Vietnam Encourages German Foreign Investment
Germany is Vietnam’s most important European Union trade partner by trade value, making up 28 percent of the trade between Vietnam and the EU. Bilateral trade reached US$1.28 billion in the first two months of 2015, up 15.9 percent from the same period in 2014.
Germany and Vietnam’s recent push to establish a Joint Chamber of Commerce (JCC) has affirmed both nations’ desire to further trade relations and foreign investment opportunities. According to Vietnam Chamber of Commerce Industry President Dr. Vu Tien Loc, both Germany and Vietnam are hopeful that a JCC will create a formal platform to cultivate diplomatic communication, stimulate trade missions, and create an environment for increased long term investment of German industries in Vietnam.
The existing profitability of German investment in Vietnam, coupled with the recent push for a Germany-Vietnam JCC, is good news for German companies looking to enter the Vietnamese market. Vietnam relies heavily on a wide range of German products, and the market has been particularly favorable to German machine manufacturing and the German pharmaceutical industry.
Machine Part Manufacturing
The German machinery industry has been met with immense success in Vietnam. Approximately 46 percent of all Vietnamese machinery imports are German, most notably in the food processing, textile manufacturing, and medical device sector.
Vietnam’s textile industry in itself has been particularly profitable for the nation, accounting for 15 percent of the total GDP and 18 percent of all exports in 2013. The US$20 billion textile industry has depended upon Germany more than any other European nation to provide the machinery to Vietnam. The German Engineering Federation Textile Machinery Association, which accounts for 90 percent of Germany’s textile machinery manufacturing sector, produced €3.4 billion of textile manufacturing machinery in 2014. Vietnam is a prime market for these machines.
German machines have also established a profitable niche in Vietnam’s food processing industry. As with Vietnam’s textile manufacturing, its food processing packaging industry has experienced rapid growth in the recent years, currently accounting for approximately 40 percent of all exports. Germany food processing machine companies profited from approximately US$391 million worth of sales from January of 2014 to November of the same year.
An notable sector for future German investment is Vietnam’s medical device industry. Vietnam’s rising middle class and increased purchasing power has pressured Vietnam to improve health services in the recent years, and the majority of Vietnamese doctors report preference for foreign medical devices. The country’s hospitals import approximately 90 percent of required medical devices and 100 percent of high-tech devices, including X-Ray, CT Scan, and ultrasound machinery. German investors have been quick to capitalize on the opportunity; according to the U.S. International Trade Administration, Germany currently controls 30 percent of the market for medical device imports to Vietnam.
German companies have found success investing in Vietnam’s pharmaceutical and drug industry. German pharmaceutical companies are the third largest providers to Vietnam’s pharmaceutical and drug industry. One good example of success by a German company in this market is pharmaceutical company B. Braun Melsungen, which has an over twenty year history in Vietnam. In 2014 it reinvested US$270 million into the sector in Vietnam, including a US$66.3 million to establish a new pharmaceutical production factory. Early entrance by German foreign investment into Vietnam’s pharmaceutical manufacturing is likely rewarding, as the industry is expected to grow to US $8 billion within the next five years. Vietin Bank found Vietnam’s pharmaceutical market to have an annual growth rate of 19 percent for 2012, faster in Vietnam than in the rest of the world, which only experienced a seven to 10 percent annual growth rate at that time.
Vietnam has long enabled investment opportunities for German companies, particularly in the machine manufacturing and pharmaceutical production industries. The push for a JCC indicates a continued economic relationship between Germany and Vietnam. German companies should act now to take advantage of the abundant opportunities in Vietnam.
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