GBA x Vietnam Investment Review: The German Mark on Vietnam over the Decades

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What has German investment and trade in Vietnam looked like over the past 35 years?

Germany and Vietnam have established diplomatic relations since 1975 and have developed a strong partnership over the past 35 years. Germany is Vietnam’s largest trading partner within the EU, with a bilateral trade volume of around $15.2 billion in 2021. Around 380 German companies have a presence in Vietnam, investing around $2.7 billion and creating some 47,000 jobs. Germany is Vietnam’s largest trading partner in the EU and Vietnam is its largest trading partner in Southeast Asia.

As a strategic partner, Vietnam is also an important recipient of German development assistance with a total value of $2 billion thus far, which contributes to poverty reduction, environmental protection, and sustainable development in Vietnam’s under-developed localities, as well as training human resources.

There are many successful stories of German investment in Vietnam. For instance, Bosch has invested more than $500 million in Vietnam since 2008, operating two manufacturing plants and one research and development centre. It employs more than 4,000 associates in Vietnam and produces automotive components, power tools, security systems, and tech products for both domestic and export markets.

Siemens has been active in Vietnam since 1993, providing innovative solutions for energy, infrastructure, industry, and healthcare sectors. It has invested over $300 million in Vietnam, employing more than 1,800 people and contributing to major projects such as Vinh Tan 4 thermal power plant, Cat Linh-Ha Dong urban railway line, and Viettel’s mobile network.
Elsewhere, top sports brand Adidas has been sourcing from Vietnam since 1995, making it one of its key production hubs in Asia. Adidas works with more than 40 suppliers in Vietnam, producing footwear, apparel, and accessories for both local and international markets.

Thanks to the Vietnam-EU Free Trade Agreement, these results could multiply in the years ahead. The deal offers significant benefits for both sides, such as tariff elimination or reduction for almost all goods traded between them, enhanced market access for services, protection of intellectual property rights, and promotion of sustainable development.
It also opens up new opportunities for cooperation between Germany and Vietnam in areas such as renewable energy, digital economy, education, and innovation. Both countries share common interests and values in promoting peace, stability, the rule of law, and multilateralism in the region and beyond.

As we celebrate 35 years of bilateral relations this year, we look forward to further strengthening our strategic partnership based on mutual trust, respect, and benefit.

German investment in Vietnam is still modest compared to the expectations of the two sides. What should the two countries do to improve the situation?

The challenge for German companies here is red tape within the government, which may affect the consistency and productivity of governmental services and regulations, as well as create risks and costs for foreign companies doing business in Vietnam. In addition, there is a lack of skilled workers and managers, especially in high-tech sectors such as renewable energy, digital economy, and education. This may limit the potential for German companies to transfer technology and know-how to their Vietnamese partners and employees.

German investors are now also facing a challenge and competition from other foreign investors, especially from China, Japan, South Korea, Australia, and New Zealand, who also have free trade agreements with Vietnam and are actively seeking opportunities in the Vietnamese market.

Besides that, the cultural differences and language barriers may affect the communication and cooperation between German and Vietnamese counterparts. This may require more efforts to build trust, mutual understanding, and respect among different stakeholders.

Vietnam, unlike in the past, needs now to attract more high-tech businesses and qualitative companies from the likes of Germany, in the form of medium-sized companies that are often world beaters in their respective business fields. German companies are leading in engineering, chemical industries, pharma, medical device, biotech, automotives, and green technology. To attract them, the right policies and frameworks are required.

For example, with targeted incentive policies, industry-specific cluster policies in industrial zones with excellent infrastructure and logistics, training facilities, schools, and fast-tracked administration for paperwork would help to bring in those important investors faster. We should also not forget that Vietnam stands in global competition to attract those same companies.
Also, well-known German companies such as Bosch, Siemens, and Schaeffler are already investing in Vietnam and are good examples of how the digitalisation and automatisation of industries are benefiting business here. However, the nation needs many more such companies that require the right legislative framework with a focus on the right kind of investors.

To boost the situation, Vietnam should continue to improve its business environment, legal framework, and governance, especially in terms of transparency, accountability, and anti-corruption measures, to create more trust and confidence for foreign investors.

Vietnam should also invest more in human capital development, especially in education, training, and innovation, to provide more skilled workers and managers for high-tech sectors that German companies are interested in. Germany should increase its support and facilitation for German companies who want to enter or expand their presence in Vietnam, such as providing market information, financial incentives, and trade promotion activities. Germany should also enhance its political and diplomatic relations with Vietnam, as well as its cooperation in regional and global issues such as climate change and security to create a favourable environment for economic partnership.

What are the trends in German investment in Vietnam you foresee in the months ahead?

German companies will continue or expand their investment in Vietnam, as they see the country as a stable and attractive market with a large population, a young workforce, a competitive cost structure, and a favourable business environment.

For example, Techtronic Industries is a multi-billion-dollar German-Hong Kong group in power tools, hand tools, and outdoor power equipment. It decided recently to invest $650 million in Saigon High-Tech Park to establish a manufacturing mega-plant and research and development centre, creating not only many new jobs but also effectively transferring important know-how to Vietnam.

Messer, meanwhile, is supplying gas to local customers such as Hoa Phat from its main production hubs in Hai Duong in northern Vietnam and Quang Ngai in Central Vietnam with charter capital of $228 million and more than 700 employees.

B. Braun Vietnam is operating two production facilities in Hanoi producing intravenous infusion solutions, dialysis concentrates, and medical devices with capital of over $200 million. In 2022, it expanded its footprint in Vietnam with the announcement of a new factory and an initial investment of $5 million.
Another company, Tesa, has laid the foundation for a new plant in the northern port city of Haiphong with investment of $58 million. On approximately 70,000 sq.m, Tesa will create new production capacities for Asia, one of the fastest growing markets.

Magnetec, a German producer of electric spare parts, last year completed procedures on investment registration at Nam Dinh Vu Industrial Park, also in Haiphong; while cleaning technology company Kärcher and climate solutions provider Viessmann recently selected Vietnam as their new production base overseas.

German companies will also leverage Vietnam’s participation in the Regional Comprehensive Economic Partnership (RCEP), which is the world’s largest free trade area and includes all ASEAN nations together with China, Japan, South Korea, Australia, and New Zealand. The RCEP offers German companies’ opportunities to tap into a huge consumer market of 2.3 billion people with a combined GDP of $26.2 trillion.

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