Vietnam market analysis

The Second Potential Star of Southeast Asia--Vietnam


In 2016, the paid-in funds of Vietnam Foreign Direct Investment amounted to US$15.8 billion, year-on-year growth of 9%. In recent years, Vietnam has attracted foreign investment in various areas with great efforts, and the government has also actively built an open business environment and release favorable policy, especially encouraged hi-tech industries like new materials and new energy, as well as national cultural establishments like enducation, medical and sports.

China has been the largest trade partner of Vietnam for twelve years, of which, Guangxi has been the largest province for China to cooperate with Vietnam, accounted for 25.6% of the total trade volumn between China and Vietnam. Vietnam is the second largest trading partner in ASEAN after Malaysia.


In 2010, China-ASEAN Free Trade Area has been established; on October 2011, the two countries has signed the Five-Year Plan for the Development of China-Vietnam Trade and Economic Cooperation; on October 2013, both parties has signed Memorandum of Understanding on the Construction of Cross-border Economic Cooperation Zone. On the first half of 2016, the import and export volumn between China and Vietnam aggregated to US$38.2 billion with a year-on-year growth of 1.5%, and it is expected to US$100 billion for the whole year of 2016.

The investment from China to Vietnam is on the initial stage, and it is strengthening multiple pragmatic cooperation in various fields.

China and Vietnam are actively integrating the resource advantages of the two countries, intensifying their cooperation under the framework of " one belt and one road" and " two corridors and one circle ", and strengthening practical cooperation in various fields such as infrastructure construction, capacity, border trade, investment, finance and education. But the risks of the South China Sea problem and the anti-Chinese still remain.

According to the statistic from the Ministry of Commerce of China, as of the first half of 2016, Vietnam's economic zone and industrial zone have attracted 7,510 of foreign investment projects, with an agreement funds of US$ 147.6 billion and paid-in capital of US$81.4 billion. Domestic investment projects totaled 7,163, with total agreement investment of VND1,173 trillion (approximately of US$55 billion), and paid-in capital of about VND540 trillion ( approximately of US$27 billion ). Ranked nine out of 110 countries for investment to Vietnam.

There may divide into three stages for Chinese brand going into Vietnam, the first stage was from the end of 1990 to the beginning of 2000, such as Huawei, ZTE, TCL; the second stage was from 2007 to 2008, including Midea, Gree; the third stage was around 2013, with base on mobile phone, Internet brand, such as OPPO. In addition to the earlier enter of Tencent into the Vietnam game market, the layout of other Internet companies in Vietnam has just started. Today, the smart phones made in China have rapidly occupied the market share, OPPO is the third largest mobile phone brand in Vietnam, Chinese black and white household appliances occupy the top three of the Vietnam home appliance market, and green electrical appliances become a new trend.

Investment Highlights

1. The population structure is young, labor cost is low, and IT industry is rising gradually.

2. Economic growth is strong, the domestic demand market is expanding and the middle class growth is the fastest among southeast Asian countries.

3. Industrial structure transformation, the total amount of product retail and service increased by 10.2% in 2016.

4. The Internet penetration rate is more than 50 %, and usage of smart phone is growing in two digits.

5. Still in the cash payment phase, but the proportion of mobile payment and consumer credit is increasing.

6. The market environment is open, Chinese enterprises and high-tech industries enjoy preferential tax rate, but foreign exchange control is strict.

I.  The most exciting market in Asia

Vietnam's geographical position is superior, near China, Laos, Cambodia, 75 % area is covered by forest, but with numerous ports, is the hub of world trade. After joining WTO in 2007, its market is more open, and has signed free trade agreement (FTA) with many countries, stimulating the import and export trade volumn of Vietnam, the import and export growth was 4.6 % and 8.6 % respectively in 2016.

As of March 2017, Vietnam has more than 95 million people, following Indonesia and Philippines, is the third largest population of ASEAN, and people under 30 years old account to 40%, it is a country with young population structure. The official language is Vietnamese, and other general foreign languages include: English, French, Chinese, Japanese. There are 54 ethnic groups, mainly be Jing nationality ( 86.2 % ) and Chinese ( 1.1 % ). The religious belief is mainly Buddhism ( 50 % ), there are Catholic ( 10 % ), Hoahaoism, Cao Dai, etc. Vietnam is a socialist country, one-party

dictatorship, so political stability, which is able to support economic growth and development, also is the main incentive to attract foreign investment.

The capital Hanoi is the national political and cultural center, the first largest city Ho Chi Minh City is the national business and economic center, and gradually develops IT industry. From the characteristics of the two cities, you can find the background difference between south and north. Vietnam's economic growth is 6 % - 7 % in the last decade, with GDP of US$ 20 billion in 2016, per capita GDP of about US$ 2,164, and total personal consumption expenditure accounted about 71.5 % of GDP; Internet penetration rate is 52 %, mobile penetration rate 93 %, mobile internet penetration rate 44 %.


二、The population structure is young and the labor cost is low


II. Young population structure and low labor cost

Vietnam currently has a population of more than 95 million, with world ranking 14th, the annual growth rate is controlled within 1 %; Nearly 40% of the population is under 30 years old and 70% of which is working population. According to UBS research, the average salary of manufacturing workers is US$ 3,000, engineers is US$ 6,000, the salary of workers is low. However, the Vietnamese labour law is very strict in the protection of workers, it requires foreign companies to strictly implement, and in the past few years, continuously improve the minimum wage. During 201 0to 2015, increase the l wage of 18 % every year, and a further increase of 12.4 % in 2016. Three years ago, only 18.4% of employees were in good education and training, the overall quality of the labour force was poor. And now, the literacy rate of Vietnamese workers is 90%, it is easier to be trained, and the quality of the labour force is better than most countries in southeast Asia. However, the increase of laobor awareness has resulted workers Job-hopping or striking easily. For employers who enter the Vietnamese market need to pay attention to these problems.

