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CAPTURING VIETNAM’S

FULL POTENTIAL

TRENDS, OPPORTUNITIES AND BEST PRACTICES TO SUCCEED IN VIETNAM

December 2016

Business Sweden in Vietnam

BUSINESS SWEDEN 15 MAY 2017 2

HIGH GROWTH DRIVES NEED FOR MODERN SOLUTIONS

AND SERVICES FOR AN URBANIZED VIETNAM

01

02

TRENDS

OPPORTUNITIES

Urbanization spurs huge

infrastructure investments

Double urban population between

2009 – 2020, to 52 mn ppl

A new and modern Vietnamese consumer class is

emerging. More spending on luxury goods and

high-end products: Retail market is forecasted to

reach around USD 180 bn by 2020

More care for health and health service quality: Private health spending USD 9 bn in 2018

A new and modern Vietnamese

consumer class is emerging

Double middle class from 2012 to

2020, to 33 mn ppl

Heavy investment in transport infrastructure

and solutions, including USD 110 billion during

2015-2035 in BRT systems, metros and airport

projects in Hanoi, Da Nang and Ho Chi Minh City

Energy demand growing at c.12% p.a. in coming

years: energy investment will increase from USD

2.7 billion p.a in 2015 to USD 5 billion in 2021.

Demand of modern energy solutions that provide

good quality power supply with low down time

EXECUTIVE SUMMARY

OPPORTUNITIES FOR SWEDISH SOLUTIONS WITHIN TRANSPORT, ENERGY, RETAIL AND HEALTH

BUSINESS SWEDEN 15 MAY 2017 3

VIETNAM IS STRENGTHENING ITS ATTRACTIVENESS AS

A MANUFACTURING HUB AND TRADE PARTNER

03

04

TRENDS

OPPORTUNITIES

Vietnam growing as attractive

manufacturing hub

Industrialization-led growth

Nearly 470 industrial parks in 2020

New free trade agreements

strengthens Vietnam’s attractiveness

12 signed FTAs, and 3 under

negotiation (incl. EU – VN FTA)

Industrial equipment that can support Vietnam’s

national agenda of becoming a stronger

manufacturing hub

Highest potential: machinery & parts, textiles,

electronics, food and beverage, and furniture

Demand for technical know-how

Attractive conditions for sourcing, import & export

EXECUTIVE SUMMARY

OPPORTUNITIES FOR SWEDISH SOLUTIONS WITHIN INDUSTRIAL EQUIPMENT, & REDUCED COSTS OF TRADE

15 MAY, 2017 BUSINESS SWEDEN 4

VIETNAM IS A HIGH GROWTH AND HIGH POTENTIAL

MARKET – INVESTMENT IS REQUIRED TO TAP INTO IT

Ensure strong local

presence

Invest in talent Protect from

corruption

Think global, act

local

You cannot build

business in Vietnam

from Sweden or

Singapore

Vietnam is high growth

and high potential, but

also requires high level

of commitment & focus

Crucial to build in-depth

market understanding,

and to establish strong

local presence

Salary costs are low in

Vietnam, but

international quality

demands international

compensation

Important to recruit high

quality top

management, and to

recruit carefully

Not easy to find suitable

and skillful staff/

partners – key to invest

in training

Design incentives for

employees and

partners that protects

from corruption

Focus on right values in

recruitment and

partnerships, but also:

Good reimbursement

schemes required to

help staff face social

impacts of systemic

corruption

It’s key to localize

both value offering

and go-to-market

strategy

Relationship bonding,

long-term investment on

client and partner

relationship

Copying an existing

Western product &

marketing strategy for

use in Vietnam is

unlikely to work

1 2 3

OVERVIEW OF BEST PRACTICES FOR DOING BUSINESS IN VIETNAM

4

IT’S KEY TO LOCALIZE BOTH VALUE OFFERING AND GO-TO-MARKET STRATEGY

EXECUTIVE SUMMARY

BUSINESS SWEDEN 15 MAY, 2017 5

VIETNAM HAS EMERGED FROM A WAR TORN COUNTRY

TO AN EMERGING ECONOMY

SOURCE: UN, WO, BUSINESS SWEDEN

Just after end

of Vietnam War

War with

China

Liberalization of

economy, “Doi Moi”

