Traditionally, a vast majority of German manufacturing investments has flown into the Greater Ho Chi Minh City Region. Still, almost 50% of these factories are located in the four localities of Ho Chi Minh City, Binh Duong, Dong Nai and Long An. Things are however changing as other investment destinations emerge. New investors nowadays enjoy a lot of choices in Vietnam's 63 provinces and cities as well as its 400 industrial zones. Within this blog article, we will examine the country's old and new manufacturing regions in detail.
Please note that this article is part of a sponsored roadshow happening in December 2023. More details below.
STATE AND DEVELOPMENT OF GERMAN INVESTMENTS IN VIETNAM
Of the 500 German enterprises invested in Vietnam about 100 are active in production. This is a pretty decent share representing Germany's manufacturing prowess. It also shows that Vietnam presents an excellent eco system to absorb German plants.
Most production activities so far are located either in the Greater Ho Chi Minh City (Greater HCMC) region or between Hanoi and Haiphong in Northern Vietnam. Between 1992 and 2017, almost 2/3 of plants have been established in the Greater HCMC region. Other regions were largely neglected as can be seen in the graph below.
German manufacturing investments by region between 1992 and 2017
However, recently the situation has drastically changed. In the six years between 2018 and 2023, new manufacturing projects have been almost equally split between Greater HCMC, Central Vietnam and Hanoi-Haiphong.
German manufacturing investments by region between 2018 and 2023
A clear trend away from Greater HCMC is emerging. Central Vietnam is the largest benefactor with Hanoi-Haiphong following. This is due to crowding-out effects in Greater HCMC and a growing attractiveness of the other to regions. Below, we will line their strengths and weaknesses to explain how this trend of broader regional investment diversification emerged.
👉 For an overview of German investments in Vietnam, please the blog article 🔗linked here.
GREATER HCMC REGION
For the purpose of this blog article, the Greater HCMC shall be defined as the city of Ho Chi Minh as well as the provinces of Dong Nai, Binh Duong, Tay Ninh and Long An. This area may be called the "epi center" of the Vietnamese economic miracle that has played out since the country's opening in 1986. The initial international investments to Vietnam came to this region. They led to an agglomeration effect. First successful foreign ventures lay the groundworks for an increased investor confidence building up to a point where up- and downstream investments stimulated each other. Nowadays, a huge ecosystem of corporations, universities and all kinds of other stakeholders is present around HCMC. It is the most prosperous and vibrant metropolis of the country contributing over 40% of the national GDP.
For manufacturing investments, Greater HCMC offers the following benefits:
Access to suppliers: As pointed out above, this region is home to many companies up and down the value chains of diverse industrial sectors. For many companies, access to suppliers is thus playing a major role when choosing Greater HCMC as a manufacturing location.
Access to clients: With the same factors at play for suppliers, customers can often also predominantly be found around HCMC.
Access to HR: Because of the large population of Greater HCMC with roughly 16 million people as well its well-developed industry there is a lot of well-educated labor on the market. This is very attractive for investors with specific personnel needs.
However, Greater HCMC may also pose some challenges for investors:
High land costs: Costs for "buying" (in fact: leasing) land can be as high as 200 USD/sqm in the vicinity of HCMC. Much more expensive than in other regions.
Availability of industrial zones: With a few notable exceptions many industrial zones close to the HCMC are already "sold out". New, available, options necessitate long driving times from the city. This can be an issue for managers commuting to these remote places as well as for logistics companies coming in from/for ports, suppliers and clients.
Infrastructure issues: On the one hand, Greater HCMC offers the most well developed ports and highways in Vietnam. On the other hand though, infrastructure cannot seem to keep up with the rapid industrial developments in recent years. This leads to an overload of the infrastructure e.g. in the form of traffic jams. Distances in the region are therefore often measured in time, not in kilometers.
Blue-collar labor availability: Because the region is so far developed there is also serious competition for blue-collar labor. This may be an issue for investors with large numbers of employees.
High labor costs: Because labor is scarce and living costs in Greater HCMC high, labor tends to be more costly than in other regions. Blue-collar may cost up to 500 USD/month.
As noted above, while a lot may be speaking for an investment in Greater HCMC a clear crowding-out tendency can be seen as for some investors downsides supersede the many benefits of this region.
Further info on selected provinces in Greater HCMC can be found here:
👉 Dong Nai, click this 🔗 link
👉 Tay Ninh, click this 🔗 link
The city of Da Nang as well as the provinces of Quang Nam, Quan Ngai and Binh Dinh shall form the investment region of "Central Vietnam" for this article. Traditionally, this is a poor region due to its lack of fertile land. However, this area is recently rapidly developing into a hub for services such as programming, engineering and especially tourism (lots of sun, mountains and beaches). But manufacturing is also on the agenda:
Da Nang scores points with its high-tech park and its livability
Quang Nam has already established an industrial base around its "Chu Lai Economic Zone"
Quang Ngai sports chemical industries around its Dung Quat Refinery
Binh Dinh is the new kid on the block with an eco-system of universities, industrial zones and a committed provincial government ready to go
Central Vietnam is becoming an investors' darling due the following reasons:
Low land costs: This region maintains some of Vietnam's cheapest land costs as low as 50 USD/sqm.
