Asia has a new entrant in Vietnam, which is fast emerging as a low–cost manufacturing hub of the region.
According to the latest report published by the Economist Intelligence Unit report, it names Vietnam has having beat both China and India, scoring six out of 10 in FDI policy, while both India and China stood with a tie scoring 5.5 each.
In recent times, China is finding it tough to retain its position as the “factory of the world” as countries, including India, have tried to reduce their dependence on China.
Ongoing trade war with the United States has not helped China much, even as several countries across the world, including India, have been trying to woe businesses to set base in their respective countries.
In the post Covid – 19 war, Vietnam has scored a major as it emerges as a strong contender to grab a significant stake in low – cost manufacturing.
China has been the preferred destination for low-cost manufacturing and business setups but rising labor costs and its battle with the United States, including India too (India banned many Chinese applications in the recent past), seems to have finally caught up with China.
One of the biggest reason for Vietnam to emerge as a strong alternative is the fact that Vietnam’s incentives for international businesses to set up manufacturing units in hi-tech products are because of the proliferation of free trade agreements, the most recent being with the EU, which has placed it amongst the most friendly and in an enviable position as compared to its peers. It also offers a pool of low–cost workers.
To secure this position, Vietnam has had to work hard; it began by giving manufacturers access to ASEAN free trade areas and preferential trade pacts with countries across Asia and the EU, and the USA.
In recent times, US manufactured imports from Vietnam grew, as the two former foes are increasingly forging newer relations.
Vietnam has also, in recent times, ramped up on medical equipment production because of the Covid -19 pandemic and has also made significant donations to several countries owning to Covid -19 needs; this includes an impressive list of countries – United Staes, Russia, Spain, France, Italy, Germany, and the United Kingdom.
As per the EIU report, India was beaten by scores of countries when it came to the FDI policy and labor; out of the 14 countries focused on in the report, as many as 12 ( barring Bangladesh and Indonesia) outscored India.
Pakistan was the only country that performed worse than India when it came to Foreign Trade and Exchange controls.
The Vietnamese economy has been on the rise and grew by 8 percent in the year 2019; the reason for the same is a surge in its exports. In the current financial year, Vietnam is expected to grow at 1.5 percent, according to Nomura.
Vietnam has also risen as a regional startup hub in Southeast Asia with a total investment worth US$815 million; at the recently concluded Vietnam Ventures Summit, investors expressed their intent and interest to invest in startups.
The key areas that see promising growth in the start-up space are fintech, enterprise solutions, and e-commerce.
As a matter of fact, India has been focusing on the above sectors; however, it seems that Vietnam may have beaten us to it.
Vietnam’s startup ecosystem and growth prospects
Vietnam, since 2017, has emerged as a strong contender for startups; in the first half of 2019, Vietnamese startups raised US$246 million, closely competing with Indonesia.
Some of the fundamental keys as to the emergence of Vietnam as a startup hub in Southeast Asia include revenue growth in digital sectors such as fintech, and e-commerce, rising consumer spending, an increasing interest in foreign investment funds in particular from Japanese, Singaporean, and South Korean VC funds, and targeted government support.
In comparison, India has mostly stuck to its “make in India campaign,” and the government policies are in tune with this sentiment.
Another key to Vietnam’s success is that Foreign investors have played a significant role in funding Vietnamese startups.
The Tech sector is the dominant in the startup space in Vietnam. Investors in tech startups have risen considerably; the country has also developed a robust ecosystem for startups, including tech.
In recent years funding rounds have dominated in e-commerce, fintech, AI, food-tech, enterprise solutions, and information technology services.
Comparatively, India has not seen as robust a market, and much needs to be said in terms of the infrastructure and the economic policies adopted by the present government.
For Vietnam, the near future looks bright as it is driven by increased internet penetration, young demographics, and equally encouraging government policies.
To encourage entrepreneurship, the Vietnamese government has established a variety of funds at State and provincial/city level to support the startup ecosystem.
In addition to the above, the government is also seeking and collaborating with several countries and banks to develop funding and innovation programs, provide capital/loans, technical training, and business mentoring.
Vietnam has also produced its first Unicorn, VNG, which is an online gaming and platform company.
Foreign Investors have found it a particularly encouraging environment as Vietnam’s startup ecosystem and recent regulations have tried to streamline investment regulations surrounding foreign investors such as VCs.
India too has produced 11 Unicorns, but on the whole, the environment concerning markets and business success is volatile, the economy has officially entered a Technical Recession, the inflation rate remains high, prices of fuel have touched an all-time high with petrol prices at Rs84.45 per liter and the government policies are not helping.
In the post – Covid -19 war, Vietnam sure has emerged as a competitive hub offering the right incentives and an equally charged environment conducive to both its indigenous businesses as well as the right destination for foreign companies looking to set base; Vietnam’s rise is due to the efforts it has put and the encouraging feelers it has let out in the world.