Lifting of US

embargo

Became middle-

income country

VIETNAM GDP PER CAPITA

1976 – 2015, USD PER PERSON & YEAR

COUNTRY OVERVIEW

91

2 111

1976 1982 1988 1994 2000 2006 2012

VIETNAM HAS GRADUALLY TRANSFERED FROM AN AGRICULTURE-BASED COUNTRY TO AN INDUSTRIAL-BASED ONE

BEFORE NOW


THIS HAS BEEN VISIBLE THROUGH DRASTIC CHANGES

IN VARIOUS BASIC PARAMETERS

AIR PASSENGERS CARRIED

As a result of the growth of the middle class segment as well

as growing tourism arrivals in Vietnam, the travel sector in

the country has blossomed

6K 30M

CONSUMER SPENDING

The increase of per capita income and the emergence of the

Vietnamese middle class has seen consumer spending

increase by close to 100 times since 1990

1.6 BUSD 116 BUSD 2014 1990

MONTHLY CAR SALES

The Vietnamese middle class has used their new spending

power to increasingly buy cars instead of bicycles and motor

cycles in the last decade

2.9K 24K 2006 2016

2014 1990

VIETNAM HAS EMERGED AS A NEW CONSUMER MARKET IN SOUTH EAST ASIA

COUNTRY OVERVIEW

SOURCE: UN, WO, EUROMONITOR, BUSINESS SWEDEN

FUTURE GROWTH IN VIETNAM


LOOKING INTO THE FUTURE, VIETNAM WILL OFFER

FOREIGN COMPANIES PLENTY OF OPPORTUNITIES

SOURCE: UN, WO, EUROMONITOR, BUSINESS SWEDEN

Vietnam’s

extraordinary

growth is

expected to

continue

* Annual income of USD 15 000 – 75 000

> 240 000 cars p.a. to be

purchased by 2020 Middle class households*

of 16 million by

2020

~ 150 USD

billion investments in

infrastructure until

2030

Most

competitive major production economy

in South East Asia

COUNTRY OVERVIEW

OPPORTUNITIES RANGE FROM CONSUMER MARKET TO INFRASTRUCTURE

VIETNAM’S ECONOMY VS. THE REGION

BUBBLE SIZE REFLECTS 2015 NOMINAL GDP, USD BILLION


BETWEEN 2015 - 2019 VIETNAM’S GDP IS EXPECTED TO

INCREASE BY 70%

SOURCE: WORLD BANK, EUROMONITOR, BUSINESS SWEDEN

Indonesia 862

Malaysia 296

Philippines 292

Thailand 395

Vietnam, 2015 194

Vietnam*, 2019f 330

0%

1%

2%

3%

4%

5%

6%

7%

8%

-2% 0% 2% 4% 6% 8% 10% 12% 14% 16%

Re

al G

DP

Gro

wth

, 2

01

5

Nominal GDP, CAGR 2011-2015

*NOMINAL GDP, CAGR 2016-2019

VIETNAM WILL CONTINUE TO BE AMONG THE FASTEST GROWING ECONOMIES IN THE REGION

COUNTRY OVERVIEW


SWEDEN’S RELATIONSHIP WITH VIETNAM HAS ALSO

TRANSFORMED OVER THE YEARS…

SOURCE: UN, WO, BUSINESS SWEDEN

SWEDISH EXPORT & IMPORT TO / FROM VIETNAM

1992 – 2014, USD MILLION

7

166

8

943

1992 1996 2000 2004 2008 2012

Export Import

End of Bai Bang

SIDA Project

Increasingly trade focused

SWEDEN & VIETNAM

THE RELATIONSHIP HAS TRANSFORMED FROM BEING AID FOCUSED TO AN INCREASING TRADE FOCUS

Mainly aid focused

MANUFACTURING ENERGY &

ENVIRONMENT HEALTHCARE

TRANSPORT/TELECOM


… AND TODAY MORE THAN 40 SWEDISH COMPANIES

ARE PRESENT IN VIETNAM

SWEDEN & VIETNAM

SOURCE: BUSINESS SWEDEN

A LARGE NUMBER OF SWEDISH COMPANIES ARE ALSO DOING BUSINESS THROUGH DISTRIBUTORS

EXPORT OF NORDIC COUNTRIES TO VIETNAM

1992 – 2014, USD MILLION

166

236

250

103

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Sweden Norway Denmark Finland


