91% of German Companies Plan to Invest in or Expand Production in Vietnam

German businesses express more confidence in their business development and have more positive expectations of economic growth than they did in the autumn of 2022. According to a survey conducted by AHK Vietnam, a significant majority, 91%, of German companies intend to continue to invest in or expand their production in Vietnam, while approximately 40% of them plan to increase their workforce in the next 12 months.

Economic expectation

Thanks to the implementation of immediate government action plans and the presence of stable macroeconomic conditions, Vietnam has maintained positive economic growth. As a result, German companies operating in Vietnam are more optimistic than they were in the fall of 2022, although their short-term expectation remains cautious, due to geopolitical challenges such as inflation, decoupling and the increasing political influence on supply chains.

88% of the survey participants are confident with their business situation in Vietnam (satisfying and good) and nearly half of the German participants in the survey expect the economic growth to remain consistent, while 21% of them believe it to be better.

Risks and challenges

Despite German enterprises showing resilience and having high expectations in the Vietnamese market, they still identified several risks and challenges to their business development caused by global economic fluctuations. These risks include low global demand (51%), concerns regarding the economic policy framework (46%), a shortage of skilled workforce (34%), and potential disruptions in the supply chain (28%). Added to this are long-term geopolitical challenges, which companies see particularly in inflation/monetary policy (41%), fragmentation of the global economy (41%) and increase in political influence on supply chain (40%).

Despite the challenges, Vietnam is expected to experience a resurgence in its economic growth in the medium term. This growth will be fueled by various factors including the Free Trade Agreements (FTAs), notably the EVFTA (EU-Vietnam Free Trade Agreement), the implementation of the China plus One strategy, the global trend of shifting and diversifying manufacturing supply chains toward competitive hubs in Southeast Asia, and the inflow of green investments. 57% of German companies in Vietnam prioritize diversifying their supply chains, with Vietnam being their top choice, followed by Malaysia and Thailand.

AHK Vietnam suggests the following focus areas to further strengthen the attractiveness of Vietnam for an accelerated investment environment:  Collaborative efforts to address the potential shortage of skilled workforce by equipping them with German-standard skills, capitalizing on Industry 4.0 and digital transformation; To prioritize strengthening local suppliers to maintain its role in the global and German supply chain, while complying with sustainable development regulations such as ESG and German Supply Chain Due Diligent Act; Concretization and implementation of Power Development Plan VIII are recommended to incentivize renewable power production; Simplifying, digitalizing and streamlining administrative procedures to leverage the EU-Vietnam Free Trade Agreement (EVFTA) and enhance Vietnam's business & investment environment.

By Thu Ha, Vietnam Business Forum