Why European Companies Increasingly Choosing Vietnam for Business & Manufacturing – An Overview

Did you know that Vietnam is Europe's 15th biggest trade partner? With the advent of the Vietnam-EU FTA there has been a steady inflow of investment from Europe.

Vietnam emerged as one of those few nations that were resilient to the pandemic. It was one of the few that saw actual growth during the worst months, even at a mere 2-3%. Vietnam’s GDP is expected to grow by 5.5% by the end of this year, according to the World Bank. This resilience and sustained growth have allowed Vietnam to encourage more EU companies to choose to manufacture and open operations in Vietnam

Moreover, Vietnam is set to become the manufacturing site of the Lego factory. It is the biggest European investment in the country so far this year.

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According to Daniel Müller, manager at the German Asia-Pacific Business Association, medium-sized companies, in particular, are increasingly looking to enter the Vietnam market or to broaden their activities out of China.

On 30 June 2019, the European Union and Vietnam signed an agreement on trade and investment protection. Upon entering into force, the agreements will allow more EU companies to choose to manufacture in Vietnam. As a result, both sides will benefit from increased trade and growth opportunities.

Overview of Trade between Vietnam & Europe

ASEAN trade statistics for 2020 place Vietnam as the EU’s 15th largest trading partner. The EU supplies various significant products to Vietnam including electrical machinery, aircraft, vehicles, and pharmaceuticals. On the other hand, the Vietnamese export a wide range of products to the EU, including telephones, footwear, electronics, textiles, etc.

With an outflow of USD 6.1 billion in foreign direct investment (2019), the EU is one of the largest foreign investors in Vietnam according to the latest data from the EU Trade Commission. In terms of investments by the EU, industrial processing and manufacturing constitute the largest sector.

Top investor in Vietnam in Q1 & Q2 in 2022 – Denmark

According to the Foreign Investment Agency, Vietnam received USD 14.03 billion in foreign direct investment in the first half of 2022. Out of which Denmark led the way with USD 1.32 billion.

So far, firms from this European nation have invested in six projects, with its biggest investment going to the Lego factory in the Vietnam-Singapore Industrial Park. It is expected that the factory will create thousands of jobs for Vietnamese citizens in the first half of 2024.

According to data reported by Vietcetera up to November 2021, Danish investors have shown interest mainly in the processing industries, with 44 projects totaling USD 393.68 million. Five projects worth more than USD 173 million were implemented in Hue, a central province. 

Why are EU companies choosing Vietnam to do business?

As per the Business Climate Index (2021), European investors are optimistic about Vietnam’s trade environment. It is expected that the economy will further stabilize and grow in the first quarter of 2022. Moreover, as the Vietnamese economy recovers from the pandemic, 43% investors expect to increase their investment in the first quarter of 2022.

Compared to the third quarter of 2021, more than 51.5% of businesses expect revenues to rise, whereas 38.5% plan to increase their headcount.

RELATED: What do Electronics Manufacturers See in Vietnam’s $116 Billion Industry?

A trade agreement and an investment protection agreement were signed by the European Union and Vietnam on 30th June 2019. Both sides will benefit from the agreements once they are in force by increasing trade and boosting jobs and growth. The agreement expects to achieve the following:

  • 99% of all tariffs will be eliminated
  • Streamlining regulations and reducing red-tapism
  • Geographical indications must be protected
  • Increasing access to services and public procurement

*Source: EU-Vietnam Free Trade Agreement and Opportunities Offered

EU-Vietnam Foreign Trade Agreement – a future of even more investments

The EU-Vietnam Foreign Trade Agreement (EVFTA) is expected to open up a far-reaching and brand new era in trade relations for Vietnam and the European Union.

The bilateral trade and investment links between Vietnam and the EU have continuously grown and strengthened since the two parties established formal diplomatic relations in 1996. Among the most important markets abroad for Vietnamese goods, the EU ranks second. Around 19% of Vietnam’s total exports to global markets are commodities exported to the EU. In addition, this figure has grown at an average of 13-15% per year for the past 10 years and has even reached 25% in some years. Hence, the agreement will prove to be beneficial to EU investors who want to invest or expand in Vietnam. 

Upon the enactment of the EVFTA, EU investors will have access to the following benefits:

  • Elimination of up to 99% import tax
  • Protection for investors via geographical indications
  • Reduction of bureaucracy and repeating red tapes, and lowering of trade barriers
  • Open up of public procurement markets and services

Conclusion

Factors like impeccable economic growth, young population and enactment of free trade agreements have set the stage for EU investors to capitalize on the untapped potential opportunities available in the Vietnamese market. 

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Vojtech Zehnalek

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Vojtech Zehnalek, MSc.

Vojtech Zehnalek is the CEO of the Cekindo Vietnam office. He graduated in Economics and International Trade from the University of Economics in Prague, the Czech Republic, and he also earned a Business Degree at the Vlerick Business School in Belgium.