SMEs run into hurdles in Vietnam
Thai SMEs are finding it difficult to invest in Vietnam due to the unfavourable regulations and high land prices, as a result most Thai investors in Vietnam are large companies.
Thailand’s direct investment in Vietnam for last year reached US$6.7 billion (Bt207 billion), making it the 10th-biggest foreign investor in Vietnam. However, most of the investment was made by larger companies, including a conglomerate, Siam Cement Group. Bilateral trade grew by 25 per cent to $9.08 billion.
Two-way trade is expected to reach $10 billion this year due to high demand for machinery, steel, rubber and chemicals.
Thai Ambassador to Vietnam Anuson Chinvanno said last week that Vietnam is a high-potential market due to its political stability. However, Thai investors who want to cash in on the growing economy there should carefully study the market before making a move.
Thai investors should weigh the return on their investments because Vietnam has hidden costs. For example, manufacturers must pay a bonus of at least one month to local employees even if the business shows a loss.
The hidden costs might work against Thai SMEs that want to move to Vietnam to supply products to large corporations. Thai businesses are currently investing in more than 200 projects with a combined value of more than $6.7 billion, but they are in single industries more than industries that need supply chains.
The cost of labour is another factor for investment. The government there adjusts wages by 20-25 per cent a year and wages vary by zone.
However, Vietnam is still attracting foreign investors who want lower material costs and non-tariff barriers for traders. The good point is foreign firms can invest in the country without seeking local partners.
Hanoi is trying to amend regulations to attract foreign investors because regulations are a barrier for developing the economy, he added.
Trade to soar under AEC
Songpol Chevapanyaroj, an executive vice president at Kasikornbank, said Thai investors who want exposure in Vietnam should set up sales offices rather than plants because land is expensive and wages are not that much lower.
Trading, consumer products and agricultural products show potential for medium-sized Thai companies to cash in on the high purchasing power.
The bank expects trade volume between the two countries will soar when the Asean Economic Community (AEC) goes into full swing in 2015.
The AEC will lead to more infrastructure construction and this might present a sizeable opportunity for contractors and building material suppliers.
Thai banks should make a move before the AEC and cooperation with Vietnam banks is an option for KBank to provide services to Thai operators.
KBank has established partnerships with two top banks – Vietnam Bank for Agricultural and Rural Development and Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank).
The partnerships would support Thai and Vietnam customers, especially in business matching. The activity would help Thai firms approach SMEs to establish trading businesses in Vietnam.
Nguyen Duc Thanh, director of the Financial Institutions Department of VietinBank, said inflation in Vietnam might be a stumbling block to lure foreign investment.
The bank is, however, optimistic that the monetary policy moves of the central bank would ease inflation and inflation this year will cool down to single digits from 18 per cent last year.
The Vietnamese central bank is reforming the banking system to prepare for the upcoming AEC. This would support trade and investment.
VietinBank and KBank would work together to support the trading transactions of the two countries. If possible, both banks should also jointly conduct a feasibility study on investing in Burma.
“VietinBank plans to set up a representative office in Burma in the second half of this year. Burma is a new market for Asean countries,” he said.
