Q&A: Vietnam’s Key Investment Industries and Destinations 2022 – Hot Spot Dong Nai for Manufacturing Industries
As global businesses seek to diversify, increase resiliency and connectivity of their supply chains and decrease reliance on a single country, Vietnam has become a top destination for investment in manufacturing due to its strategic location and advantages in shipping, competitive labor, and production costs.
Recently, Do Thanh Huyen, Manager of Business Intelligence Vietnam at Dezan Shira & Associates provided an overview of the key opportunities Dong Nai Province has to offer for investors, particularly for the manufacturing industries.
Can you share some highlights on Vietnam’s Southern Key Economic Region?
The Southern Key Economic Region (SKER), located in Southern Vietnam, comprises eight provinces: the commercial and industrial center – Ho Chi Minh City, Binh Duong, Dong Nai, Ba Ria – Vung Tau, Long An, Tay Ninh, Binh Phuoc and finally Tien Giang province.
The SKER has a labor force of 10.5 million people. In addition, in 2021, the region contributes US$117 billion to the nation’s GDP while accounting for 35 percent of the total export value of Vietnam. Also last year, the region managed to attract US$12.3 billion worth of FDI inflows.
Most impressive manufacturing FDIs injecting capital into the region include Danish Lego Group in VSIP Binh Duong at US$1 billion, Pandora in VSIP 3 Binh Duong worth US$100 million, AEON Mall in Dong Nai at US$268 million, the US$136 million Coca-Cola in Long An’s Phu An Thanh IP and South Korea’s electronic company Hansol in Ho Nai IP (Dong Nai province) at US$100 million.
What are the three ways that investors can get involved in the manufacturing sector?
Investors who want to inject capital into Vietnam may first want to source components or products from Vietnam and then export them to other countries.
If investors are keen on sourcing components or products or supply products for Vietnamese manufacturers, business matching is of utmost importance to identify a reliable partner. Based on our experience, there are five steps in our standard process of business matching:
- Criteria clarification;
- Long list development;
- Outreach; and
Secondly, investors may also want to set up a business that supplies machinery, components, and materials to manufacturers in Vietnam, and thirdly set up manufacturing facilities in Vietnam. If this is the case then choosing the right location is essential.
Based on our experience in helping our partners pick a location, the process typically consists of six steps and these may include:
- Initial screening;
- Preliminary due diligence;
- Detailed due diligence;
- Comparison Model Development;
- Final site selections; and
- Organizing visits.
Besides, when deciding on a location, there are nine other factors that may also be taken into account, this entails:
- Availability of materials;
- Government policy;
- Proximity to market;
- Labor availability;
- Local laws; and
- Political stability
Apart from location, there are several taxes that investors should also take into consideration. In general, the major ones for investors are (1) corporate income tax, (2) value-added tax, and (3) custom duties. More details on how to start a business in Vietnam and tax incentives can be viewed here.
What are some company set-up options for foreign-owned export companies in Vietnam?
Many investors who have an eye on Vietnam as a new manufacturing hub will likely start with an export processing enterprise (EPE), meaning that they will export 100 percent of the products overseas to enjoy zero percent VAT. Thus, the term EPE has become very popular among foreign companies who want to expand their business in Vietnam.
However, applying for an EPE is not easy in Vietnam as more conditions have been recently added. Indeed, each locality in Vietnam will work either flexibly or strictly to grant licenses to investors.
In reality, there is a likelihood that an investor may find a great business to invest in and a suitable location to set up that business. But as it turns out that they cannot apply for an EPE license because chances are the factory for lease is not qualified. Vietnamese law has certain requirements in terms of facilities for EPEs. Particularly they are required to be separated by fence systems, have ports, entrance and exit doors, and fulfill requirements by customs authorities such as camera installation. In case the investor is not able to apply for an EPE but will export 100 percent of their products like an EPE, they may consider setting up a manufacturing enterprise with export purposes and request the local tax department for a VAT refund.
If this is the case, the investor also needs to be fully aware of the excess workload, time, and tax risks in order to successfully obtain a tax refund and also optimize the refund amount.
What are some favorable investment conditions and the overall business environment for industrial businesses in Dong Nai province?
Located in Vietnam’s southern key economic region in Vietnam, Dong Nai has emerged as a hub for foreign direct investments in manufacturing industries. The province offers efficient logistics networks and connectivity to Ho Chi Minh City in addition to a wide array of targeted investment incentives.
Investment opportunities are abundant across a wide range of industries from supporting segments like mechanical engineering, plastics, and packaging to finished product manufacturing such as consumer electronics, furniture, and F&B.
Despite the unfavorable repercussions of COVID-19, Dong Nai managed to have the highest GRDP growth in the SKER for the first half of 2022.
In 2021, Dong Nai’s GRDP was estimated at around US$16.6 billion, with 60 percent of the number attributed to the industry and construction sector.
Up to May 2022, the province has 1,777 active projects across different sectors with a cumulative registered capital of US$34 billion. Besides, Dong Nai is also the top fourth FDI destination in Vietnam.
By 2021, South Korea was the leading investor in the province, followed by Taiwan and Japan. Meanwhile, manufacturing, real estate, and logistics remain the top FDI sectors that allure the most attention for the province.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Hanoi, Ho Chi Minh City, and Da Nang. Readers may write to firstname.lastname@example.org for more support on doing business in Vietnam.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, India, Singapore, The Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.