in industrial development as mutual trade relations have expanded and South Korean companies are keen on seeking investment opportunities in Vietnam, the Korea Trade-Investment Promotion Agency (KOTRA) told a series of conferences and fairs on the two countries last month. South Korean companies expect their attendance at these conferences and fairs will open up opportunities for investing in Vietnam, as products displayed at fairs are subject to the tariff reduction roadmap specified in the Vietnam-South Korea Free Trade Agreement (VKFTA) signed in late 2015.

Notable investments

South Korean companies recognize the potential found in Vietnam, according to the Foreign Investment Agency (FIA) at the Ministry of Planning and Investment (MPI), as evidenced by the success stories of large South Korean companies with a long-term and large presence in the country. As the government continues to create the best conditions and investment environment for foreign investors, including those from South Korea, investors have arrived in larger numbers. Samsung, LG, Daewoo, SK, and Lotte are the biggest among the 5,600 South Korean companies now operating in Vietnam. Small and medium-sized enterprises have also been increasing in number and success, according to Mr. Nguyen Noi, Deputy Director General of the FIA.  

As at September, South Korea was the largest foreign investor in Vietnam, with cumulative investment capital of $57.5 billion and 6,477 valid projects. South Korean investments, which had been concentrated in the manufacturing sector and pivoted around electronics and textiles and garments, have expanded in terms of investment fields. According to figures compiled by the Korea Export-Import Bank, South Korean investments in Vietnam’s manufacturing sector still dominate, accounting for 73.7 per cent of total capital in 2016. “Manufacturing sector investments have increased markedly compared to the previous five years,” said Mr. Noi, representing 50.2 per cent in 2006-2010 then 84.6 per cent in 2011-2017. “An important change was the contribution from Samsung, with billion-dollar projects over the last five years.” 

South Korean enterprises invest in 19 of the 21 sectors in Vietnam, according to the FIA. “Vietnam has growth potential in various industries, and the fields South Korean enterprises are interested in are also expanding, including parts, materials, infrastructure, energy, finance, medical, and information technology,” said Mr. Lim Hyeon Jin, Deputy Director of KOTRA Hanoi. South Korean investment into sectors such as finance and insurance, real estate and leasing, and wholesale and retail, though still relatively small, has also been increasing every year in terms of both amount and share of total South Korean investment.

Recently, as the potential of ASEAN has shifted from raw material resources and low-wage production to it being a major export market and huge domestic market, not only manufacturers but also companies in distribution and services are paying greater attention to Vietnam. Last year, retail chain Emart became the second-largest retailer, behind Lotte Mart. With total investment of $60 million, Emart opened a shopping center in Ho Chi Minh City and plans to open 52 hypermarkets around the country by 2020. Lotte Mart also plans to expand its chain, from 13 stores now to 60 by 2020. 

South Korean investment into Vietnam via M&A deals has also been heading upwards, as investors aim to penetrate rapidly and deeply into the country. “Investment capital entering into Vietnam via such deals will increase in parallel with increases in FDI capital from South Korea,” according to the Korea M&A Centre at KOTRA. South Korean companies are focused on the consumer, retail, and real estate sectors, said Mr. Dang Xuan Minh from the Vietnam M&A Forum. The CJ Group took over Ong Kim’s, a well-known kimchi brand, last year, and also the Cau Tre Food JSC, renaming it CJ Cau Tre, and it also acquired a 64.9 per cent stake in Minh Dat Food. 

Vietnam’s huge population of 95 million people, stable economic growth, political and social stability, higher incomes, and burgeoning middle class are the key factors attracting South Korean investment into Vietnam, according to Mr. Lim. A favorable trade environment is also a factor of note, he added. In recent years, the government has been actively negotiating and signing FTAs and joining economic communities, creating a more favorable trade environment for foreign investors as well as expanding opportunities for foreign companies to participate in global value chains through Vietnam. “This is one of many factors that increase the movement of South Korean companies into Vietnam,” he said. 