HOWEVER, SWEDEN IS FALLING BEHIND NORDIC

COMPETITORS IN EXPORTS TO VIETNAM

SOURCE: UN COMTRADE

NORWAY AND DENMARK EXPORT FOR A GREATER VALUE TO VIETNAM DESPITE THEIR SMALLER SIZE

Sweden

SWEDEN & VIETNAM

681

321

131

89

Den

Fin

Swede

Norwa

ACCUMULATED FDI, 2015 (USD MILLION) NUMBER OF PROJECTS


SWEDEN ALSO LAGS BEHIND ITS PEERS IN TERMS OF

FDI

SOURCE: FOREIGN INVESTMENT AGENCY, MINISTRY OF PLANNING AND INVESTMENT

45

14

115

30

THE SIZE OF SWEDISH FDI PROJECTS REMAINS SMALL COMPARED WITH ITS NORDIC PEERS

SWEDEN & VIETNAM

INDUSTRIALIZATION GROWING MIDDLE

CLASS

URBANIZATION PROMOTION OF

FREE TRADE


FOUR KEY DISRPUTIVE TRENDS ARE DRIVING THE

VIETNAMESE ECONOMIC GROWTH

SOUCE: BUSINESS SWEDEN’S ANALYSIS, BMI

TRENDS OVERVIEW

URBANIZATION As of 2014, urban

population accounted for

33% and is expected to

grow to 50% by 2025

URBANIZATION

Disposable income has

risen gradually over the

past few years, boosting

purchasing power and

growing consumer

expenditure. By 2019,

35.6% of the

population is expected to

earn USD 5,000 p.a.

A new and modern

Vietnamese consumer

class is emerging,

demanding a modern

shopping experience

There is high demand

for public transportation

facilities and energy

consumption

Vietnam has a potential

opportunity to emerge

as a new global

manufacturing hub

Vietnam is expected to

benefit from 12 FTAs

signed, 3 FTAs under

negotiation

In 2015, Industrial zones

reached USD 135

billion in turnover,

generating exports of

USD 80 billion

To meet the expectation

of global customers, the

need of modern

technical machinery

and equipment is on the

rise

VIETNAMESE MIDDLE CLASS EXAMPLE FACTS


VIETNAM’S MIDDLE CLASS WILL DOUBLE FROM 2012 TO

2020 – THE IMPLICATIONS ARE ALREADY VISIBLE

SOURCE: BCG, BMI, NIELSEN VIETNAM, MINISTRY OF HEALTH, BUSINESS SWEDEN’S ANALYSIS

GROWING MIDDLE CLASS TRENDS

12 million ppl.

In 2012

VIETNAMESE HOUSEHOLD EXPENDITURE

BUSD 78.5

In 2012

BUSD 159.9

In 2019

33 millions ppl.

In 2020

THE NEW VIETNAMESE CONSUMER CLASS DEMANDS MODERN SHOPPING EXPERIENCES

Increasing domestic travel

CAGR 09-14 of # of domestic

visitors serviced by

accomodation establishments

and travel agencies: 14%

and 10% respectively

Growing number of overseas

treatment

40 000 Vietnamese people went

abroad for medical treament

and spent around USD 1

billion in 2015

Foreign studies growing

+ 410% Vietnamese students sent to

USA from 2004 – 2014,

reaching 18 722 in

2014/15

Foreign baby products in

demand

> 80 foreign brands for

powdered baby milk,

accounting for 75% of

market share

VIETNAMESE URBAN POPULATION


RAPID URBANIZATION IS CAUSING INFRASTRUCTURE

DISRUPTIONS THROUGHOUT SOCIETY

SOURCE: VIETNAM ASSOCIATION OF MOTORCYCLE MANUFACTURERS, VIETNAM ELECTRICITY (2014), ADB

TRENDS URBANIZATION

26 million ppl.

In 2009

URBANIZATION SPURS HUGE INFRASTRUCTURE OPPORTUNITIES & CHALLENGES

52 million ppl.

In 2025

EXAMPLE IMPACTS

The total electricity consumption increased from 11.5

TWh in 1995 to 115.1 TWh in 2013 - an

average growth rate of 11%

8,000 new bikes, 750 cars commune on

Vietnamese streets everyday

Over 10,000 buses with around 500 bus

routes in Vietnam


SOURCE: BUSINESS SWEDEN ANALYSIS

IN FORCE:

1. ASEAN Free Trade Area

2. ASEAN - China

3. ASEAN - South-Korea

4. ASEAN - Japan

5. ASEAN - Australia and New Zealand

6. ASEAN - India

7. Vietnam - Japan

8. Vietnam - Chile

9. Vietnam – Korea

10. Vietnam - EAEU

COMING INTO FORCE IN 2018:

