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Indian firms intend to further expand in Vietnam

By Pham Le

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One-fifth of Indian companies that have operations in Southeast Asia or expect to do so have plans to expand their businesses in Vietnam in the next two years

These are some of the key findings from HSBC Navigator: SEA in Focus that surveyed more than 1,500 companies from six of the largest economies in the world, comprising China, France, Germany, India, UK and US, all of which have operations in Southeast Asia or have plans to do so in the future.

The survey gauges the sentiment of companies on doing business in Southeast Asia, with a particular focus on trade, digitization and sustainability.

The survey also shows that 26% of Chinese corporates in Vietnam are looking to prioritize growth here over the next two years.

Tim Evans, CEO of HSBC Vietnam, said in a statement that Vietnam is a strong example of how to initially contain Covid-19 and then rapidly roll out vaccines, which has enabled the country to reopen and its economy to recover at pace.

Embracing strong economic fundamentals together with taking advantage of being one of the most attractive investment destinations, Vietnam is back to rapidly growing as one of the newer manufacturing hubs in the world.

“An enviable position that has been achieved due to favorable policies by the Government, especially around free trade agreements. Through HSBC Vietnam’s discussions with our international corporate clients, we believe that the trend of more global companies moving to Vietnam is not temporary but is actually much longer-term and very strategic,” Evans said.

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About the advantages, three out of 10 surveyed companies found Vietnam’s skilled workforce to be the most attractive feature of the market, while 27% of respondents were impressed with the country’s optimistic economic outlook, competitive wages, and the resilience demonstrated by Vietnam during the pandemic.

As many as 39% of Indian companies favored the market thanks to developed infrastructure and 49% favored Vietnam’s supportive government and regulatory environment. Some 36% of U.S. companies were very attracted by the opportunity in Vietnam to test and develop new products/solutions.

In parallel, up to 49% of the survey’s participants, especially those from China, India and the U.S., intend to make the most of the EU-Vietnam Free Trade Agreement to increase and support their trade with the region, among other FTAs, including CPTPP, RCEP and the EU-Singapore Free Trade Agreement.

On the other hand, the survey found 33% of the participating companies faced challenges in supply due to the pandemic’s impact when doing businesses in Vietnam. Cultural issues, including language constraints and doing business, were also a major concern. Some 31% pointed to these as a particular challenge for them in Vietnam.

Sustainability considerations

Sustainability, one of the hot topics in Vietnam today, is also being carefully considered by international investors that have operations here.

Vietnam is a regional leader in its progress toward achieving the 17 UN Sustainable Development Goals (SDG). Ranked 51st out of 162 countries by the SDG Index, it is rated as having achieved greater success than all the other Southeast Asian countries barring Thailand.

A staggering 45% of companies operating in Vietnam stated that the most important sustainability actions they could take were improving energy efficiency; a further 42% underlined the importance of supporting local communities.

On the other hand, some 31% of respondent companies operating in Vietnam worried that new regulations and rules on carbon reduction could impact them. It is therefore unsurprising that in order to achieve their sustainability goals, three in 10 of those international firms pointed to a need for further improvement in their internal sustainability expertise, while 36% flagged difficulties in hiring employees who possessed the right sustainability capability.

“As one of the rising stars in Asia, Vietnam is well positioned to benefit from the business opportunities coming its way,” Evans said, adding that sustainability and the transition to net zero are the areas where opportunities will open up following Vietnam’s ambitious commitments made at COP26.

“There is a clear desire by the country to continue to be an attractive investment destination while also working toward becoming a ‘greener and cleaner’ location,” Evans said.

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