Whether you are eyeing Vietnam as your next FDI destination or in the process of market research, choosing a location to start business is no simple task in this vast country. Luckily for investors having Vietnam on their list of business locations, there are various industrial zones in key economic regions designated by the government to encourage FDI inflow into the country. This article will provide a broad picture of strategic business locations and major FDI hubs in Vietnam to help ease the process of choosing a business location for foreign investors.
Choosing locations in Vietnam Industrial Zones
Industrial zones are specific areas earmarked by the government for the production of goods and services. Industries are usually concentrated in certain industrial zones, which provide incentives for businesses that set up there. Industrial zones are popular investment locations for FDI into Vietnam. As of 2018, according to Vietnam briefing reports, there are 328 industrial zones countrywide, 249 of which are in operation. By the end of 2018, industrial and economic zones had attracted 7,500 domestic projects worth US$41.75 billion and around 8,000 foreign projects with a total capital over US$145 billion.
While industrial zones are convenient go-to locations for foreign businesses, investors should take time to narrow down their list of potential places to visit. Below is an overview of the characteristics of Vietnam’s key economic regions.
Vietnam’s key economic regions in the North include the provinces of Hanoi, Hai Phong, Quang Ninh, Hung Yen, Hai Duong, Bac Ninh and Vinh Phuc. These provinces together account for 16.2 percent of Vietnam’s population and 4.7 percent of its landmass.
Vietnam’s Northern key economic regions are the hub for enterprises looking to supplement its existing manufacturing in China with lower labor costs while maintaining a strategic location of close proximity to China.
The influx of investment in heavy manufacturing and petrochemicals into the northern regions lead to concentrated talent and infrastructure suited to this business-line. The resulting talent pool can be one of the considerations for investors assessing business locations in this region.Cities such as Hanoi and Hai Phong have ample supplies of qualified workers and institutions that provide for specialized labor.
Due to the area’s primary focus on heavy manufacturing, investors in heavy manufacturing will find the concentration of infrastructure and talent work to their advantage while investors in other sectors, such as IT, do not benefit from these networks. Land availability is also a growing concern in Northern Vietnam compared to other locations within the country. It is important for investors to explore rent or purchase options before setting up operations in the North.
Vietnam’s central key economic regions include Da Nang, Thua Thien Hue, Quang Nam, Quang Ngai, and Binh Dinh.The region accounts for 7 percent of the national population
Investment environment is less competitive than the fully explored hubs in the north and the south. In recent years, the city of Da Nang emerges as a hub of seafood, food processing, and manufacturing. In addition to production, Da Nang also benefits from a greater degree of urban planning and development due to private partnerships between governmental authorities and investors. This may create downstream benefits for FDI in the region. See more below: Top cities to start your business in Vietnam
Talent pool in the Central is more limited than in other regions. Workers in technical fields often find greater opportunities in North or South Vietnam and are likely to leave the region. However, many Vietnamese appreciate the quality of life in Da Nang and are likely to relocate if offered an attractive opportunity.
The Southern economic regions encompass the provinces of Binh Duong, Binh Phuc, Long An, Ho Chi Minh City, Tay Ninh, Dong Nai. Vietnam southern regions attract the most FDI projects according to Vietnam Briefing, with 793 projects listed in 2017.
The region is economically diversified, suitable for small and medium sized enterprises. Businesses from more niche sectors are likely to find the South a more suitable investing location than other regions. Given the availability of various institutions that provide for the workforce, in recent years Ho Chi Minh city has emerged as a major hub for startups.
Its large population also makes consumption another advantage of the region. Investors seeking to establish brand identity with Vietnamese consumers are likely to find opportunities in the South.
Vietnam Southern economic regions lack the strategic proximity to China. Thus, investors ith time sensitive production chains would find the Northern region more suitable. Although the talent pool is available and diverse in Southern Vietnam, competition is high between employers.
Narrowing down your list of potential business locations in Vietnam
In considering where to locate operations of a foreign invested enterprise, investors should take into account: industry specialization, labor, infrastructure, and tax incentives.
Finding an industrial zone specializing in similar or parallel industries is important for foreign investors seeking to utilize the benefits available in the zone. Infrastructure and other facilities are often tailored to the needs of the industries. Investors in these industries are likely to benefit from these specialized facilities and infrastructure networks.