11. EVTA

12. TPP

1

2

3

4

5

6

VIETNAM IS CURRENTLY BENEFITTING FROM A LARGE

AMOUNT OF FREE TRADE AGREEMENTS

NEW FTAS STRENGTHEN VIETNAM’S ATTRACTIVENESS AS A TRADING AND SOURCING PARTNER

11

TRENDS PROMOTION OF FREE TRADE

8

7

9

* FTAS = FREE TRADE AGREEMENTS; **TPP = TRANS PACIFIC PARTNERSHIP; ***EVTA = EU - VIETNAM FTA

MANUFACTURING INVESTMENT IN INDUSTRIAL

ZONES, 2006 – 2014, BUSD

1,8

2,5

2006 2014

THE NUMBER OF INDUSTRIAL PARKS IN VIETNAM


VIETNAM SEES LARGE INVESTMENTS IN INDUSTRIAL

PARKS AS PRODUCTION MOVES FROM CHINA

SOURCE: VIETNAM INDUSTRIAL PARKS, MINISTRY OF INDUSTRY AND TRADE, BUSINESS SWEDEN’S

ANALYSIS

TRENDS INDUSTRIALIZATION

CAGR

4,2%

CONSEQUENTLY THERE WILL BE DEMAND FOR BOTH MACHINERY AND INDUSTRIAL CONSTRUCTION

260 304

463

2010 2015e 2020 (*)

(*)GOVERNMENT’S APPROVED FIGURES


LARGE SCALE TRANSFORMATIVE TRENDS IN VIETNAM

CREATE BOTH SALES & SOURCING OPPORTUNITIES

SOURCE: EUROMONITOR, EMARKETER, ATKEARNEY, UBS,VIETNAM CUSTOMS HANDBOOK

OPPORTUNITIES OVERVIEW

Retail market value

(2015): BUSD 112

SALES SOURCING

71% of export value

46%

of export value

2005 2014

$ 15

bn

$ 106

bn

Manufacturing

output (2013):

BUSD 160

2018f:

Pvt health spending

BUSD9

Pharma sales BUSD

0,7 Medical device

trade

BUSD0,1

Infrastructure

construction value

(2015): BUSD 3,2

IN THE COMING YEARS, SWEDISH COMPANIES CAN CAPITALIZE ON NEW, LARGE OPPORTUNITIES IN VIETNAM


SALES OPPORTUNITIES EXIST IN BOTH B2B AND B2C

FORMS

OPPORTUNITIES SALES > OVERVIEW

Manufacturing contributes about 15% to

Vietnam’s total GDP

The most high potential manufacturing sectors

are machinery / apparatus & parts, textiles,

electronics, food and beverage, and furniture

In 2015, Vietnam’s infrastructure sector (i.e.

transport, energy & utilities) had value of BUSD

3.2. This figure is expected to be BUSD 4.8 in

2020

In-plan / Under construction projects include BRT

systems, metros and airport projects in the cities

of Hanoi, Da Nang and Ho Chi Minh City

KEY SALES OPPORTUNITIES RELATE TO INFRASTRUCTURE SOLUTIONS, INDUSTRIAL EQUIPMENT AND CONSUMER PRODUCTS

Vietnam’s retail market is forecasted to reach

around BUSD 180 by 2020

The modern trade is expected to expand widely,

accounting for 45% of the total retail market by

2020

There is an increasing M&A trend between

domestic retailers and foreign players

Many new hospitals will be built, both public and

private

The government aims at improving the amount of

domestically produced drugs

There is strong need for imported medical devices

SELLING TO MANUFACTURER RETAIL

INFRASTRUCTURE HEALTHCARE

GROSS OUTPUT OF KEY MANUFACTURING INDUSTRIES AT CONSTANT PRICES

USD BILLION


BOTH LABOR AND CAPITAL INTENSIVE

MANUFACTURING SECTORS ARE GROWING STRONGLY

SOURCE: GSO

OPPORTUNITIES SALES > SELL TO MANF.

THERE ARE OPPORTUNITIES TO PROVIDE MACHINERY, EQUIPMENT, TOOLS AND SPARE PARTS TO MANUFACTURERS

4,7

5,4

8,7

6,2

25,7

129,3

5,3

7,1

11,2

16,0

29,5

160,5

2009 2013

Food products

Textiles

Furniture

Computer, electronic

and optical products

Overall manufacturing

CAGR 2009 - 2013

7.9%

11.3%

7.5%

32%

10%

Fabricated metal products

(except machinery and

equipment)

