Korea's Growing Business Presence in Vietnam
Over 4,000 Korean companies now operating
Over 4,000 Korean companies now operating
JIJI Research Institute
Korea is a growing business presence in Vietnam, outweighing Japan in terms of both the number of companies with operations there, Samsung Electronics and LG among them, as well as direct investment. More than a production base, Vietnam also offers attractive consumer markets, which will see more Korean companies setting up there in future.
Korea's presence in Vietnam is growing exponentially, with its direct investment in Vietnam topping national rankings this year for the third consecutive year since 2014. More than 4,000 Korean companies, general electronics manufacturers Samsung Electronics and LG among them, now have operations there—around double the number of Japanese firms. Samsung in particular has a major cell phone production complex in northern Vietnam, with the company's contribution taking cell phones to the top of the list in terms of Vietnam's individual product exports. Manufacturers aren't the only Korean companies setting up in Vietnam. More and more retailers and restaurants, etc., are also appearing, to the extent that Japanese firms are becoming decidedly outnumbered.
Korea tops direct investment in Vietnam for the third consecutive year
There are a number of reasons for this growing Korean interest. First, soaring personnel costs in China have led Korean companies to shift their factories to Vietnam where personnel costs are comparatively cheap. Vietnamese worker wages are approximately half those of China. Up until 2013, Japan accounted for more direct investment in Vietnam than Korea (including both new and expanded investment). As of 2014, Korea seized the lead and has retained the top position for the three years since. Korea has in fact recently been the source of around 30 percent of foreign direct investment in Vietnam.
Among Korean companies with operations in Vietnam, Samsung Electronics is making the greatest contribution. In 2009, Samsung launched cell phone production in Bac Ninh in northern Vietnam, and also started producing cell phones in Thai Nguyen in 2014.
Samsung's contribution sees cell phones top export value
Up until 2012, garments were Vietnam's top export product, but in 2013, cell phones grabbed that spot and have held it ever since. Cell phones, most by Samsung, comprise around 20 percent of Vietnamese exports. The bulk of Vietnam's cell phones are sent to the United States, the European Union and the United Arab Emirates. Since Vietnam became a key Samsung production base, Samsung Display, Samsung Electro-Mechanics and a string of other Korean cell phone-related component manufacturers too have been setting up in Vietnam.
In addition to cell phones, Samsung has also been making TVs, washing machines, fridges, and other electrical appliances in Ho Chin Minh since 2016, evincing a clear focus on Vietnam. The Samsung Group has created more than 100,000 jobs in Vietnam, and also has its own cargo terminal at Noi Bai International Airport, with Samsung's local influence absolutely massive. Samsung Electronics billboards are everywhere in Vietnam's international airports and major cities such as Hanoi and Ho Chin Minh, penetrating deeply into the lives of Vietnamese citizens.
LG Electronics shifts its manufacturing from China
Samsung is not the only Korean manufacturing major to establish operations in Vietnam. LG Electronics too is actively investing there, setting up a major production complex in the port city of Hai Phong in northern Vietnam in 2015 to make TVs, cell phones, washing machines, and air conditioners, etc. LG is in the process of shifting the cell phones and washing machines, etc., that it formerly made in China to its Hai Phong complex, which is also accelerating moves by parts manufacturers in the LG Electronics Group to develop their own bases there.
Numerous Lotte Group operations
Manufacturers are not the only Korean companies launching operations in Vietnam—retailers, restaurants and hotel companies too are actively establishing local stores. Vietnam has a population of around 93 million, the third largest in the Association of Southeast Asian Nations (ASEAN) after Indonesia (around 240 million) and the Philippines (around 100 million), while Vietnam's per capita GDP has topped US$2,000, making the country an increasingly attractive consumer market. This is the second reason for Korean companies going to Vietnam.
Per capita GDP in Ho Chi Minh, Vietnam's largest commercial city, is over US$5,000, more than double the national level. The Lotte Group supermarket major Lotte Mart, the Lotte Department Store, the Lotteria restaurant and also Lotte Hotel all have multiple operations in Ho Chi Minh and the capital Hanoi. Lotteria has the greatest number of stores, becoming a familiar presence in both cities. Japanese supermarket major Aeon and department store major Takashimaya also have stores in Vietnam, but not as many as those of Korean companies.
Bakery shop Tous les Jours, which is part of Korea's CJ Group, has a local presence in Vietnam. CJ O Shopping has set up a joint venture in Ho Chi Minh, running a 24-hour teleshopping operation.
Korean TV drama series prompt new operations
Korean TV drama series popular in Vietnam have been helping Korean firms build markets there, with the Korean brands of clothes and cosmetics worn by the female characters attracting the eye of Vietnamese women in their 20s and 30s and spurring local sales. In other words, Korean TV series are also helping local sales of Korean products. Flicking on the television in Vietnam, it is surprising how many Korean series are showing. By contrast, almost no Japanese television series screen in Vietnam.
All three top skyscrapers backed by Korean capital
The number of Korean real estate and construction companies is also marked. Many Vietnamese skyscrapers are backed by Korean capital—including all of the top three. Vietnam's tallest building is the 72-floor Keangnam Hanoi Landmark Tower in Hanoi. It contains serviced apartments along with a department store, offices and a hotel. The second-highest is the 68-floor Bitexco Financial Tower, which even has a heliport. The third is the 65-floor Lotte Center Hanoi, right in the heart of the city. This is said to be symbolic for the Lotte Group, and contains a Lotte department store, supermarket, hotel and other Group operations.
With a range of Korean companies now active in Vietnam, a senior executive from one Korean manufacturer gave his company's reasons as “good public order, stable politics, and a large number of young workers.” It would be no exaggeration to say that Vietnam is the safest country in ASEAN.
700,000 jobs created
With more Korean firms now operating in Vietnam than in any other of the 10 ASEAN nations, Koreans staying there long-term now number more than 130,000 (excluding students), around 10 times the number of Japanese. Those Korean firms have created around 700,000 jobs. More than a production base, Vietnam also offers increasingly attractive consumer markets, which will see more Korean companies setting up there in future.
About the Author
Hirotaka Yamakawa, Guest Researcher, JIJI Research Institute
Born in Goshogawara City in Aomori Prefecture. Graduated from Aoyama Gakuin University's Department of Law and joined the Editorial Division at Jiji Press in 1975. In charge of the former Ministry of International Trade and Industry and the Ministry of Agriculture, Forestry and Fisheries beat, as well as top reporter for automobiles, distribution (department stores, supermarkets, etc.) and the former Ministry of Finance. After serving as Deputy Director of the Economic Division and Gifu Branch Director, he became Deputy Head of the International Office, helping to launch Vietnam bulletins. Since 2012, he has visited Southeast Asia numerous times as a Jiji Research Institute guest researcher, interviewing Japanese companies with operations there. He also gives lectures on Southeast Asia at local branches of the Jiji Press Home and Foreign Affairs Council.