Germans hope to advance in Vietnam

The strategic partnership established in 2011 between Vietnam and Germany has demonstrated the determination to expand and strengthen multifaceted cooperation between the two countries. Marko Walde, chief representative at the Delegation of German Industry and Commerce in Vietnam (AHK Vietnam), discusses why Vietnam is so attractive and what German companies expect to gain.

Since official implementation of 2011’s strategic partnership, Vietnam and Germany have witnessed progress in all areas of cooperation, particularly in bilateral trade and investment, promoting renewable energy, German dual vocational training, Industry 4.0, and attracting high-quality human resources to work in Germany.

With a trade volume of almost €14 billion ($15.95 billion) reached in 2020, Germany is Vietnam’s one of the most important ASEAN trading partners in the EU. Over 500 German companies are represented in Vietnam and total foreign direct investment has reached more than $2.3 billion at the end of 2021, according to the Ministry of Planning and Investment. This funding has created around 47,000 quality jobs in Vietnam.

The Vietnamese market remains a prominent destination for German businesses and investors. Many foreign businesses are considering enlarging their supply chains to Vietnam or diversifying their business operations into Vietnam according to the China+1 strategy because this country owns an agile and flexible economy as well as a swiftly responsive ability to the ever-increasing speed of product innovation.

Tesa SE – a German brand that ranks among the world’s leading manufacturers of technical adhesive tapes and self-adhesive system solutions – implemented such a strategy and invested €55 million ($62.7 million) in 2020 to build a tape adhesive plant in DEEP C Industrial Zones in the port city of Haiphong in northern Vietnam. This move plays a vital role for the group in entering a promising and dynamic Asian market and continuously strengthening its reputation in this region.

Another German investor, KURZ Group, is developing a coating and thin-film technology factory in Becamex VSIP Binh Dinh with total registered capital of $40 million. This marked the first German project invested in the south-central province, which adopted the China+1 strategy for diversifying and managing the global supply chains.

Why Vietnam?

Location has always been one of the most significant factors of Vietnam for foreign investors according to its geographical proximity to China and Southeast Asia. To attract foreign capital, it is essential to shorten access routes to potential markets, to build an agile and flexible supply chain and to develop local sources of raw materials.

Vietnam is also supported by a growing network of free trade agreements (FTAs), including 17 FTAs, especially the EU-Vietnam deal (EVFTA). The EVFTA offers countless opportunities for European and German companies. They can enjoy protection of investments with trade facilitation in Vietnam, including removing tariffs, reducing regulatory barriers, overlapping red tape, and ensuring the protection of geographical indications, as well as opening services and public procurement markets and making sure the agreed rules are enforceable.

In addition, the EVFTA highlights a principle of non-discrimination that allows German companies to be entitled to the same treatment as Vietnamese companies during their entire procurement process.

Last year, the Asia-Pacific Committee of German Business called for a stronger EU commitment in Asia and confirmed the growing importance of Vietnam as a production location. After just over a year of entry into force, some of the potential benefits of the EVFTA for German companies have yet to be fully realised due to the pandemic and several restrictions. However, the legal framework of Vietnam has been changing effectively and positively to meet new requirements of the agreement.

Furthermore, many opportunities are gradually opening up when the global economic picture shows many bright spots in 2022 after a period of decline due to the pandemic. Trade activities with the EU and Germany should be brighter than in 2021 as Vietnam businesses are better adapting to the situation and effectively taking advantage of the incentives of the EVFTA as well as the increased demand for import and export of goods.

Meanwhile, Vietnam is an emerging market with a huge population and an average wage that is around one-fifth in comparison to China. However, the lack of qualified workers has created a huge obstacle for German investors, with 42 per cent of German companies naming this the greatest factor of business uncertainty in 2021 in Vietnam, based on our survey in August 2021.

To increase the share in Vietnam’s value chain, German companies must be able to find a suitable, qualified workforce that is competent in operating modern machinery and equipment. Although the workforce in Vietnam is young and abundant, most of them are lacking essential skills in the market. Understanding the challenges of companies, AHK Vietnam along with its Education and Training Department hopes to assist companies in establishing a comparable, quality-assured German Dual Vocational Education and Training (VET) programme in Vietnam based on the German DIHK-standards, aiming to convey practical skills that fulfil the desired hiring and production requirements of companies.

Bosch Vietnam Co., Ltd and Mercedes-Benz Vietnam are two models that have proven the success stories of the German dual VET programme in Vietnam. Our cooperation with Bosch in the southern province of Dong Nai has been training 24 apprentices in industrial mechanics and mechatronics every year according to the A standard.

Since 2013, there have been seven training batches completed and graduated. Together with Mercedes-Benz Vietnam and LILAMA2 International Technology College, we have coordinated and implemented the dual VET scheme for the automotive mechatronics technician occupation. Our corporate-based training programmes also fit German and international small/medium-sized businesses as well as local companies. Currently, we cooperate with them in organising dual vocational training courses according to German standards for quality skills and an attractive and sustainable future.

Development expectations

Due to Vietnam’s robust economic development, population growth, and heavier industrialisation and urbanisation, the Vietnamese government is moving forward to develop renewable energy sources to ensure energy efficiency. Significantly, thanks to Vietnam’s recent efforts to diversify its power mix with a heavier focus on renewable energy projects, the country is now in a great position to build a sustainable future and attract foreign investments to its energy sector.

By 2030, this country aims to become one of the most efficient power markets in Southeast Asia with a wide variety of green power opportunities.

PNE AG from Germany is one of the world’s leading investors in developing onshore and offshore wind power projects that operates in 13 countries on four continents. With investment up to $4.8 billion, PNE is building a mega offshore wind power project in the south-central province of Binh Dinh, which can turn Vietnam into a competitive wind power supplier in the southeast region and worldwide. PNE’s plan is to build 154-166 wind turbines with a total capacity of up to 2,000MW. This project is highly feasible, providing a considerable amount of electricity to Binh Dinh and the national power system from 6.6-7 billion kWh a year.

Germany has become an important destination for Vietnamese investors, especially in this green sector. Indefol GmbH, founded in Berlin last year, has the purpose of producing solar roofs and technical equipment for wind energy as well. Vietnam and the EU are expecting an investment protection agreement in the upcoming time to provide a further boost to such bilateral economic relations.

As economic activities resumed last autumn after many restrictions, Vietnam remains an attractive investment destination, including for further relocations out of China. German businesses are confident about their own business development and they expect a further revival of their own activities despite the cooling economy and are confident about the business development in 2022.

Around 55 per cent of German companies in Vietnam expect their own businesses to improve; 83 per cent of survey participants intend to invest further in their activities in Vietnam; and 33 per cent assume an increase in employment in the upcoming 12 months. For the mid-term expectation, we look forward to an increase of investment from Germany into Vietnam based on the constantly improved conditions here.

Many high-valued projects are also expected to flow into Vietnam in the long term, including from Germany. German investors would bring their well-known technology in management and training, allowing more value-added production as well as less waste of both material and resources.

Source: Vietnam Investment Review