Soon after the issuance of a joint statement between Vietnam and the Republic of Korea (RoK) during the RoK President’s visit to Vietnam, many people pinned their hopes on a new wave of investment from Korean investors flooding into fields that Vietnam is looking to develop, such as the support industry, electronics, energy, high tech, modern agriculture, infrastructure, large-scale energy, smart urban areas, industrial zones, innovative startups, equitisation of state-owned enterprises, and restructuring commercial banks.

Appetites have been whetted by the promise of a forthcoming third wave of investment from the RoK into Vietnam, after the first one in 1990 and the second in 2000, as evidenced by the billion-US dollar projects which have been recently funded by Korean businesses.

Ass. Pro and Dr Tran Quang Minh from the Institute for Northeast Asian Studies says this is the start of a period for the third wave of investment to support technological ventures and digital strategies. Therefore, President Moon’s Vietnam visit is seen as clearing a path for the new wave of investment into Vietnam when the doors of cooperation open.

According to the statistics of the Foreign Investment Agency under the Ministry of Planning and Investment, up to March 20, 2018 the RoK had 6,760 valid projects with a total capital of around US$59 billion, ranking first among 126 countries and territories investing in Vietnam.

Vietnam has become an attractive destination for investment and the production centres of a series of leading Korean businesses such as Samsung, LG, Hyundai Motor, Lotte, POSCO, CJ, Hanwha, Shinhan, and Kumho. More than 4,500 Korean businesses are now operating in Vietnam, showing the fact that Korean enterprises make up a large proportion.

Kwon Yul, head of the Asia-Pacific Department under the Korea Institute for International Economic Policy (KIEP), attributes the growing presence of Korean businesses in Vietnam to the country’s attractive investment incentives and lower labour costs than in China, and improvements in the laws on enterprise and investment in line with the Government’s open-door policy and drastic reforms.

Progressive improvements to the investment environment attract the long-term presence of Korean manufacturers in Vietnam, through which they reduce production costs. As a result, the Southeast Asian country has become an important hub for Korean businesses in the global production system, says Mr Yul.

One of the most evident positive signs is that Korean businesses have recently invested in fields serving the domestic market to tap into the vast numbers of young customers with burgeoning incomes. Typical examples of this trend are the penetration of famous brands like Hyundai, Kia Morning, CGV, Lotte, and Lotteria, as well as the RoK’s biggest retailer – E-mart.

A representative from the Korea Trade-Investment Promotion Agency (KOTRA) says merger and acquisition (M&A) activities from the RoK to Vietnam will follow the course of Korean FDI capital growth.

Many representatives from investment funds in different fields have learnt about investment opportunities through their meetings with local businesses, consultant organizations, and the State Capital Investment Corporation (SCIC). Several M&A transactions are expected to be executed in the coming months as the Korean side has allocated a sizeable budget to its investment funds for M&A activities in Vietnam.

Experts forecast that investments from the RoK into Vietnam will see a continued upsurge in the near future as their trust in the investment environment improves. Greater opportunities for market expansion will open up when Vietnam joins more free trade agreements (FTAs).

In addition to the new investment trend, the coming time will experience an increase in small and medium-sized Korean enterprises in Vietnam, which  have rising demands for seeking satellite firms capable of undertaking their outsource, especially when they have gained a relatively firm foothold in the country following a series of large-scale investment projects. 

Recently, Nexen Tech signed a memorandum of understanding (MoU) with the northern province of Ninh Binh to build a US$50 million plant for the manufacture of wiring harnesses to meet the demand of Hyundai group in Vietnam and serve export.