11%

OPPORTUNITIES TO SELL TO LOCAL

MANUFACTURERS The positive performance of manufacturing

activities implies potential demand to equip

manufacturers with new machinery,

equipment and tools

The government has encouraged localization

of spare part sector by developing supporting

industries. The progress to realise such goal

is still slow and local manufacturers still rely

on imported components

THE MARKET SIZE OF RETAIL INDUSTRY IN VIETNAM

USD BILLION, 2015 - 2020

VIETNAM’S SPENDING IN RETAIL SECTOR

USD BILLION, 2012 – 2018F


VIETNAM’S RETAIL INDUSTRY IS EXPECTED TO REACH

USD 180 BILLION BY 2020

SOURCE: VIETTRADE, BMI

OPPORTUNITIES SALES > RETAIL

HIGH CONSUMER GOODS CONSUMPTION EXPOSE HUGE SALES POTENTIAL FOR SWEDISH RETAILERS

To date, the modern trade accounts for

25% of the total retail market. There are

around 700 supermarkets, 125 shopping

centers and 8,600 traditional markets in

Vietnam

32,3

3,6 2,8

45,5

4,5 3,3

67,9

6 4,2

Food & non-alcoholic drinks

Household goods Clothing &footwear

2012

2015f

2018f

112

180

2015 2020

CAGR

10%

EXAMPLES OF IMPORTANT TRANSPORT PROJECTS 2015 – 2020


HEAVY INFRASTRUCTURE SPENDING PRESENTS

OPPORTUNITIES FOR COMPANIES IN THE SECTOR [1/2]

SOURCE: BUSINESS SWEDEN’S ANALYSIS

BRT Hanoi MRT Hanoi

BRT Da Nang

OPPORTUNITIES SALES > TRANSPORT INFRASTRUCTURE

MRT HCMC BRT HCMC

Expressway Da Nang

– Quang Ngai

In 2016 – 2020, total

investment for

transport infrastructure

is estimated ~ USD

45 billion

SWEDISH COMPANIES CAN OFFER INNOVATIVE SOLUTIONS TO NEW TRANSPORT PROJECTS

EXAMPLES OF PLANNED & ONGOING ENERGY PROJECTS 2011 - 2027


HEAVY INFRASTRUCTURE SPENDING PRESENTS

OPPORTUNITIES FOR COMPANIES IN THE SECTOR [2/2]

SOURCE: BMI, FPTS, BUSINESS SWEDEN’S ANALYSIS

Lai Chau hydropower plant

Location: Lai Chau province

Value (USD mn): 1831

Capacity: 1200 MW

Time frame: 2011 - 2017

Nghi Son 2 coal fired power plant

Location: Thanh Hoa city


Capacity: 1200 MW

Time frame: 2011 - 2017

Thai Binh 2 coal fired power plant

Location: Thai Binh province


Capacity: 1200 MW

Time frame: 2011 - 2016

OPPORTUNITIES SALES > ENERGY INFRASTRUCTURE

SWEDISH COMPANIES CAN OFFER SUSTAINABLE SOLUTIONS REDUCING OVERALL ENVIRONMENTAL IMPACT

Long Phu 1 coal fired power plant

Location: Soc Trang province


Capacity: 1200 MW

Time frame: 2011 - 2018

Quang Trach 1 coal fired power plant

Location: Quang Binh province


Capacity: 1200 MW

Time frame: 2011 - 2015

Ninh Thuan 2 nuclear power plant

Location: Ninh Thuạn province


Capacity: 4000 MW

Time frame: 2014 - 2027

Vinh Tan 1 power plant

Location: Binh Thuạn


Capacity: 1200 MW

Time frame: 2014 - 2018


ALL HEALTHCARE SEGMENTS SHOW STRONG GROWTH

SOURCE: BMI

Preference for imported medical devices

Hospitals prefer imported devices (Vietnam currently imports up to 95% of medical devices)

Growing demand for medical equipment as healthcare facilities expand

5 896

3 295

645

7 415

5 259

1 018

9 227

7 070

1 388

Private health spending Pharmaceutical sales Medical device trade

2013

2016f

2018f

CAGR

9,4% CAGR

16,5%

CAGR

16,6%

Many new hospitals

will be built

Heavily laden public

hospitals leading to

new facilities (private

& public) of thousands

of beds in total to be

built in big cities until

2020

Locally produced drugs

are encouraged

Aging population

presents growing

demand for medicines

Traditional medicine

sector shows high

potential for investors in

extraction technologies

OPPORTUNITIES SALES > HEALTHCARE

HEALTH SPENDING COVERS BOTH IN-HOSPITAL AND OUT-OF-HOSPITAL SPENDING (E.G. SPENDING ON

CLINICS, MATERNITY HOMES, MEDICAL SERVICES, PRESCRIPTION AND OTC DRUGS, ETC.)

