Poised to become a developed nation by 2020, Vietnam is an open economy with trading flow of US$340 billion. The country’s foreign direct investment (FDI) sector accounts for approximately 22 per cent of its economy. PwC highlights five emerging sectors in the country with the greatest potential for growth and investment.
1. Business process outsourcing (BPO)
Information and communications technology (ICT) is a booming sector in Vietnam. In 2016, its revenue was estimated at US$59.9 billion. Within the ICT sector, business process outsourcing (BPO) is an industry that is poised for growth due to the country’s growing pool of skilled talent.
40,000 IT graduates enter the job market every year
96.8 per cent literacy rate for the working population (15-60 years)
English is encouraged as a working language
Tips on getting started
Set up, partner or acquire
Take advantage of government incentives available. For example, a preferential 10 per cent corporate income tax rate for 15 years is available for new investment projects which regularly employ more than 1,000 employees, and perform certain IT activities (including service of BPO). Partnering or acquiring local operations hungry for growth is another possibility.
Extend business services to support manufacturing activities
Vietnam is an emerging regional manufacturing hub and is ranked second in Asean in the sector, notably electronics. Major electronic groups the likes of Samsung, Intel, Panasonic and Microsoft are located there – an opportunity for companies in Vietnam to raise the value of their manufacturing operations to support services such as IT, logistics and e-commerce.
Potential hubs for BPO
Da Nang, Hanoi and Ho Chi Minh City are ideal locations for BPO operations. All three cities also offer special high-tech parks: Cau Giay Concentrated IT Park (Hanoi), Quang Trung Software City (Ho Chi Minh City) and Da Nang Hi-Tech Park (Da Nang). These parks house technology infrastructure (e.g. fibre optic internet), human resource training centres and many software and IT firms.
2. Solar and wind energy
Vietnam’s major sources of electricity generation are coal, hydropower and gas turbines. But there are issues in sustaining these sources, and the government plans to nearly triple renewable energy’s share of total electricity production by 2030. The country has favourable geography and climate to harness solar and wind energy.
67 per cent of land suitable (220,000 sq km) for solar photovoltaic system
Several coastal and mountainous regions for wind turbines
2,000 to 2,500 hours of sunshine annually – one of the highest in the world
5.5ms to 7.3ms average wind speed per year, suitable for modern wind turbines
Tips on getting started
Choose an appropriate investment method
Foreign investors may choose to either set up a 100 per cent foreign-invested company, enter into a joint venture, or a public private partnership in the form of build-operate-transfer projects (BOT). While BOT is most common in this sector, renewable energies may require a different approach due to the highly technical capabilities needed. Partnering with local players is an effective way for foreign companies to penetrate this industry by offering technology, expertise and capital.
Location
Vietnam’s southern region is suitable for solar projects due to its higher solar irradiation levels and relatively flat terrain. The coastal areas in the south central region and the mountainous regions of central Vietnam see higher average wind speeds – a more feasible option for wind projects.
3. Luxury hotels
Vietnam’s tourism revenue reached US$9.3 billion in 2016 and is forecast to double by 2027. Within tourism, the upscale and luxury hotel industry – those rated four stars and above – are relatively untapped and have the greatest potential for investment.
Tips on getting started
Joint ventures and partnerships
The high-end hotel market is mainly dominated by international brands, such as InterContinental Group and AccorHotels. Joint ventures with local developers are the typical mode of entry for foreign investors. Under such agreements, the local firms employ an international operator (e.g. Hilton Group) to manage their assets and land banks.
Tourist hotspots
Hanoi and Ho Chi Minh City are the main hotel markets as they see the highest number of tourist arrivals. There is plenty of capacity for more – both cities have lower numbers of new hotel rooms compared to neighbouring Bali, Jakarta and Manila despite seeing comparable tourist arrival numbers last year.
4. Modern agribusiness and food
Although Vietnam’s stature as a global agricultural exporter has increased, the quality of the sector’s growth in terms of productivity and value add overall remains low. Agriculture accounts for 20 per cent of exports – a large agriculture base with modernisation potential.
Tips on getting started
Bridge the gaps
The current gaps in Vietnam’s agribusiness industry – low yield, labour intensiveness and reliance on relatively inefficient, traditional techniques represent opportunities for companies to capture the market by introducing inputs or processes that can facilitate efficient agriculture.
Forge partnerships
Partnering with local companies is another way to make headway into the market by bringing expertise and new technology to the table.
Introduce higher value added products into the market
There are opportunities in the sector for the production and distribution of premium agriculture and food products. Japanese company Kushima AoiFarm has begun production of Japanese sweet potatoes in Vietnam. With the aid of production technology from Japan, the first-year output is projected to be 1,250 tons.
5. Retail banking
Vietnam’s banking and financial services sector is relatively undeveloped but boasts potential. Within this sector, there is room for growth in retail banking, in particular payment cards and wealth management services. With a mobile penetration rate of 49 per cent in 2016, the country has a good base to make the transition to a cashless society.
Tips on getting started
Invest in domestic retail banks
The government is increasing the limits of foreign ownership in Vietnamese banks. Additionally, consumer finance also provides good opportunities, having been the fastest growing sector over the last few years.
Supply and develop IT systems to support e-payments and digital banking
Banks will need to invest more in their IT systems to support the growth of e-payment as their IT infrastructures are not expanding as fast as the e-payment market.
Invest in FinTech
Foreign investors have been investing in Vietnam’s FinTech companies as they are positioned to capitalise on digital payment growth. In 2016, the sector raised a total of US$129 million, accounting for 63 per cent of all start-up deals in the country.
Written by: ASEANBUSINESS STAFF