However, Vietnam's labor still lacks of quality professional training. According to the survey by the international consultary company Tholons on August 2016, Vietnam ranked 23rd on Hacker Rank, a ranking website for programmer, which is above many developed countries. But due to lack of platform and academic positioning, their capacity for algorithm and programmingis relatively weak, and for the lack of sufficient practice opportunities, the ability to solve practical problems raised by enterprises for students of IT majors are weak.

III. Economic grwth is strong, domestic demand market expands

GDP increased 6.21 % in 2016, and the average GDP growth rate in the last decade is 6 % - 7 %, it is one of the fastest economy growing countries in ASEAN in recent years. The trade terms has improved and the current account surplus, and became the third largest exporter in 2015. The public debts is increasing and fiscal deficit is huge, because of the government's counter-cyclical fiscal needs ( expanding infrastructure, cutting corporate income tax rates ) to stimulate the economy. After vigorously promoting the reform of state-owned enterprises, the economic growth is expected to be 6.5 % - 7 % increase over the next five years.

Consumption of young people continued to increase, with a per capita GDP of US$ 2,164 in 2016, equivalent to the Philippines and India, and due to a low income threshold, it is only 36% of Thailand and 63% of Indonesia.

The " docking southeast Asia" study, published by HSBC on October 2016, said that Vietnam is a middle-income country, but expected that the middle class population would rise to 33 million by 2020.

IV. Industrial structure transformation, the third industry increase of 10.2%

The industrial level is still high, low labor wages and electricity price is the main core competitive advantage, which can effectively reduce the production cost of enterprises. After Vietnam's enter into the WTO, the distribution service industry has been opened up, and has allow foreign investors to set up sole proprietorship and engage in business of wholesale, retail and commission agents. Since 2013, the output of service industry has exceeded the industrial output, and the industrial structure is changing, among which the retail and tourism industry has increased the most investment environment.

In addition, Vietnam has also stepped up its development in IT industry, and has become the second largest partner of information technology of Japan since 2015, with Vietnam's outsourcing revenue to Japan being US$ 1.6 billion. Vietnam is already among the top 10 most attractive software processing countries in the world.


V. Smart phone usage is growing in two digits

The penetration rate of internet has reached 52 % in the third quarter of 2016. The application and popularization of internet technology will help enterprises to transform and upgrade industries, reduce costs and increase productivity, and support enterprise growth. The internet growth of Vietnam is relatively rapid, ranking 7th in the world and fourth in the Asia - Pacific region. The growth rate is only after India, the Philippines and Indonesia whithin the region.

Mobile phones become the main internet access ( 80.5 % ), 3G and wifi coverage is widespread with low rates, but 3G speed is almost the slowest in southeast Asian countries. Mobile penetration has slowed, but smartphones are growing at double-digit rates, with estimates that it will continue until 2019. The growth is driven by two major groups: rural users, consumers over 35 yeas old.


VI. The e-commerce of Vietnam increases quickly with huge improvement space

In 2015, the e-commerce market in Vietnam reached US$ 4.07 billion, increase of 37 %, growing at twice the rate of Japan, with only 1 % of the United States and 4 % of Japan; e - commerce only accounts for 2.8 % of the total retail business. The PC side is similar to the mobile end usage, but the mobile web version of the shopping behavior is more than the mobile app, because the Vietnam 3G network is too slow, almost the bottom of the world, so the habit of mobile users is to download the daily use of app, the rest of the behavior is done through the web end.

The top three of the most popular online shopping products are fashion, IT / mobile phones, home kitchen appliances. Vietnamese men over 20 years old are particularly keen on IT/mobile phones. Fashion, cosmetics and kitchen products are particularly popular Among women over 30 years old. The overall amount of consumption per order was relatively low, 36% less than VND300,000 ( about US$ 14 ) and 33% ranging between US$ 14 to US$ 24. Mild online shopping users of a single consumption is higer than serious online shopping users.

VII. The proportion of mobile payment and consumer credit is increasing

Cash on delivery is the most popular form of payment for Vietnamese digital consumers ( 79.8 % ). The current credit card penetration rate is only 4 %, but Vietnamese banks take consumer credit as a long-term growth target. There was a 21% growth in 2013 and 18% in the first eight months of 2014. By the end of August 2015, the total amount of individual consumer loans in Vietnam was US$ 10.4 billion, equivalent to 6.6% of the GDP at that time. Credit cards has gradually popular, visa cards, MasterCard, union pay card issued by Chinese financial institutions can be used in many occasions in Vietnam. Because the market is not much standard, consumers often fall into the trap of high interest, financial supervision and credit system need to be improved.



E - commerce shows explosive growth, but the penetration rate of electronic payment is only 10.7 %, the increasing space is big. There are many players in the market are competing for this aspect, including: momo, Bao Kim, payoo, onon, etc. In the future, with the increase of popularity of electronic payment, it will also promote the further growth of online shopping, mobile life and other services.


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