Korea, Vietnam Boosting Cooperation in Supply Chain and Hi-tech Investment

Korea is the largest FDI partner in Vietnam. So far, the country has invested US$80 billion in Vietnam. In the first seven months of 2022, it was the second biggest investor with nearly US$3.3 billion out of 72 countries and territories investing in Vietnam. The two countries expect to improve FDI project quality by joining IPEF (Indo-Pacific Economic Framework), and boosting cooperation in supply chain and high-tech investment. Our reporter has an interview with Mr. Kim Ki Mun, Chairman of the Korea Federation of SMEs (KBIZ), about investment ties between the two countries.

After 30 years of diplomatic relations, the Vietnam-Korea relationship is reported to be at its best stage ever, especially in trade and investment. Do you think so?

When Vietnam and Korea established diplomatic relations in 1992, the two-way trade value was only US$500 million. After 30 years, in 2021, this figure reached US$80.7 billion, an increase of 163 times. Currently, Korea is Vietnam's third largest trading partner and biggest investor, and Vietnam is also Korea’s third largest trading partner and key economic partner.

The signing of the Korea-Vietnam Free Trade Agreement has resulted in a 20% increase in Korean small and medium-sized enterprises doing business with Vietnam, and more than 90% of 8,000 companies entering the Vietnamese market are medium and small in size.

In particular, as the manufacturing sector accounts for 76.4% of total Korean investors in Vietnam, there will be more opportunities for good cooperation between the two countries to establish global supply chains in the future.

What has made Korean businesses choose Vietnam as an investment destination?

Vietnam is the fifteenth most populous country and Vietnamese education is typified by enthusiasm and diligence. Vietnam's GDP growth was 2.9% in 2020 and 2.6% in 2021, despite the crisis caused by COVID-19, and continued to make significant progress.

People-to-people exchanges are also active, with about 170,000 Koreans living in Vietnam and 4 million Koreans visiting Vietnam every year, making Vietnam a friendlier country relative to other countries.

Domestic market development, production infrastructure development, excellent human resources, business-friendly government policies and cultural familiarity are advantages over other countries.

Do Korean SMEs find the investment environment in Vietnam not very favorable, to a certain extent, especially in the context of the COVID-19 pandemic?

According to a recent report by a Korean research institute, companies entering Vietnam see weak management, shortages of human resources and fierce competition due to the COVID-19 pandemic as major difficulties.

In fact, last year, I heard that the economy of industrial zones almost came to a halt due to prolonged intense quarantine measures and leaving factory workers, which were detrimental to Vietnamese companies.

It is true that the business environment in Vietnam is also becoming more difficult because of the confusing implementation of governmental policies and high production costs.

However, if the government can provide a variety of incentives, provide a consistent operating system and utilize established exchange infrastructure for SMEs, it will be possible to create a more stable investment environment.

Although Korean investment projects have increased in Vietnam, they are largely involved in labor-intensive industries. What do you think are the reasons for this, and what should Vietnam do to encourage Korean investment in high-tech fields?

One of the concerns for SMEs when considering entering the market seems to be the low availability of components in the market. Most of the components are imported from third countries and they are more expensive unless business partners join together like large corporations.

In order to invest in the high-tech industry, efforts must first be made to create a related industrial ecosystem along with government incentives. In particular, the competitiveness of source industries, such as molding, forging, and metal heat treatment, has become a strength of the manufacturing industry; it is not connected with high-tech industry development.

What are trade and investment cooperation prospects between Vietnam and Korea?

Korea is currently the third largest trading partner and the largest investor in Vietnam. Currently, about 8,000 Korean companies have invested in Vietnam, making Vietnam increasingly important to Korea.

In addition, the Vietnamese government announced a plan to reach even higher by 2045, on the 100th anniversary of the country, to become one of the advanced high-income countries, with a GDP per capita of US$10,000, based on the above advantages.

Before this prospect, the two countries are strengthening mutual cooperation, powered by summit meetings, to increase trade value to US$100 billion in 2023 and US$150 billion in 2030. It is expected that many more companies will establish cooperation in increasingly advanced industries along with continued trade growth boosted by governmental cooperation, market entry hopes of businesses and the presence of more industries.

In addition, as Korea and Vietnam are participating in IPEF, supply chain cooperation could be accelerated, and high-tech investment could be increased as a result and this could be a starting point.

Source: Vietnam Business Forum