Vietnam Market Watch: Japanese Investment in IT, TPP and Textiles, and 2016 GDP Projections

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VN market watch

Japanese Firms Keen to Expand Investment Into Vietnam IT Sector

Given the rising profile of the IT industry in Vietnam, Japanese information technology (IT) firms are eyeing an increase in collaboration with their Vietnamese counterparts to develop applications for social infrastructure and offshore business, exchange information and explore cooperation in the Internet of Things (IoT). So far, their partnerships in the IT sector have predominantly focused on software and services outsourcing, BPO (business process outsourcing), mobile application development, and cloud computing.

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In the past decade, Vietnam has emerged as a preferred partner for Japanese firms due to their competitive prices and good quality. The country has also begun to standardize its IT workforce along international norms to facilitate the needs of local and foreign enterprises. Vietnam is also the second largest software outsourcing destination after China and Vietnamese firms working with Japanese partners have consistently registered good growth, averaging at 77 percent, with some partnerships posting 300-400 percent growth.

Trans-Pacific Partnership A Huge Boost For Vietnam Apparel Industry

The Trans-Pacific Partnership (TPP) will eliminate 18,000 tariffs once it gets ratified by the dozen participating countries. Vietnam will be a huge beneficiary as the relaxation of import duties will provide it with preferential access to US and Japanese markets, among others. In particular, the TPP will boost the country’s textile industry, with a potential increase in the volume of exports of apparel and footwear by 50 percent in 10 years.

Anticipating this outcome, foreign and domestic companies have already been making upstream investments, and moving their factories into Vietnam. These include Vietnam’s Vinatex, Japan’s Tom’s Limited, South Korea’s Dong-IL Corp, Taiwan’s Forever Glorious, and Chinese companies such as Esqual Group, Jiangsu Yulun Textile Group, Texhong Textile Group Ltd., Shenzhou International Group Holdings Ltd., and Pacific Textiles Holdings Ltd. It also means that the Vietnamese apparel industry will not merely be ‘cut and sew’, but can secure higher added value in the supply chain. Additionally, credit rating agency Moody’s Analytics has cited Vietnam’s low labor costs, improving infrastructure and scale, and wide-ranging reforms – the relaxation of ownership restrictions for public companies, real estate and banks – as vital factors in its favor over China, which currently controls around 35 percent of the US apparel market.

Vietnam’s GDP Projected To Grow Above 6.5 Percent In 2016

According to a recent National Assembly report, Vietnam expects its economy to grow at 6.7 percent in 2016. The government has also targeted a growth rate of 6.5 to 7 percent in the next five years. Economic reforms, reducing inflation, and FDI flows have cumulatively helped Vietnam’s economy overcome its sluggish growth post the global recession. Over the last two years, Vietnam has integrated further into the global economy, bringing in more opportunities for economic development.

As a Trans-Pacific Partnership (TPP) member, Vietnam will benefit from the relaxation of import duties, expand its exports, enjoy preferential access to global markets (in TPP member countries such as the US and Japan), and attract greater foreign investment into its economy allowing for a sustainable and higher domestic growth rate. Nonetheless, to make good on its economic objectives, Vietnam has to strengthen its technological capability, institutional capacity and efficiency, and develop local private industrial and service sectors.


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