South Korean investors are among the most successful foreign investors in Vietnam thanks to their business attributes.
With Vietnam and South Korea strengthening diplomatic ties and hoping to wrap up free trade talks by year’s-end, South Korean money has continued flooding into Vietnam, primarily in sectors such as hi-tech, finance, property, textile and garment, food, and retail. Much of the allure lies in Vietnam’s political stability, which analysts and investors say bodes well for future economic growth.
After years of observing the potential of Vietnam and the achievements of other foreign investors, South Korean investors have once again turned their sights to the country of 90 million people. This investment also brings many South Korean nationals to Vietnam, to manage and oversee business and, of course, seek more opportunities. More than 3,000 South Korean companies have moved branches and factories to Vietnam and some 130,000 South Koreans now live in the country.
For South Korean business people in Vietnam, the emerging country holds unusual significance. Mr Hang Ha Ryu, CEO of Doosan Vina, has been in Vietnam since 2002, when he was appointed General Director of Hanvico in Hai Phong. He sees Vietnam as among the top places to do business, attributing the success of South Korean companies in Vietnam to several factors. “First is the relationship that has been forged between the leaders of our two countries,” he said. “Then you have the South Korean drive and experience in business being applied here in Vietnam,” he said.
Mr Hang, who in 2004 was tasked to find a 100-hectare site by the sea that could be developed as the Doosan Group’s forward strategic production base, believes that South Korean companies bring practical business know-how, technology, capital resources and a great deal of experience in the mobilisation of these factors to assure that successful enterprises emerge. “And when you combine this with government officials that see the benefit of development and an eager Vietnamese workforce you certainly have a winning formula that has been proven over and over again,” he said.
His positive sentiment is shared by players in other industries. “We are pleased with the incentives for hi-tech investments in Vietnam,” Mr Hwang Bok Hyun, a senior official at Crucialtec Vina, a satellite company of Samsung, was quoted as saying. “At present we are planning for a second factory in Vietnam.” The company began investing in its first plant in northern Bac Ninh province in 2011, to provide optic-based mobile input devices, as well as other light source devices and solutions, for Samsung in Vietnam.
For South Korean businesspeople, doing business in foreign countries brings with it cross-cultural challenges, and thanks to the cultural similarities between Vietnam and South Korean it doesn’t take long for newcomers to become accustomed to Vietnam’s business culture. The biggest difference between the Vietnamese and South Korean business style, according to Mr Woo Sang Ho, a Korean restaurant owner in Ho Chi Minh City, is that South Korean businesspeople are very disciplined and tend to avoid uncertainty, while Vietnamese business people are more flexible.
South Korean investors, he added, are known for their quick decision making, often due to a hierarchical system where a chairman’s decision is not debated internally. He believes that Vietnamese businessmen learn and adapt quickly, are growing more and more confident in doing business with foreigners, including South Koreans, and are able to cope with increasingly fierce international competition. He is particularly impressed by the rapidly growing class of local private entrepreneurs, who are more flexible and decisive and can seize more opportunities.
Meanwhile, the message from the Director at the Mong Duong 1 Thermal Power Plant Project, Mr Son Joon, is that South Koreans arriving in the country should first understand its society, culture, and social trends. “It’s also important to determine what products or services can be offered and developed in Vietnam,” he said. “Making profit is one part but getting the actual social economic issues and understanding the culture is also a key factor.”
There are also differences between South Korean investors and other foreign investors doing business in Vietnam. “South Korean investors try to expand their business in a very short period of time but other foreigners do not,” Mr Son believes. “Therefore, South Korean investors create a good feeling among local people thanks to their strong commitment.” Instead of making every effort to give advice to Vietnam to help improve its policies, South Korean investors believe they can seek opportunities and turn a profit under existing conditions. South Korean investors are also known for their practical approach, as they understand the important role local authorities play in the context of decentralisation in the licensing of foreign direct investment (FDI) projects.
For instance, in 2007 there was competition between South Korea’s Keangnam and Japan’s Riviera for the right to develop a property project on a large land plot in Hanoi. Finally, Keangnam, which promised larger investment capital and major support for Hanoi, won the deal. Another example that partly illustrates the practicality of South Korean investors is Samsung. Since it set up its factory in Bac Ninh in 2008, the giant has continuously claimed big investment incentives, which even go beyond the framework stipulated by local authorities. Following its great success in Bac Ninh, Samsung then reached out to nearby Thai Nguyen province, where the group received even better incentives.
The achievements of South Korean investors over the years prove that they arrived at the right time. The first wave of investment started in the 1995-2005 period, as South Korean investors, like many others from around the world, flocked to Vietnam after the US lifted its embargo. The second investment wave occurred in 2006-2007, when Vietnam officially joined the WTO. South Korea became the largest foreign direct investor in Vietnam during that period, with $2.7 billion worth of registered investment capital in 2006 and $4.58 billion in 2007.
Most of the money was funnelled into infrastructure projects and the stock market. A series of major projects developed by big real estate names such as Posco and Kumho also kicked off at that time. There was a big difference, analysts note, between the first and second investment waves and possibly the current third wave. South Korean investors previously put their money into short-term projects, while they now tend to focus on consumer goods manufacturing, technology, and tourism.
When asked about the future prospects of investing in Vietnam, most South Korean executives contacted by VET agreed that South Korean money will not be pulled out of the country. “There are many factors that dictate business decisions in Vietnam,” said Doosan’s Mr Hang. “First, government support. If this isn’t secured then all else is going to be futile, and this has been very good.” One of the key business factors in Vietnam, he added, is stability, as many places around the world are now facing very uncertain circumstances. “Business depends on knowing what will happen tomorrow, so again Vietnam scores high in that regard,” he believes.
Looking to the future, it remains necessary for Vietnam to further improve its investment environment to attract more South Korean investors. The one issue that may slow investment from the country, warned Mr Son, is that complex procedures are hurting investment. “Both countries should adopt quick decision-making procedures on any investment issue, as I have heard that there are still hundreds of steps that remain unchanged,” said Mr Son. “This is the most sensitive and crucial area for South Korean investors.”
A popular view, Mr Woo explains, is that many South Korean people stay in Vietnam for its lower living costs, good food, and friendly people. Many of them have tried to learn Vietnamese, and with the South Korean investment wave its culture and language have also become more popular in Vietnam. For these reasons it can be expected that the level of understanding between the two countries will become even better in the future, paving the way for a new surge of South Korean investment in Vietnam.
“As neighbours in the region, South Koreans and Vietnamese have a vested interest in seeing that our economies and people continue to develop, so I think that the partnership between our two countries will continue to improve and have benefits for both. It is a win-win situation and that is what makes it attractive for both countries and their businesses leaders.”
Mr Hang Ha Ryu, CEO of Doosan Vina
“The success of South Korean companies in Vietnam depends on many factors, such as price competitiveness, performance, reliability, and after sales services, etc. However, as people in Vietnam are now rating the quality of products or services higher than price, the quality and reliable operation of products and services provided are the key issues. South Korean companies are now doing well in satisfying such requirements.”
Mr Son Joon, Director of the Mong Duong 1 Thermal Power Plant Project