Welcome to the Vietnam Investment Expert Online Q&A platform. In this session, we will delve into some complex investment cases and provide professional insights on key issues such as factory location selection.

Q1: We are a medium-sized electronics components manufacturer planning to set up a factory in Northern Vietnam. Considering the connection with China’s supply chain, we are weighing options between Bac Ninh Province and Hai Phong City. Which location would be more suitable for us? What are the main decision factors?

Expert Answer (Industrial Real Estate Consultant):

Both Bac Ninh Province and Hai Phong City are important industrial centers in Northern Vietnam, each with its advantages:

Bac Ninh Province Analysis:

• Advantages: Close to Hanoi, mature electronics manufacturing cluster, relatively lower labor costs.
• Challenges: Rising land costs, some aging infrastructure in industrial zones.

Hai Phong City Analysis:

• Advantages: Home to Vietnam’s second-largest port, newly developed deep-water port project, strong government push for high-tech industries.
• Challenges: Farther from Hanoi, relatively scarce high-skilled labor.

Decision Factors:

1. Supply Chain Integration: Bac Ninh is slightly better, especially if your main suppliers are in South China.
2. Logistics Costs: If your products are primarily for export, Hai Phong’s port advantages are worth considering.
3. Labor Force: Both areas have abundant labor, but Bac Ninh has an edge in electronics manufacturing talent.
4. Government Support: Hai Phong currently offers more favorable policies.
5. Long-term Development: Hai Phong may have greater development potential.

Recommendation: Given that you are an electronics components manufacturer, I tend to recommend Bac Ninh Province, primarily due to its mature electronics manufacturing ecosystem, convenient connections with China’s supply chain, and existing pool of skilled workers.

Follow-up Question: Regarding the rising land costs in Bac Ninh, what is your outlook for the next few years? Could this impact the investment attractiveness of the area?

Market Research Insights:

1. Short-Term (1-2 years): Industrial land rents in Bac Ninh may continue to rise slightly, with an annual growth rate of about 5-8%.
2. Mid-Term (3-5 years): As new development areas become available, price growth may slow to 3-5%.
3. Long-Term: Newly planned industrial zones may balance supply and demand in about five years, stabilizing prices.

Despite the rising costs, Bac Ninh’s investment attractiveness is unlikely to be significantly affected in the short term due to:

1. Cluster Effects: Provides significant synergies.
2. Infrastructure Investment: The government is heavily investing in infrastructure, such as new and expanded highways.
3. Skilled Workforce: A large pool of skilled workers that new zones cannot easily replicate in the short term.
4. Government Incentives: The local government may introduce new incentives to offset rising land costs.

Suggestions:

1. Consider long-term lease agreements to lock in current lower prices.
2. Evaluate land use efficiency and, if possible, consider multi-story factory designs.
3. Continuously monitor opportunities in newly developed areas.

Overall, Bac Ninh still holds high investment value, but companies need to manage costs more precisely and remain flexible to adapt to potential changes.

Q2: We are a German company specializing in renewable energy and planning to invest in a solar panel manufacturing plant in Southern Vietnam. In addition to traditional location factors, we are particularly concerned about environmental policies and incentives related to green energy. Could you provide some insights?

Expert Answer (Renewable Energy Policy Expert):

The Vietnamese government’s “National Energy Development Strategy Plan” aims for renewable energy to account for 32% of total electricity generation by 2030 and 40% by 2045, providing substantial growth opportunities for the solar industry.

Southern Region Analysis:

1. Advantageous Locations:
   • Binh Duong Province: Close to Ho Chi Minh City, well-developed infrastructure.
   • Long An Province: Lower labor costs, government actively promoting high-tech industries.
   • Ba Ria-Vung Tau Province: Good port facilities, suitable for export-oriented companies.
2. Environmental Policies:
   • The “Environmental Protection Law” (Revised 2020) has clear support clauses for renewable energy projects.
   • Each province has specific environmental incentive policies.
3. Green Energy Incentives:
   • Corporate Income Tax: Preferential rate of 10% for 15 years.
   • Tax Exemption Period: Full exemption for four years, and a 50% reduction for the next nine years.
   • Import Duties: Exemption for production equipment and raw materials.
   • Land Rent: Exemptions for up to 15 years in certain areas.

Specific Recommendations:

1. Location: Consider the Vietnam-Singapore Industrial Park (VSIP) in Binh Duong or Phu My 3 Specialized Industrial Park in Ba Ria-Vung Tau.
2. Supply Chain Integration: Collaborate with local suppliers for additional policy support.
3. Talent Strategy: Establish partnerships with local universities to train talent for the project.
4. Grid Connection: Engage early with local power companies to ensure smooth grid integration.
5. Local Collaboration: Consider forming strategic partnerships with local renewable energy companies.

