A previousarticle addressed the fact that Vietnam is now a prime destination for foreign investment, most of which has gone to developing the country’s manufacturing sector. Continuing that theme, it is worth considering Vietnam’s preeminent suitability as a site for establishing exportoriented processing facilities.

Overall, there are a number of factors that have led to Vietnam emerging as a preferred production hub and an ideal investment destination. Most obviously, there is its large, highlymotivated young workforce, reasonable wage levels, competitive land costs and diversified supply chains. On top of that, the country boasts an extensive free trade network, favourable business policies, generous tax incentives, an excellent geographical location and effective, strategically wellinvested infrastructure.

Abundance of young labour

Vietnam has a population of close to 100 million, ranking third among the 10 ASEAN nations, after Indonesia (280 million) and the Philippines (110 million). Its population is also relatively young, with a median age of 32. Figures released by the ASEAN Secretariat show that 60% of Vietnam’s population is aged between 20 and 64, with just 8.3% senior citizens (aged over 65).

Vietnam is set to increase its minimum wage from July 2024. The adjusted minimum monthly wage level of US$142US$204 falls below that of Thailand, the Philippines, and Indonesia. The huge demand for manpower following the influx of foreign companies into the country will inevitably increase wages. In Haiphong, for instance, the monthly salary is about US$300US$350 for general workers and about US$500 for skilled labour. Vietnam’s salary level is quite attractive to employers compared with higherincome countries, such as Malaysia and Thailand, while many companies believe that strikes and factory riots are rare in Vietnam because its population is hardworking, skilled and largely content.

Vietnam has a very low unemployment rate and, even during the Covid pandemic, the country was still able to keep overall unemployment below 3%. For the sake of looking after their family or in line with their personal values, many Vietnamese people still prefer to live the life of a farmer or run their family business. As the income they earn from this kind of work cannot compare with that of a factory worker, there is ample room for the release of labour power in Vietnam.

Preferential tax policies

Vietnam has adopted a variety of preferential measures to attract and promote industrial investment. Tax holidays and corporate income tax (CIT) incentives are particularly favourable to foreign companies investing in exportoriented industries in Vietnam, while establishing industrial parks has become an important means of attracting foreign direct investment. Any company that invests in such parks is entitled to the basic policies mentioned above and, possibly, additional incentives.

Tax holidays and CIT incentives (basic tax rate of 20%) incorporate a CIT rate of 10% for 15 years, plus a tax holiday for four years (starting from the first profitmaking year), followed by a reduced CIT rate of 50% for the next nine years.

Various preferential policies have been in force for many years, and reflect the country’s policy stability and continuity, which is conducive to foreign investment.

For instance, an import duty exemption is applicable to materials and components for producing export goods or to equipment and machinery imported as fixed assets, while companies that invest in Vietnam’s industrial parks are entitled to land rental and tax relief.

Excellent geographical location

Vietnam has a coastline stretching some 3,000 km with ample deepwater ports able to satisfy the massive logistics demand. A number of other major ports focus on shipping cargo inland via river transport, greatly easing the pressure on the country’s roads. The northern border with China’s Guangxi and Yunnan provinces makes it possible to link up with the mainland supply chain, which assists with the logistics arrangements for any company aiming to extend its supply chain from the mainland to Southeast Asia.

Vietnam has been stepping up its efforts to invest in its infrastructure in recent years. Today, infrastructure expenditure accounts for about 6% of the country's GDP, greatly surpassing the 2.3% average for countries in the region.

As mentioned in the previous article, Vietnam has signed free trade agreements with most of its major trading partners, including the EU, suggesting it is more enterprising than some other ASEAN countries. Among the nine other ASEAN nations, only Singapore, for instance, has also signed a free trade agreement with the EU.

Industrial upgrade

As with many other countries, Vietnam is facing the problem of an aging population due to falling birth rates and longer life expectancy. According to a World Bank report, Vietnam is one of the fastestaging countries in the world, with the proportion of its working population (about 70%) having been in decline since 2014. With more than 14% of its total population classed as elderly, Vietnam will become an aged society by 2035, with its elderly demographic exceeding the 20% mark by 2050.

National income remains relatively low, while its aging population means the country cannot rely on a demographic dividend during the course of its development. As threequarters of its export revenue is reliant on foreign investment and as foreign investors are eligible for a variety of tax incentives, most of the exportrelated profits actually go overseas. The benefits to the Vietnamese mainly come in the form of salaries. In view of this, the Vietnamese government is making a determined effort to develop semiconductor and other highvalueadded / researchoriented industries, while actively improving overall labour productivity, in order to prevent the country from “aging before attaining prosperity”.

Talent cultivation

In addition to the burden of its aging population, Vietnam also has something of a talent shortage. According to official media reports, the country has about 5,500 chip design engineers; while it is estimated that up to 10,000 are actually required. Unlike in a number of more general industries, hightech personnel are irreplaceable when it comes to highvalueadded manufacturing, research and development. If Vietnam is not able to accelerate its talent cultivation programme, the skill gap problem will increase, making the country a lot less attractive to foreign investors and the development of highvalueadded industries less feasible.

Looking to address this, in 2023 Vietnam released its National Strategy for Attracting and Utilising Talents by 2030, With A Vision to 2050. This blueprint for talent admission and cultivation focuses on developing expertise in the science and technology, education, public health, information and communications, and digitalisation sectors, as well as in several other fields. Specific plans for attracting and retaining leadership and management personnel are also to be formulated before the end of 2025. Addressing the shortage of semiconductor personnel, the Prime Minister of Vietnam Pham Minh Chinh instructed the government to step up the training of semiconductor engineers, with the aim of boosting the number in the country to 50,000 by 2030.

Takeaways for Hong Kong companies

It is worth noting that this blueprint lists overseas educational institutions as among the key stakeholders, suggesting that the Vietnamese government will formulate cooperation plans with wellknown international educational and training institutions to nurture talent in line with both local needs and international standards. Hong Kong is wellpositioned to participate in the programme given that its tertiary education is highly international and diversified and that it is the only city in Asia with five universities in the top 100 list of world university rankings.

Relevant industry players should also look to tap into Vietnam’s scientific research capability and strong demand for talent by running training courses in cooperation with local educational and training institutions. Apart from nurturing talent for Vietnam, this will promote Hong Kong’s educational brands and help the city develop into an international tertiary education hub, while venturing into the international market, leading to a triplewin situation in the long run.

In conclusion, Vietnam is not just a preferred destination for manufacturing industries and OEM manufacturers but also provides a great opportunity for educational and training institutions. Hong Kong companies should, however, bear in mind the differences in business culture between the two jurisdictions and should adapt to local customs and habits when it comes to business negotiations, such as offering to provide free samples when selling products.

As an example of the importance of this, one company in Vietnam reported its experience of having to choose between a Hong Kong and a South Korean supplier for a major lighting installation project. While the tenders made by the two companies were quite similar, the Korean company was appointed as it was the only one willing to provide free samples.

As many companies from around the world are now competing for market share in Vietnam, Hong Kong companies must be able to provide good value products and costeffective proposals, while establishing firm ties with local companies, if they are to find success within its borders.