SALES OF MEDICAL DEVICES AND DRUGS OFFER THE LARGEST OPPORTUNITIES FOR SWEDISH FIRMS

GROWTH OF VIETNAM HEALTHCARE MARKET

USD MILLION, 2013 - 2018

MONTHLY WAGE IN MANUFACTURING

USD

790,7

693,0

358,7

245,1

155,2

128*


VIETNAM IS EMERGING AS AN ALTERNATIVE SOURCING

DESTINATION IN ASIA, COMPETING WITH CHINA

SOURCE: TRADINGECONOMICS.COM

*GARMENT AND SHOES INDUSTRY

OPPORTUNITIES SOURCING > OVERVIEW

~1/3

Labor-intensive

manufacturing

Swedish companies can

consider Vietnam for labor-

intensive manufacturing

industries as garment, shoes

and bags

01

Cost effective manual

work Industries requiring manual

work such as wooden

furniture, large steel structures

and machine parts are also

cost-effective in Vietnam

02

Valuable experience of

existing companies The long experience of Swedish

sourcing companies in Vietnam

can be very useful for new

comers to the market to leverage

03

KEY OPPORTUNITIES:

COMPANIES MOVING TO VIETNAM DON'T LOOK ONLY FOR LOW COST LABOUR, BUT GOOD ENVIRONMENT

THE MOST ATTRACTIVE INDUSTRIES FOR SOURCING:


VIETNAM IS AN EMERGING & ATTRACTIVE SOURCING

DESTINATION


OPPORTUNITIES SOURCING > OVERVIEW

Electronics

& ICT

A preferred global center for electronics production and IT outsourcing

2014: BUSD 35 exports of electronics + hardware

2015: No. 1 global outsourcing location

Textile

In 2015, the garment sector earned an export turnover of USD 27.1 billion

The main products are cotton fiber, fiber and fabric of all types, sewing products

US is the main export country followed by EU and Japan

Wood

processing

Vietnam wood and furniture export accounts for 2.5% of the world market

Domestic demand is also increasing significantly, accounting for an increasing share of the

total wood product turnover in the last 5 years

SWEDISH COMPANIES CAN CONSIDER SOURCING FROM THREE KEY INDUSTRIES IN VIETNAM

ELECTRONICS IMPORTS & EXPORT

2010 – 2014, USD BILLION


VIETNAM IS BECOMING A GLOBAL ELECTRONICS

ASSEMBLY HUB FOR OEMS

SOURCE: VIETNAM CUSTOMS PORTAL, GSO

OPPORTUNITIES SOURCING > ELECTRONICS

Manufacture in Vietnam

Locally set up factories can enjoy low labour cost and

various incentives in land use right, tax holiday and tariff

reduction, especially in industrial zones

Supply to OEMs

The establishment of large electronics MNCs such as

Samsung, Microsoft Mobile, Intel, LG, etc.in the market

bring opportunities for sub suppliers

KEY OPPORTUNITIES

VIETNAM IS AN EMERGING DESTINATION FOR ELECTRONICS PRODUCTION AND OUTSOURCING SERVICES

5,9 11,1 20,6

31,9 35,0 5,2

11,1

18,9

26,7 28,2

2010 2011 2012 2013 2014

Import

Export11,1

22,2

39,5

58,6 63,3

VIETNAMESE WOOD & FURNITURE EXPORTS

USD BILLION, 2011 - 2020

KEY FACTS


VIETNAM IS A LARGE WOOD SOURCING DESTINATION

WITH STRONG EXPORT GROWTH

SOURCE: GENERAL STATISTIC OFFICE

WOOD PROCESSING & FURNITURE MANUFACTURING IS AN ATTRACTIVE AREA FOR SWEDISH COMPANIES

OPPORTUNITIES SOURCING > WOOD

3,7 4,5

5,6 6,5

7

10

2011 2012 2013 2014 2015 2020f

Key driver for growth

Competitive labour

cost

Many FTAs in place

The share of export in the

world market

Vietnam wood export

accounts for 2.5% of the

world market (70 export

countries), which is

expected to increase to

5% in 2020

KEY OPPORTUNITIES

Wood processing Furniture

manufacturing

TEXTILE AND LEATHER INDUSTRY IN VIETNAM

It is expected that Vietnam garment exports will reach

around USD 25 billion by 2020. However, in 2015,

the garment sector already earned an export turnover of

USD 27.5 billion

There are about 6,000 garment factories in Vietnam,

attracting 2.5 million workers

US is the main export country (48%), followed by EU

(15%), Japan (13%)