Potential Risks:

1. Policy Changes: Keep a close eye on policy trends and maintain flexibility.
2. Technical Standards: Ensure production lines can adapt to possible new standards.
3. Increasing Competition: Differentiation strategy will become increasingly important.

Follow-up Question: Could you provide more specific information on the grid connection issue? We are concerned this might be a major risk point for the project.

Detailed Analysis on Grid Connection:

1. Current Status:
   • The Southern Vietnam grid, especially in industrial zones, is under capacity pressure.
   • Data from 2022 indicates that some industrial zones in Binh Duong and Dong Nai provinces faced power cuts during peak usage times.
2. Improvement Plans:
   • The Vietnamese government is implementing the “2021-2030 Power Development Plan” with an investment of about $12 billion over the next five years to upgrade the Southern grid.
3. Specific to Solar Panel Manufacturing:
   • As a manufacturing entity, your factory’s power demand is relatively stable, which is simpler than integrating a large-scale solar farm.
   • If planning to install a rooftop solar system and sell electricity to the grid, there may be some restrictions.
4. Suggested Measures:
   • Prioritize industrial zones that have undergone grid upgrades when selecting a site.
   • Establish direct contact with the Southern division of the Vietnam Electricity Corporation (EVN).
   • Consider installing your own substation.
   • Evaluate the feasibility of using an energy storage system.
5. Policy Support:
   • The Vietnamese government is considering prioritizing power supply for high-tech manufacturing industries.
   • Some provinces, such as Binh Duong, are providing additional tax incentives for companies with their own power facilities.
6. Case Reference:
   • Refer to First Solar’s experience in 2021 at VSIP II, where they successfully resolved grid connection issues through close early-stage cooperation with EVN.

Overall, while grid connection is a serious issue, it can be effectively managed through proper planning and close cooperation with relevant parties.

Q3: We are a Chinese automotive parts manufacturer specializing in electric vehicle battery management systems (BMS). We are evaluating the possibility of setting up a factory in Vietnam, mainly to supply local electric vehicle manufacturers. Could you analyze the development prospects of the electric vehicle industry in Vietnam and related supply chain opportunities?

Expert Answer (Automotive Industry Analyst):

Vietnam’s electric vehicle (EV) industry is in a rapid development phase, offering significant opportunities for parts manufacturers.

Industry Status:

1. Market Size:
   • Approximately 23,000 electric vehicles were sold in Vietnam in 2022, representing a year-over-year growth of more than 200%.
   • Sales are expected to reach about 50,000 vehicles in 2023.
2. Key Players:
   • Local Brands: VinFast holds about 60% of the domestic EV market.
   • International Brands: Tesla, Hyundai, Kia, and others are actively establishing a presence.
3. Policy Support:
   • The “2022-2030 Automotive Industry Development Strategy” supports EV development with measures including purchase tax reductions and road fee discounts.

Development Prospects:

1. Market Forecast:
   • By 2030, EVs are expected to account for over 30% of new car sales in Vietnam.
   • Annual EV sales in Vietnam are projected to reach 100,000 units by 2025.
2. Infrastructure Development:
   • The government plans to build 21,000 charging stations nationwide by 2025.
   • VinFast is investing in building a national charging network.
3. Localization Trend:
   • The government is pushing for local production of core EV components.

Supply Chain Opportunities:

1. Demand for Battery Management Systems (BMS):
   • There is strong local demand for BMS.
   • Currently, Vietnam lacks mature BMS manufacturers, presenting significant market opportunities.
2. Potential Customers:
   • VinFast is the largest potential customer, actively seeking local suppliers to reduce costs.
   • Other potential customers include Thanh Cong Group (collaborating with Hyundai) and THACO (collaborating with Mazda and Kia).
3. Supply Chain Integration:
   • Vietnam is building a complete EV supply chain; consider forming strategic partnerships with other component suppliers.

4. Export Opportunities:
   • Vietnam has signed free trade agreements (FTAs) with multiple countries and regions, facilitating potential exports to other Southeast Asian countries and beyond.

Strategic Recommendations:

1. Local Production:
   • It is recommended to establish a factory around Hanoi or Ho Chi Minh City.
   • Consider phased investment: start with an assembly line and gradually increase localization rates.
2. Technical Collaboration:
   • Establish research and development partnerships with local universities, such as Hanoi University of Science and Technology (HUST).
3. Customer Relations:
   • Establish contact with VinFast as soon as possible.
   • Participate in the Vietnam International AutoExpo (VIAE) to network and gain market insights.
4. Policy Navigation:
   • Stay updated on the upcoming “Incentive Policy for New Energy Vehicle Development.”
   • Consider applying for high-tech enterprise status to avail more benefits.