Exceptional trade

Projects from Samsung, LG, Posco, and Hyundai have had a notable impact on Vietnam’s economy. “Samsung is not the only South Korean business driving the growth of the Vietnamese economy,” Nikkei Asia Review wrote. “LG Electronics, the Lotte Group, and others are expanding their own footprints here.” 

Many satellite investors following major projects have come to the country and set up operations. Four companies were first level suppliers of Samsung in 2014 but there are now 29 and Samsung targets 50 by 2020, according to Mr. Shim Wonhwan, General Director of Samsung Vietnam. Samsung’s projects in Bac Ninh, Thai Nguyen, and Ho Chi Minh City have earned $44 billion in export value and the figure is expected to reach more than $50 billion this year. Another major project is the LG Group’s subsidiary LG Innotek’s project to build a $550 million factory manufacturing camera modules in the northern port city of Hai Phong. Like Samsung, the LG Group plans to turn Vietnam into a key link in its global manufacturing chain. 

South Korean enterprises have contributed 30 per cent of Vietnam’s total export value. It’s Vietnam’s third-largest trading partner, while Vietnam is its fourth-largest trading partner. Two-way trade rose 86-fold between 1992 and 2016, from $500 million to $43.4 billion. “Relations between the two countries developed continually in all fields during this period, in particular trade and investment,” Mr. Lim said.

The goods traded between the two countries are complementary, not directly competitive, which is an advantage in trade relations. Thanks to the VKFTA, textiles and garments and agro-fishery products are those that Vietnam will benefit from the most when exported to South Korea. According to commitments made, most of Vietnam’s textile and garment products will be subject to tariffs of zero per cent as soon as the agreement comes into effect. Fishery products are also a key item of Vietnam, especially shrimp. South Korea will eliminate tariffs on shrimp imports from Vietnam but impose an import quota. 

Trade turnover ($ billion)

Source: General Department of Vietnam Customs

Vietnam also has opportunities in exporting agricultural products such as vegetables, garlic, ginger and honey, as South Korea has pledged to cut tariffs on such products. South Korea is actually one of the largest importers of agricultural products and processed foodstuff in Asia-Pacific and the world. Mr. Nguyen Cong Thua from Anh Dao Co.op in the central highlands province of Lam Dong, said that when exporting to the country his company must meet standards regarding size and color under VietGap requirements. The company has already partnered with the CJ Group in supplying lettuce and plans to expand volumes in the future. 

According to KOTRA Hanoi, Vietnam’s exports to South Korea will increase significantly in the years to come as there will be more projects from South Korea in manufacturing for export to the country and elsewhere. As the Chairman of the Vietnam Association of Foreign Invested Enterprises said, Vietnam has many opportunities to push ahead in trade, not just investment. “Many South Korean enterprises seeking opportunities will consider what the VKFTA brings,” he said. Two-way trade in products seeing tariffs cut or reduced under VKFTA are stable and high, according to the Ministry of Industry and Trade. In 2016, Vietnam’s exports to South Korean increased 28 per cent against 2015, three times higher than total export growth. Given such numbers, bilateral trade is expected to reach $70 billion by 2020. 

“FDI from South Korea will be substantial in all fields,” said Mr. Tran Van Trung, Director of Tax and Corporate Services at KPMG Vietnam. “South Korean enterprises are flexible in terms of trade and mechanisms when facing uncertainties, which makes them different from Japanese enterprises. Such investment to date hasn’t met expectations because Vietnam’s business environment still has many issues.” 

Problems such as underdeveloped infrastructure, shortages of high-quality human resources, wage hikes, and an improving but still poor administrative system remain obstacles for South Korean investors in Vietnam. “It is necessary for the government to make more effort and initiate more effective policies to resolve these chronic problems as soon as possible,” Mr. Lim said. “We expect that South Korean investments in Vietnam will be diversified and upgraded in both quantity and quality in the future, based on investment conditions in Vietnam improving.”

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