Low labor costs: Due to the early stage of industrial development of Central Vietnam, labor costs are rather low. For example, in Quang Nam minimum wages start at 150 EUR/month.
First mover advantages: The region may not be as advanced as Greater HCMC or Hanoi-Haiphong. However, foreign investors in Central Vietnam may enjoy a more special treatment than in the former regions as there simply are not that many of them. If an investor is looking for a rough diamond which can be polished into an excellent opportunity, this region may be just right.
Of course, Central Vietnam also presents some downsides:
Availability of HR: Because there are not that many international investors in Central Vietnam just yet it may be difficult to find specialized personnel. Also, if a company needs a large number of employees these may be hard to attract as Central Vietnam overall is much more sparsely populated than its northern and southern peers.
Lack of Ready-Built-Factories (RBFs): For companies looking to rent a factory hall instead of constructing their own facilities it may be hard to come by RBFs. Most industrial zones just do not have these on offer.
Seasonal storms: Each autumn, Central Vietnam is battered by strong storms. These may lead to damages at facilities and/or inundation by water. As these natural phenomenons pose a threat to personnel and operations, adaptive measures should be discussed with industrial zone developers and construction companies.
Further info on selected provinces/cities in Central Vietnam can be found here:
👉 Da Nang, click this 🔗 link
👉 Binh Dinh, click this 🔗 link
For the sake of this article, the economic corridor of "Hanoi-Haiphong" shall consist of the cities of Hanoi and Haiphong as well as the provinces of Hung Yen, Bac Ninh, Thai Nguyen, Hai Duong and Quang Ninh. Historically, this region had a focus on heavy industries and textile. Nowadays, it attracts electronics, automotive/motorbike supplies as well as metal processing. While it is the second-most developed region in the country, the Hanoi-Haiphong economic corridor spreads out much more than the denser Greater HCMC region. Hence, there is a lot more room between industrial centers leading to longer distances but also less infrastructure congestion.
This region offers the following benefits:
Great infrastructure: A lot has been invested into northern Vietnam's infrastructure. This starts with top notch airports in Hanoi, Haiphong and Quang Ninh, continuing with a completely new deep-sea port in Haiphong and ending with a new Expressway connecting Hanoi with Haiphong and the Chinese border. The region seems to be set for a long-lasting economic growth spurt.
Proximity to China: For companies aiming to deliver clients or intra-group plants in China, the short distance to China may be a major benefit of Hanoi-Haiphong.
Good value for money: In many aspects, Hanoi-Haiphong stands as a go-between Greater HCMC and Central Vietnam. Labor costs on the shop floor may fluctuate around 300 to 400 USD/month. Land may be purchased for roughly 100 to 150 EUR/sqm depending on the exact location.
But there are also some challenges:
Air pollution: While not that relevant for coastal regions, the area around Hanoi lies in a bowl-shaped valley surrounded by mountains. In the winter and spring of each year, the north-east monsoon traps air in this area. This leads to the accumulation of air pollution. The air quality index regularly exceeds a rate of 200. This is on par with worst offenders such as northern India or - in the past - Beijing. Such high degrees of air pollution may be an issue for investors looking to send expatriates to this region.
Long distances: Another issue for expatriates may be distances. The provinces of Quang Ninh and the city of Haiphong have emerged as investor favorites. The issue: They are quite far away from Hanoi which holds the best infrastructure (e.g. hospitals, shopping, dining, schools) for expats in northern Vietnam. Commuting the 120 km distance between Hanoi and Haiphong/Quang Ninh does not seem possible on a daily basis. This may be a major setback for larger investors with a larger number of expatriates coming in.
Overall, Hanoi-Haiphong offers a good value for investors. However, as pointed out above, expatriates may favor Da Nang in Central Vietnam or Ho Chi Minh City.
Further info on Haiphong can be found 👉 here.
In a nutshell: Benefits of Vietnam's principal manufacturing investment regions
*Provincial definitions per region diverge between this graphic and this blog article
And last but not least: An honorable mention outside of the above investment regions goes to Ba Ria - Vung Tau. This province lies within a range of ca. 90 km to HCMC and lately attracts a lot of interest. It offers great industrial zones, new deep sea ports and an excellent connection to HCMC. More info under 👉 this link.
VIETNAM ROADSHOW IN GERMANY If you would like to know more about the Vietnamese industrial investment environment we would like to invite you to join our upcoming "Germany Roadshow" in December 2023. It is powered by the following partners that will inform you on legal and HR topics as well as on industrial zone properties.
Luther Law Firm
Deep C Industrial Zones
Phu My 3 Specialized Industrial Park (PM3SIP)
Vietnam-Singapore Industrial Park (VSIP)
The roadshow dates are as following:
Dec 4 (Mon), Munich, register here: https://www.ihk-muenchen.de/veranstaltung/detail.xhtml?id=31446
Dec 6 (Wed), Stuttgart, register here: https://vietnam.ahk.de/veranstaltungen/event-details/stuttgart-workshop-vietnam-von-nord-nach-sued
Dec 8 (Fri), Hannover, register here: https://vietnam.ahk.de/veranstaltungen/event-details/hannover-workshop-vietnam-von-nord-nach-sued
Looking forward to seeing you there!