Potential Risks:

1. Market Competition:
   • As the market grows rapidly, more international suppliers are expected to enter.
2. Technical Standards:
   • Vietnam may adopt stricter EV technical standards in the future.
3. Supply Chain Fluctuations:
   • Global chip shortages and other issues could impact BMS production.

Follow-up Question: Regarding VinFast, we heard they are expanding into overseas markets, especially the U.S. How might this affect their supply chain strategy in Vietnam? Should we consider meeting both domestic and export market demands?

VinFast’s Internationalization Strategy Analysis:

1. VinFast’s Global Expansion:
   • Actively expanding into overseas markets, particularly North America.
   • Constructing a plant in North Carolina, U.S., with production slated to begin in 2024.
   • Exported nearly 7,000 EVs to the North American market in the first three quarters of 2023.
2. Impact on Vietnam’s Supply Chain:
   • Short-term (1-2 years): VinFast is likely to continue relying on Vietnam’s supply chain to support its global expansion.
   • Mid to Long-term (3-5 years): With the U.S. plant operational, VinFast may gradually establish a localized supply chain in the U.S.
3. Changing Supplier Requirements:
   • Quality Standards: Likely to increase, including obtaining international certifications such as IATF 16949.
   • Technical Requirements: Suppliers may need to provide more advanced technical solutions.
   • Cost Control: There may be greater pressure on suppliers to reduce costs.
4. Opportunities and Challenges:
   • Opportunities: Meeting VinFast’s global supply needs could present significant growth opportunities.
   • Challenges: Products must meet regulations in multiple markets, especially U.S. Federal Motor Vehicle Safety Standards (FMVSS).

Strategic Recommendations:

• Certification Preparation: Prepare to obtain certifications required for the U.S. market, such as UL certification.
• Capacity Planning: Consider reserving sufficient capacity to meet potential export demands when planning the Vietnam factory.
• International Team: Consider recruiting management and technical talent with international experience to better handle global challenges.

Case Reference:

• Reference the strategy of LG Chem in Vietnam. Their battery factory in Hanoi supplies both VinFast and supports their global supply chain.

Risk Considerations:

• Avoid over-reliance on a single customer (such as VinFast). Consider developing other customers, such as Thanh Cong Group or international joint ventures in Vietnam.

Overall, VinFast’s international strategy presents more significant opportunities for capable suppliers. If your company can meet higher quality and technical requirements and possesses some level of internationalization capability, you can not only establish a foothold in the Vietnamese market but also leverage VinFast’s globalization strategy to achieve international expansion. It is recommended that you incorporate this global perspective into your Vietnam investment strategy and prepare for future international development.

Q4: We are a Japanese company specializing in industrial automation, considering establishing a production base in Central Vietnam (e.g., Da Nang City). We notice that the industrial base in this area is relatively weak, but the government seems eager to promote development. Could you analyze the advantages and risks of investing in Da Nang and surrounding areas, especially regarding talent, infrastructure, and policy support?

Expert Answer (Regional Economic Development Expert):

Da Nang, as the largest city in Central Vietnam, is actively promoting industrialization and modernization. Here is a detailed analysis:

Advantages Analysis:

1. Geographical Location:
   • Positioned at the center of Vietnam, Da Nang serves as a crucial hub connecting the northern and southern regions.
   • Equipped with a deep-water port and international airport, Da Nang offers excellent logistics conditions.
2. Policy Support:
   • The central government designates Da Nang as one of the national central cities, providing special policy support.
   • Da Nang’s government has launched the “Vision 2030 Plan,” focusing on the development of high-tech industries and smart manufacturing.
3. Cost Advantages:
   • Compared to Hanoi and Ho Chi Minh City, Da Nang has relatively lower land and labor costs.
   • As of 2023, the land rent in Da Nang’s industrial zones is about $2.5-4 per square meter per year, 30-40% lower than in Ho Chi Minh City.
4. Talent Resources:
   • Da Nang University and Da Nang University of Technology annually produce a large number of engineering and technical talents.
   • The city government has implemented a “Talent Attraction Program,” offering housing subsidies and other incentives for highly skilled workers.
5. Infrastructure:
   • The expansion of Da Nang International Airport is underway, expected to reach an annual capacity of 28 million passengers by 2025.
   • The Da Nang Hi-Tech Park is vigorously developing, focusing on attracting automation, IT, and other high-tech industries.
6. Quality of Life:
   • Da Nang has been rated as one of the most livable cities in Vietnam for several years, which helps attract and retain talent.

