Vietnam Drives German Investors’ Optimism

Vietnam is the country where according to AHK World Business Outlook for Spring 2023, 91% of German companies intend to continue to either invest in or expand their production, and approximately 40% of them planning to increase their workforce over the next 12 months.

Source: Vietnam Investment Review

Thanks to the government’s plans and the presence of stable macroeconomic conditions, Vietnam has maintained positive economic growth. As a result, German companies operating in Vietnam are more optimistic than they were in the Autumn of 2022, even though their short-term expectations remain cautions due to the current global challenges.

88% of the surveyed participants are confident in their business situation in Vietnam, nearly half of those from Germany expect economic growth to remain consistent, and 21% of them believe it will improve further. Despite German enterprises showing resilience and having high expectations for the Vietnamese market, they still identified several risks to their business development caused by global economic fluctuations.

These include low global demand (51%), concerns about the economic policy framework (46%), a shortage of skilled personnel (34%), and potential disruptions in the supply chain (28%). Added to this are long-term geopolitical challenges, which companies see particularly as inflation and monetary policy (41%), fragmentation of the global economy (41%), and increasing political influence on the supply chain (40%).

Despite the challenges, Vietnam is expected to experience a resurgence in its economic growth in the medium term. This will be fuelled by various factors, including free trade agreements, most notably the EU-Vietnam Free Trade Agreement (EVFTA), the implementation of the China+1 strategy, the global trend of shifting and diversifying manufacturing supply chains towards competitive hubs in Southeast Asia, and the inflow of green investments.

57% of German companies in Vietnam prioritise diversifying their supply chains, with the nation being their top choice – followed by Malaysia and Thailand. The Delegation of German Industry and Commerce in Vietnam suggests the following focus areas to further strengthen the attractiveness of investment in Vietnam.

First, there should be collaborative efforts to address the potential shortage of skilled staff by equipping them with German-standard skills, capitalising on Industry 4.0 and the digital transformation. Secondly, Vietnam should prioritise strengthening its local suppliers to maintain its role in the supply chain, while also complying with sustainable development regulations and the German Supply Chain Due Diligence Act.

In addition, the concretisation and implementation of the Power Development Plan VIII is recommended to incentivise renewable energy production. Finally, the country should simplify, digitalise, and streamline its administrative procedures to leverage the EVFTA and enhance its business and investment environment.

For the metalworking world, Vietnam may just be on its way to enjoy a spike in machine tool manufacturing, some of them are:

1. CNC Machines: German companies manufacture CNC machines in Vietnam, including milling machines, lathes, and machining centers.
2. Power Tools: Various German brands produce power tools like drills, grinders, and saws in their Vietnamese manufacturing plants.
3. Cutting Tools: German cutting tool manufacturers have set up production facilities in Vietnam, producing tools such as drills, end mills, taps, and inserts.
4. Welding Equipment: German welding equipment companies manufacture welding machines, torches, and accessories in Vietnam.
5. Metrology Instruments: Precision measurement and testing equipment

In conclusion, a significant majority are optimistic about their business prospects in Vietnam, and German enterprises, in particular, show considerable confidence in the country’s economic growth. However, amidst this optimism, German companies also acknowledge the presence of various risks, primarily linked to global economic fluctuations and potential challenges in the supply chain.

Notwithstanding these concerns, Vietnam remains poised for a resurgence in economic growth, fueled by key factors such as advantageous free trade agreements like the EU-Vietnam Free Trade Agreement, the China+1 strategy implementation, and the growing trend of shifting manufacturing supply chains towards Southeast Asia’s competitive hubs. Moreover, the country is attracting green investments, further bolstering its potential for sustainable development.

As Vietnam continues to attract foreign investments and foster innovation, it is on track to maintain its position as a promising and dynamic market in the medium term. With prudent strategies, adaptive policies, and robust partnerships, German businesses, along with others investing in Vietnam, can capitalise on the nation’s evolving economic landscape and unlock new opportunities for success.

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