The clustering of talent is also influenced by the concentration of industries in specific zones. Jobseekers often relocate to industrial izones due to the concentration of employment opportunities. Certain large industrial zones also include institutions to provide a steady stream of talent. Choosing a zone that specializes in the industry will better guarantee the supply of talent in the field. This is especially true of the Central industrial zones, where talent pool is limited and finding skilled labor for niche industries poses a challenge.
Infrastructure remains a constraint on FDI in Vietnam, which can suffer from lagging access to utilities, inputs, and transport networks necessary for operations. Infrastructure deficits can delay global value chains. Tax incentives and the availability of infrastructure offered by industrial zones provide a solution, assisting companies in a range of operational areas.
Proximity to ports, key road networks, and rail systems offers another significant asset to businesses. Industrial zones are usually located adjacent to a port or attached to an existing port complex. Some zones are directly linked to key roads and railway networks that reduce the time of transporting goods in and out of the country.
Preferential tax rates are available to investors located in industrial zones in Vietnam. Other indirect taxes, such as Value Added or Special Consumption Tax, may also be reduced on a good-by-good basis. These tax incentives can help offset the higher wages and rental fees in these areas.
Top cities to start your business
Ho Chi Minh City
Being the central economic hub of Vietnam, it is no surprise that Ho Chi Minh City is first on the list of FDI attractions. One of Ho Chi Minh City’s competitive advantages is its available infrastructure and transportation networks. Tan Son Nhat International Airport is the biggest airport in Vietnam, accommodating up to 17 million passengers per annum. Saigot port network is also one of the major commercial ports in Vietnam. Ho Chi Minh City has 11 industrial zones with a total area of more 1,700 hectares, and more than half of them have land available for rent. The city also houses many institutions, research centers, and think tanks, guaranteeing a constant supply of high-skilled labour
Hanoi is an appealing FDI location for its extensive transportation network and investment incentives from the government. Hoa Lac Hi-tech Park in Hanoi is the first Hi-tech Park in Vietnam to receive special mechanisms and incentive policies, allowing investors and companies investing in Hoa Lac Hi-tech Park to enjoy preferential tax rates and other support, and Noi Bai International Airport is the second biggest airport in VIetnam. Regarding FDI inflows, Hanoi ranked fourth among cities and provinces in Vietnam with more than 4,489 projects in force and $27 billion in registered capital.
Foreign investors benefit from the favourable real estate market, liberalised foreign policies, international airport, seaport system, road traffic and good infrastructure in Phu Quoc.
As of April 2017, Prime Minister Nguyen Xuan Phuc has officially approved the plan to set up a Special Economic Zone. The new development model will allow 100% foreign ownership of properties and rights to conduct trading activities related to tourism. Investors can also mortgage real estate at international banks that have local branches for a loan. It is expected that Phu Quoc Special economic zone will catch up with Singapore and Hong Kong as a knowledge-based economy in 20 years.
Bac Ninh province has grown from an agricultural community to a major industrial center with multinational companies in the Northern Key Economic Zone.
Thanks to its proximity to Hanoi and China, Bac Ninh has become the second most attractive option for FDI in Vietnam. Its total GRDP (Gross Regional Domestic Product) in 2017 increased by 19% compared to the previous year – becoming the second highest per capita income of the country.
Binh Duong province, located in the southern key economic region, has become a rising investing zone in recent years. Its close proximity to Ho Chi Minh City has attracted large foreign companies that seek to expand their production as part of their supply chain while taking advantage of the available land. On top of that, Binh Duong focuses on attracting investments in hi-tech, less labour-intensive, and environmentally friendly industries.
The city is only hours away from big domestic and foreign markets such as Hanoi, Ho Chi Minh, China, India, etc. The East-West Economic Corridor passing through Danang links the city with other neighboring countries such as Laos, Cambodia, Thailand, and Myanmar with Danang Port acting as the access point to the Pacific Ocean, facilitating the transportation of goods and people through the area. As a rising modern city Da Nang also boasts high-standard infrastructure. The city has 06 industrial zones in operation and 03 more under planning. Danang Hi-tech Park also has more than 300 hectares of land available for rent with attractive rental rates and other supports.
Being the biggest port and one of the major industrial hubs in the country, Hai Phong is an excellent place to start your business. In 2016, Hai Phong was leading the foreign direct investment in the country with a total investment capital of US$2.8 billion.
Above are the key insights that help you map out potential business locations in Vietnam. Indeed, their are many other factors individual to the business that should go into the decision of location. Our Viettonkin experts team with their long-established experience in FDI in Vietnam are ready to assist.