Risks and Challenges:

1. Weak Industrial Base:
   • Compared to the major economic centers in the north and south, Da Nang’s industrial base is still relatively weak, potentially leading to an incomplete supply chain.
2. Talent Pool:
   • Although local universities exist, high-end technical talents and experienced management personnel are still scarce.
3. Market Size:
   • The local market is relatively small, and most manufacturing enterprises need to target the national or export markets.
4. Infrastructure Development Progress:
   • Some large-scale infrastructure projects may face delays, which could affect short-term operational efficiency.

Specific Analysis for the Industrial Automation Industry:

1. Market Potential:
   • Vietnam is pushing for manufacturing upgrades, increasing demand for industrial automation equipment.
   • According to the Ministry of Industry and Trade of Vietnam, the industrial automation market in Vietnam is expected to reach $200 million by 2025, with an annual growth rate of about 15%.
2. Talent Strategy:
   • Collaborate with the Engineering Department of Da Nang University; consider setting up a joint laboratory.
   • Implement a “Technical Expert Exchange Program,” regularly sending experts from the Japan headquarters to Vietnam for technical guidance and training.
3. Supply Chain Considerations:
   • In the short term, some components may need to be procured from Hanoi or Ho Chi Minh City.
   • Consider collaborating with the Da Nang Hi-Tech Park to attract related suppliers to move in together.
4. Policy Utilization:
   • Da Nang is implementing a “Smart Manufacturing Promotion Plan,” providing additional tax incentives for automation equipment manufacturers.
   • Apply for “High-Tech Enterprise” status to gain more policy support, such as extended tax reduction periods.

Investment Recommendations:

1. Phased Investment:
   • Phase One: Establish an assembly and testing center; key components can be imported from Japan.
   • Phase Two: Gradually increase the localization ratio based on market response and local supply chain development.
2. Technical Positioning:
   • Considering the current state of Vietnam’s manufacturing industry, it is recommended to first introduce mid-range automation solutions suitable for the Vietnamese market.
   • Simultaneously, set up a research and development center to develop customized solutions for the Southeast Asian market.
3. Market Strategy:
   • In addition to serving the local market in Da Nang, use it as a base to cover the entire central and southern markets.
   • Consider establishing strategic partnerships with major Vietnamese manufacturing companies (such as Trung Nam Group, Hoa Phat Group).
4. Government Relations:
   • Proactively establish contacts with the Da Nang City Investment Promotion Agency (DPI), which can provide one-stop services.
   • Participate in the “Investor Roundtable Meetings” organized by the Da Nang government, an excellent opportunity for direct dialogue with decision-makers.
5. Talent Localization:
   • Develop a five-year talent localization plan, gradually increasing the proportion of local management personnel.
   • Consider offering core technical staff opportunities to train at the Japan headquarters, which will significantly enhance employee loyalty.

Conclusion:

Da Nang and its surrounding areas offer unique opportunities for industrial automation companies. While there are challenges, with appropriate strategic planning and risk management, this region could become a crucial base for your company in the Southeast Asian market. It is recommended to conduct a site visit, experience the local investment environment firsthand, and engage directly with potential partners and clients. Da Nang is at a critical stage of transformation, and entering now could provide a “first-mover advantage.”

Summary:

Through this expert Q&A session, we have explored several important aspects of investing in Vietnam, particularly regarding factory location selection. Key conclusions are as follows:

1. Regional Choice is Critical: The northern, southern, and central regions each have advantages; companies must weigh their choices based on their characteristics and strategic needs.
2. Industry Ecosystem Considerations: From electronics manufacturing to electric vehicles and industrial automation, different industries are at various development stages and prospects in Vietnam. Understanding and integrating into the local industrial ecosystem is key to success.
3. Policy Orientation Has Significant Impact: Vietnamese governments at all levels actively promote foreign investment, but specific implementations and incentives vary by region. Fully leveraging relevant policies is an important way to enhance competitiveness.
4. Talent Strategy Formulation is Essential: Although Vietnam has abundant labor resources, acquiring and training high-skilled talents remains a challenge. Collaborating with local educational institutions and developing long-term talent localization plans have become necessary strategies.
5. Infrastructure is a Key Consideration: From power supply to logistics networks, the completeness of infrastructure directly affects operational efficiency. Comprehensive assessment and strategy formulation are necessary when selecting a site.
6. Market Positioning and Development Strategy: Vietnam is not only a potentially huge local market but also an important production base for the global market. Companies need to find a balance between localized production and international expansion.
7. Risk Management Should Not Be Overlooked: Risks such as exchange rate fluctuations, policy changes, and supply chain disruptions need careful handling. Establishing a comprehensive risk assessment and management system is essential for long-term success.

For companies planning to invest in Vietnam, comprehensive market research, flexible strategy adjustments, localized business concepts, and good relationships with governments and partners are indispensable success factors. The Vietnamese market is full of opportunities and challenges; only well-prepared companies can achieve long-term growth in this emerging market.