The Vietnamese Government has affirmed the major economic role played by the foreign direct investment (FDI) sector over the past three decades, stressing its continuing importance for the country.
After 30 years of Doi moi (Renewal), Viet Nam has become one of the most successful countries in the region for FDI attraction, thanks to the building and completion of a strong legal framework.
Proving Viet Nam’s position as an attractive investment destination, numerous large foreign groups have selected the country for further growth, such as Samsung, LG, Intel, GE, Mitsubishi and Panasonic.
Samsung – the largest foreign investor in Viet Nam, is one such success story demonstrating the ability of the country to facilitate FDI companies.
Samsung has proved itself a ‘giant’ in the Vietnamese market, with not only huge investment but also many positive spillover effects.
In just a decade, Samsung has increased its investment capital in Viet Nam from $670 million to over $17.3 billion, a 26-fold increase. More importantly, all registered capital has been fully disbursed.
Ten years since Samsung opened its first factory in Viet Nam, the South Korean tech-giant has exceeded the 1-billion mark of its made-in-Viet Nam products, including smartphones, tablets and other electronic devices.
In 2009, Samsung’s total production in Viet Nam remained modest at 6.36 million products, which then increased sharply to 119.02 million in 2012 and 176.54 million in 2017. Overall, Samsung produced 1.05 billion products from 2009 to June 2018, of which, Samsung Electronics Viet Nam Bac Ninh (SEV) and Samsung Electronics Viet Nam Thai Nguyen (SEVT) produced 625.74 million and 431.68 million products, respectively.
Shim Won Hwan, CEO of Samsung Viet Nam, said that around 1.2-1.4 billion smartphones are sold worldwide every year, of which the milestone of 1 billion products in Viet Nam has significant meaning to Samsung. According to Samsung’s statistics, around 50 per cent of Samsung’s smartphones and tablets are produced in Viet Nam and exported to 128 countries and territories, including the US, Europe, Russia and Southeast Asia. Chairman of the Viet Nam Association of Foreign Invested Enterprises (VAFIE) Nguyen Mai said Samsung had helped put Viet Nam on the global map of hi-tech manufacturers by establishing a production base which make smartphones, electronics and home appliances for export.
The growing visibility of global giants such as Samsung reveals great opportunities for the country to spur local development of supporting industries. Samsung has not only engaged in assembling and making components in Viet Nam, but also helping attract scores of satellite production units to the country.
The Ministry of Planning and Investment (MPI) is reviewing 30 years of FDI in Viet Nam and the Government will provide orientations to attract future technologies and embrace the Fourth Industrial Revolution.
“The country should focus on attracting high quality FDI to choose investors to benefit the economy and deeply integrate into the global value chain,” Mai said.
Experts pointed out that technology transfer from foreign companies to domestic firms continues to be a big concern in luring FDI.
The expectation of closer links with and support for domestic enterprises so they can take part in global supply chains has yet to be realised. Many experts have said the spillover effects from FDI are not yet clear.
To resolve the issue, big FDI enterprises like Samsung have collaborated with the Government to develop the country’s support industry.
The number of Samsung’s tier-1 Vietnamese vendors has increased dramatically, from four businesses in 2014 to the current 29 businesses thanks to its continuous efforts in recent years. Samsung organised a consultation programme for 130 local companies with the aim that some 50 Vietnamese companies would become SEV tier-1 vendors by 2020.
Samsung recently launched a programme to train 200 Vietnamese experts with an aim to meet the demand of firms in the country’s support industry.
This year, Samsung plans to provide consultations for 12 Vietnamese firms attending the programme. Sending Samsung experts to Vietnamese firms will be a good way to boost the growth of the support industry.
After graduating, the 200 experts trained under the programme will be sent to work for Vietnamese firms across the country.
A good relationship between FDI and domestic enterprises must come from the efforts of both sides.
“Domestic enterprises should be confident and proactive in approaching FDI enterprises while renewing their technology, improving the quality of human resources, and seeking suitable niches to join the global supply chain. Meanwhile, FDI enterprises need to devise an effective co-operation strategy with Vietnamese enterprises and actively help Vietnamese enterprises improve their capacity and draw up appropriate cooperation models in order to meet the demand of FDI enterprises,” Mai said.
R&D proves a new FDI trend
Samsung is not only a ‘phenomenon’ for Viet Nam’s FDI attraction, but is also providing investment for research and development (R&D) which will help Viet Nam accelerate its transformation from a low value-added production economy to a high value-added one.
Samsung has made Viet Nam its global production base. There is no doubt that Viet Nam could join more global value chains after its success with Samsung, a world leader in technology.
Samsung’s existing R&D centre at PVI Tower in Cau Giay District employs more than 1,600 engineers and workers.
Established in 2012, Samsung’s R&D centre in Ha Noi is now responsible for researching and developing the software market for mobile phones and tablet products in Southeast Asia, accounting for 10 per cent of Samsung’s global revenue in this field.
Vietnamese software engineers working for this R&D centre have contributed to designing and writing software for the digital writing device S-Pen Montblanc - a cross between Samsung technology and Montblanc’s sophisticated expertise in writing devices.
Koh Dong Jin, president and CEO of Samsung Electronics Company Ltd said Samsung had built a foundation for electronics manufacturing in Viet Nam, not only with mobile phones but also televisions, home appliances and spare parts. In the future, Samsung would help Viet Nam improve its competitiveness on the world stage while continuously developing technologies, improving quality and nurturing human resources.
“Through their work, Samsung plants in Viet Nam can produce diversified products to catch up with the Internet of Things (IoT), including smartphones integrated with new technologies,” he said.
Samsung, after a period of rapid development, is in the lead. From this position, the firm can be a guide to the future. To stay one step ahead, Samsung has invested heavily in R&D to forecast future developments. IoT would be included in all Samsung’s products, from phones, TVs to home appliances, thereby creating smart homes and smart offices. Virtual reality (VR) technology and artificial intelligence (AI) are also being studied and applied to Samsung products.
Some say that Samsung is investing heavily in Viet Nam, but the country is not profitable. They only look at tax incentives offered to Samsung by the Government. But collecting taxes is just one aspect. Looking at the spillover effects of the Samsung Group on socio-economic development, you see that the Vietnamese Government has successfully managed to establish a ‘win-win’ relationship.
FDI – a key driving force for economic growth
In December 1987, the Law on Foreign Investment in Viet Nam was first promulgated. The revision and issuance of the Law on Investment in 2014 created a breakthrough in Viet Nam’s FDI attraction, with new regulations allowing businesses and investors to do business in areas that are not legally restricted. The completion of the legal framework proved that the investment attraction policies of Viet Nam are flexible to suit the specific development needs of the country.
According to the Foreign Investment Agency under the Ministry of Planning and Investment, after 30 years of calling for FDI, the 63 provinces and cities across the country have so far hosted 26,438 projects from 129 countries and territories with total investment of US$333.3 billion, of which $183.6 billion, or 55 per cent, of total valid capital has been disbursed. “The FDI sector plays an increasingly important role in the economy,” Minister of Planning and Investment Nguyen Chi Dung said.
According to Dung, FDI has a positive effect on the economy. Specifically, it has contributed 12-25 per cent of Viet Nam’s total development capital in 1991-2017. Also, FDI currently accounts for over 50 per cent of the economy’s total industrial production value and 70 per cent of the total export turnover. FDI currently generates employment for over four million people directly and millions of others indirectly in Viet Nam.