The main exporting products are jackets, T-

shirts, trousers and dresses

KEY TEXTILE AND LEATHER HUBS


VIETNAM HAS A LARGE AND DIVERSIFIED TEXTILE AND

ACCESSORY INDUSTRY

BUSINESS SWEDEN ANALYSIS

Hung Yen:

- Textile &

Accessories

- Fashion Design

Center

- Shoes

Nam Dinh:

- Textile

- Garment

Hue:

- Textile & Garment

- Fashion Design

Center

Long An, Binh

Duong:

- Textile

- Fashion Design

Center, Garment

- Shoes

Ho Chi Minh City

Area:

- Textile & Garment

- Shoes

OPPORTUNITIES SOURCING > TEXTILE

EXAMPLE INTERNATIONAL RETAILERS SOURCING FROM VIETNAM


CONSUMER

SUCCESS CASE

Entered Vietnam 20 years ago

Core products: specialized garments, 100% exported

Vietnam is considered the most efficient and profitable manufacturing base in

the history of the company, with very successful R&D center

Production located in an industrial zone to avail of good environment

OUTSOURCING

SUCCESS CASE

SELL TO MANU.

SUCCESS CASE

ALL SUCCESSCASES HAVE A LONG PRESENCE IN THE COUNTRY AND HAVE INVESTED TO SEE SUCCESS

THREE NORDIC COMPANIES IN VIETNAM HAS SEEN

SUCCESS WITH STRONG LOCAL PRESENCE & MINDSET

SUCCESS CASES OVERVIEW

A history of almost 20 years in Vietnam

Core products: Decorative paints and marine coatings

Revenue has grown 50% - 100% p.a, and

200/ 550 shops were renovated since 2013 (new foreign manager)

Opening a new plant

A DANNISH TEXTILE

& FABRICS

MANUFACTURER

EXAMPLES OF NORDIC SUCCESS CASES DOING BUSINESS IN VIETNAM

In Vietnam for nearly 20 years

Revenue growth is ~30% - 50% p.a

Recruiting more staff in both Hanoi and HCMC

Selling products at reduced prices to get long term revenue & achieve

customer conversion from competing brands

A NORWEGIAN

PAINT PRODUCER

AND SELLER

A SWEDISH

MACHINERY

COMPANY


A PAINT MANUFACTURER WENT FROM 1 TO 20 MUSD IN

TURNOVER IN THREE YEARS

SOURCE:

SUCCESS CASES SALES

PROFILE OF BUSINESS KEY SUCCESS FACTORS


Type of business: 100% foreign - owned company

Total investment: MUSD 16,1

Establishment year: 1998

Offices: Hanoi, Hai Phong, Da Nang, Binh Duong

Sales: MUSD 8 (2015), MUSD 12 (as of Jul 2016)

Factory: Binh Duong Province

Capacity: 25 million litre / year

DESCRIPTION OF THE CASE

Revenue

MUSD1

2013

MUSD20

2016 (e.)

Local general manager

substituted by foreigner in

2013

New factory in 2 years to

expand production

Companies should have international

management resources

Hard to find suitable local managers with

suitable skills, qualifications & ethics

Management

Logistics/

distribution

Brand

awareness

Dealer and

staff training

Strong and clear logistics/ distribution

strategy is essential given poor

infrastructure

Slow goods transportation to be expected

Worth investing to educate clients

Vietnamese people’s purchasing decisions

tends to be based on brand familiarity

Invest in dealer / distributor and staff

training

Training both in basics as well as technical

knowledge of product may be needed

Incentives should be provided

INTERNATIONAL MANAGEMENT SKILLS, WELL-TRAINED LOCAL STAFF/DISTRIBUTORS CRITICAL FOR SUCCESS



A SPECIALIZED GARMENT COMPANY HAS ITS MOST

PROFITABLE SOURCING OPERATION IN VIETNAM


USING AN EXPERIENCED TEAM AND SETTING UP IN INDUSTRIAL ZONES IS CRITICAL TO SUCCESS

SUCCESS CASES

Type of business: 100% foreign - owned company


Factory: 2 in Hai Duong Province, 1 upcoming in Laos

Products: Specialised garments

Materials/textiles: ~98% imported

No. of staff: 2 000 (80% are blue collar)

