P&G Investment Signals Increasing Foreign Investor Interest in Vietnam
As Vietnam’s economy continues to prosper, the country is becoming increasingly attractive to foreign investors. Many of these businesses choose to form their own wholly owned company in Vietnam, however, there has also been a growing interest in pursuing the M&A track as a method of investing into the country. The possible raising of foreign ownership caps and the improving business environment, driven by government reform, have further motivated foreign investors to consider Vietnam for their business operations.
Just this week, Procter & Gamble (P&G) broke ground on a new US$100 million factory in Vietnam’s Binh Duong province at the Vietnam Singapore Industrial Park II. The factory will focus on manufacturing razor blades for the company’s Gillette brand. This new factory will take P&G’s total investment in Vietnam up to US$360 million.
P&G is but one of many multi-national companies that have significant investments in Vietnam. Currently Samsung is the largest investor in Vietnam, with US$33 billion in total capital, but there are also many other companies, such as Hanes, Exxon Mobil, Intel, Nokia, as well as a range of smaller sized companies.
Vietnam is attractive to foreign investors for a number of reasons; these include the country’s young, skilled, and low cost workforce, as well as political stability in a turbulent region. Vietnam is also strategically located to serve as a manufacturing hub in the ASEAN region and beyond. Vietnam’s fast growing local consumer market is also an increasingly attractive market for foreign companies’ goods.
Speaking of the construction of the company’s new factory, Hatsunori Kiriyama, P&G’s president for Asia, stated “Throughout these years, we have remained steadfast in our commitment to be a model investor and an exemplary corporate citizen in Vietnam…P&G continues to be optimistic about the country’s long-term outlook and strongly believes in the potential growth of Vietnam.”
In addition to setting up their own wholly owned investment vehicles, many foreign companies are also investigating the possibility of purchasing local companies as an alternative method of gaining a foothold in Vietnam.
Interest in the M&A area has been generated in part by the Vietnam government’s implementation of a privatization strategy for state-owned assets. However, foreign investor interest in the state-owned enterprises has been slow due to the cap on foreign ownership levels and general lack of transparency surrounding the actual financial health of these companies. Many types of local companies, but particularly SOEs, in Vietnam have foreign ownership caps.
As it currently stands, foreign investors can generally only hold up to 49 percent of the voting shares of a local company. However, for certain industries, such as banking, the foreign ownership cap is set at 30 percent. These ownership caps have made some foreign investors cautious about entering Vietnam’s market since they will lack a controlling share in the companies that they are purchasing. However, in a positive sign, the country’s government is currently considering a draft measure to raised the foreign ownership cap to 60 percent.
A raise in the foreign ownership cap has been predicted to result in a vast increase in foreign investment and a surge in M&A activity. There are certainly strong reasons to invest into Vietnam’s stock market, which is currently valued at around US$50 billion. The country’s main VN index has risen 33 percent in the past two years, helped by such factors as low inflation, strong economic growth, and comprehensive reform plans for finance and state sectors.
Key sectors that offer good M&A opportunities for foreign investors include retail, manufacturing, banking, and telecommunications.
Improving business environment
Vietnam has been working hard to improve its business environment and become a more attractive investment destination. At a recent conference held by Vietnam’s Central Institute for Economic Management (CIEM) and the United States Agency for International Development (USAID), the two organizations reviewed the recent work that the Vietnamese government has done to improve the business environment. Two key areas of improvement that were highlighted during the conference were the country’s simplified customs procedures and the reduction in time spent on tax payments.
According to Nguyen Dinh Cung, the director of CIEM, the average time spent on tax and social insurance paperwork has been shortened from 900 hours to 400 hours. Vietnam’s General Department of Taxation Reform has confirmed the government’s commitment to reduce the time spent paying taxes and social insurance in Vietnam to the ASEAN average of 171 hours by the end of 2015. Cung also highlighted the simplified customs clearance procedures at the country’s border gates.
Additionally, Director Cung explained that there had been a “mindset” change within the Vietnam’s government and that there was now a strong focus on improving the whole business environment. Accordingly, the government will soon issue a new resolution aimed at further improving the country’s business climate so that its World Bank Ease of Doing Business index score will rise to the average level of the ASEAN-4 group (Singapore, Malaysia, Thailand, and the Philippines) by 2016. This will be an uphill climb for sure, but the recent government actions are certainly a step in the right direction.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Import and Export: A Guide to Trade in Vietnam
In this issue of Vietnam Briefing Magazine, we provide you with a clear understanding of the current business trends related to trade in Vietnam, as well as explaining how to set up your trading business in the country. We also attempt to give perspective on what will be Vietnam’s place in the Association of Southeast Asian Nations (ASEAN) in 2015, and look at some of the country’s key import and export regulations.
Using Vietnam’s Free Trade & Double Tax Agreements
In this issue of Vietnam Briefing we explore how Vietnam’s Free Trade Agreements – and especially those via its membership in ASEAN – will affect foreign investment into Vietnam. We also go a step further and examine the specific, bilateral Double Tax Agreements that Vietnam has enacted, and how these can be further used to minimize profits and withholding taxes that would otherwise be levied upon foreign investors.
Developing Your Sourcing Strategy for Vietnam In this issue of Vietnam Briefing Magazine, we outline the various sourcing models available for foreign investors – representative offices, service companies and trading companies – and discuss how to decide which structure best suits the sourcing needs of your business.
- Previous Article Singapore Increases Investment into Vietnam
- Next Article Vietnam’s Q1 2015 Sees 7% Y-o-Y FDI Growth