Citi creating robust energies for South Korean investors

Shawn Khong & Don Choi

As an international bank supporting many key South Korean clients in Vietnam since 1994, what has the wave of their investment looked like over that time?

Don Choi: It can be largely divided into three stages with the first two stages focused on exports. After the normalisation of diplomatic relations between South Korea and Vietnam in 1992 following the lifting of the trade embargo, Vietnam experienced a first wave of funding from South Korea that was primarily focused on labour-intensive manufacturing in the garment and textiles sector.

The next phase in the 2000s was characterised by manufacturing of electronic goods and components. Most recently, the third wave has been in consumer goods, tapping into an emerging middle class, with sectors including retail, healthcare, tourism, and financial services.

Citi has been a key partner of South Korean enterprises in Vietnam. We have provided merger and acquisition advisory services and financing, as well as cash management services by providing tailored solutions along their investment journey.

South Korea remains by far the largest overseas investor in Vietnam. What is the attractiveness of Vietnam as a destination?

Shawn Khong: If you look at the macro picture, Vietnam has been considered as one of the fastest-growing and most stable economies in Asia Pacific over the past few years. Vietnam’s economic growth is also driven by rising domestic consumption, robust export performance supported by a relatively stable currency, and a low inflation rate.

The labour force is also another important factor. Vietnam has a young population, nearly half of whom are less than 35 years old, and two-thirds are considered part of the working population.

Vietnam also continues to improve its infrastructure, including seaports, land, rail, and air in order to ensure that the country is able to efficiently support the global supply chain ecosystem.

Don Choi: Vietnam has also proactively integrated globally as a member of the ASEAN and the World Trade Organization, as well as being a part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the free trade agreement with the EU.

Having this integration makes Vietnam attractive to South Korean groups, especially those with substantial imports of raw materials and manufactured products.

While many South Korean companies pouring money in Vietnam are part of the manufacturing and electronics supply chain, we have also started to see more entrants into new economic industries including the online marketplace, online gaming, and also logistics and deliveries. This is driven by the young and emerging affluent population – one with very different spending and retail behaviour than previous generations.

The South Korean players in Vietnam include some big names such as CJ, Samsung, and LG. What has Citi been doing to facilitate their operations in this country?

Don Choi: With a global network and in-depth local expertise in each of our markets, we are uniquely positioned to advise South Korean clients. Citi can support every aspect of their banking needs including capital raising, M&A, trade finance, cash management, and foreign exchange hedging.

We have also built up a strong network of desks around the world to support Asian clients as the continent’s companies increasingly expand globally. These desks locate representatives who are very familiar with their home market into markets where our customers are based, so they can support flows between those two countries. One of our fastest growing desks is the Korea desk here in Vietnam. Citi has provided not only financing but also banking products and advisory services to facilitate our clients’ sustainable growth. To assist in their expansion, Citi has worked closely with the State Bank of Vietnam and other ministries. We hallmarked innovative solutions such as entrustment lending; digital solutions such as electronic customs declaration and e-tax to streamline documentation and payment processes; and a payment outlier detection system to detect fraud.

As Vietnam wishes to remain an attractive destination for South Korean enterprises of all shapes and sizes, how does Citi support them entering the country?

Shawn Khong: While Vietnam is an attractive market, it is also understandable that small- and medium-sized enterprises and new entrants to the country may find it helpful to have guidance to navigate a new market, including understanding the business environment and economic drivers; appropriate factory locations; information on infrastructure and hiring of workers; tax considerations; and the various options and processes behind incorporating an entity.

This is why Citi Commercial Bank has hosted Vietnam Day events in many countries including South Korea and invited our business partners to present their insights in their respective areas of expertise to our institutional clients.

We most recently held a successful half-day Vietnam Day event in Seoul in November that was well received and attended by nearly 50 of our South Korean clients with an interest in Vietnam.

What is your advice for South Korean companies looking to thrive in this exciting but competitive market?

Shawn Khong: They should view Vietnam as a long-term investment strategy given the positives and attractions, and not just as a reaction due to the current macro-economic uncertainties and trade tensions. They should take holistic sourcing strategies and tap into Vietnam’s strengths given global infrastructure and supply chains remain a challenge for select sectors.

They should also look beyond tax and land incentives and focus on the entire ecosystem including subcontractors, vendors, logistics, and labour.