VIEW ON VIETNAM BUSINESS ENVIRONMENT

SOURCING

Should have strong local-based

management team, i.e. strong Vietnamese

team on-board, to support expat CEO

Critical to have good experience and well

educated staff for company establishment,

espcially with greenfield setup

Recruitment

strategy

Factory

location

Official

support

Inside an industrial zone is the best option

for a greenfield establishment

Whenever issues arise, i.e. needs legal/

commercial advice, support of the Embassy

and other official organizations can be very

helpful)

The biggest challenge in Vietnam is systemic corruption

Vietnam General Director

✓ Easy to get business

license

✓ Advantageous geographical

position

✓ Politically and socially

stable

✓ High staff quality

Systemic corruption

Social impact corruption on

staff

Poor education system

Lack of power supply

Staff retention

Keep key staff by consistently offering

attractive incentives / reimbursement

Invest in staff training


A GLOBAL MACHINERY MANUFACTURER ACHIEVES 30-

40% GROWTH P.A. IN VIETNAM


SUCCESS CASES SELL TO MANF


IT IS CRITICAL TO BE CLOSE TO CLIENTS AND TO THINK ABOUT LONG TERM REVENUE

Type of business: Representative office


No. of staff: 14 in Hanoi and HCMC

DESCRIPTION OF THE CASE

Companies should have local office, either

with local staff or local agent / distributor

Local staff plays important role in

investigating the market, signals

commitment in the market

Market

presence

Customer

relationship

Critical to stay close to customer to train

customers, change their mindset (with

those who chose Chinese products) and

maintain relationship (i.e. opportunities for

maintenance service)

This is even more important for companies

selling high technology equipment 30% - 50% sales growth p.a

Sales activities are conducted in Vietnam

Contract agreement signed by the entity in Singapore

Training & maintenance handled from Vietnam

Sometimes we have to wait for customer to experience on their

own before persuading them that our product is better than the

ones they are using

Division manager

Pricing

strategy

Selling price can be reduced to attract

customers, revenue is taken from long

term sales & maintenance service


VIETNAM IS A HIGH GROWTH AND HIGH POTENTIAL

MARKET – INVESTMENT IS REQUIRED TO TAP INTO IT

Ensure strong local

presence

Invest in talent Protect from

corruption

Think global, act

local

You cannot build

business in Vietnam

from Sweden or

Singapore

Vietnam is high growth

and high potential, but

also requires high level

of commitment & focus

Crucial to build in-depth

market understanding,

and to establish strong

local presence

Salary costs are low in

Vietnam, but

international quality

demands international

compensation

Important to recruit high

quality top

management, and to

recruit carefully

Not easy to find suitable

and skillful staff/

partners – key to invest

in training

Design incentives for

employees and

partners that protects

from corruption

Focus on right values in

recruitment and

partnerships, but also:

Good reimbursement

schemes required to

help staff face social

impacts of systemic

corruption

It’s key to localize

both value offering

and go-to-market

strategy

Relationship bonding,

long-term investment on

client and partner

relationship

Copying an existing

Western product &

marketing strategy for

use in Vietnam is

unlikely to work

1 2 3

OVERVIEW OF BEST PRACTICES FOR DOING BUSINESS IN VIETNAM

4

IT’S KEY TO LOCALIZE BOTH VALUE OFFERING AND GO-TO-MARKET STRATEGY

SUCCESS FACTORS

BUSINESS SWEDEN’S PRESENCE IN ASEAN WE SUPPORT MARKET ENTRY AND GROWTH


BUSINESS SWEDEN HELPS SWEDISH COMPANIES REACH

THEIR FULL INTERNATIONAL POTENTIAL

MALAYSIA

VIETNAM

THAILAND

SINGAPORE

INDONESIA

WE SUPPORT SOME OF SWEDEN’S LARGEST COMPANIES, AND SME’S, WITH MARKET ENTRY AND GROWTH

Business Sweden shorten time to market, find new

revenue streams, and manage risks

BUSINESS SWEDEN IN ASEAN

ACCELERATE

LANDING

PROPEL

GROWTH

EXPAND

BUSINESS

We are internationalization and growth experts

– with expertise on local markets, industry and

business logics, and internationalization strategies

CONTACT US

BUSINESS SWEDEN 36

Contact information

Business Sweden

Commercial Section at The Swedish Embassy in Vietnam

Daeha Centre, 15th floor, 360 Kim Ma Street, Hanoi, Vietnam

T: +84 4 3726 0400

E: [email protected]

W: www.business-sweden.se

BUSINESS SWEDEN IN VIETNAM

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