German investments on the rise in local business

Vietnam is becoming a regional investment hotspot as it continues to improve its business climate through reforms

It is expected that next month, Marquardt Group, a German manufacturer of electro-mechanical and switching systems, will come to the south-central city of Danang to discuss a high-tech automotive component production project with local authorities.

Total investment capital of the project is expected to be $39-50 million, which would employ 500-600 local workers. Construction is to take about two years.

Marquardt supplies components for world-famous auto brands like Mercedes Benz, BMW, Volkswagen, and General Motors.

A regional hotspot for investment

According to Germany’s Embassy in Vietnam, many big German firms will continue increasing their presence in Vietnam, where they see great potential, based on an increasingly attractive business climate, and Vietnam’s recent and future free-trade agreements (FTA) with foreign partners.

German investments in Vietnam can be found in many sectors, including automobile production, energy, and machinery.

“Vietnam is one of the markets Bosch is focused on in Southeast Asia,” said Bosch Vietnam managing director, Vo Quang Hue.

For the fiscal year of 2015, Bosch grew by 50 per cent in Vietnam, amounting to $68 million in consolidated sales.

In 2016, Bosch invested an additional $22 million into the Gasoline Systems plant in the southern province of Dong Nai – which produces push-belts for continuously variable transmissions. By late 2016, Bosch will have completed an investment of $340 million over the past five years to increase capacity and meet the growing global demand for this technology.

“We aim to develop Vietnam as a strategic hub for research and development (R&D), and high-tech manufacturing for Bosch in Southeast Asia. Our software and engineering R&D centre will continue providing smart solutions to not only Bosch internal customers, but also non-Bosch customers,” Hue added.

Pham Thai Lai, president and CEO of Siemens Limited Vietnam, told VIR, “As one of the fastest growing countries in the region, Vietnam is strategically important for Siemens – especially given its domestic market of more than 90 million people. Vietnam is also a hub to serve the region, due to a number of trade agreements between Vietnam and global markets, such as the EU-Vietnam Free-Trade Agreement (EVFTA), and the Trans-Pacific Partnership (TPP). These will further boost the economy and make Vietnam an even more attractive investment target in the future.”

Siemens wishes to participate in thermal power projects and smart transport in urban areas of Vietnam. It is currently pursuing participation in the Metro Line 2 project in Ho Chi Minh City.

Meanwhile, Germany’s international green energy firm, Terra Wood Company, has just proposed a $400 million wind and solar energy project in the south-central province of Quang Ngai.

This firm is now preparing to conduct surveys for the 300 megawatt project, which will include two plants – one wind and one solar – covering 600 hectares of land.

According to a recently-released AHK World Business Outlook survey by German Industry and Commerce in Vietnam (GIC/AHK Vietnam), German firms’ confidence, outlook, and expectations in Vietnam for the next year are growing.

Under the survey, over half of the German firms are upbeat about Vietnam’s economic prospects. Sixty per cent expect a good business performance in the next 12 months.

Seventy per cent think their business situation at this time is good, while 58 per cent marked their business outlook as “positive”. Fifty four per cent are considering a rise in their investment in Vietnam next year, while 58 per cent will hire more employees.

“German enterprises are now seeking investment opportunities and further investments in Vietnam, because they see Vietnam as an attractive destination in terms of the integration encouraged by Vietnam’s government – especially the EVFTA and TPP – and other location advantages of Vietnam,” said GIC/AHK Vietnam chief representative Marko Walde.

For example, medical equipment maker B. Braun will complete its $225 million investment in Vietnam by 2017. Ball-bearing manufacturer Schaeffler is also boosting its investment, after having disbursed $117 million for its projects in Danang.

Other firms also considering a hike in investment in Vietnam include Messer, which has invested $80 million in producing industrial gas, and Knauf, which has invested $38 million in making gypsum in the country.

As a fast-growing market, and the second ASEAN country (after Singapore) that will have an FTA with the EU, Vietnam is in a uniquely appealing situation.

“This FTA will provide significant new opportunities for companies on both sides by increasing market access for goods and services. The agreement will help promote high-quality capital flow from the EU, as the business and investment environment is bound to improve now that commitments have been made,” Walde said.

After the EVFTA takes effect, nearly all customs duties – over 99 per cent of the tariffs – will be eliminated. Vietnam will liberalise 65 per cent of import duties on EU exports to Vietnam when the treaty comes into force, and the remaining duties will be eliminated over the next 10 years.

The market will be opened for most EU food products. Wine, spirits, and frozen pork meat will be liberalised after seven years, and dairy products after a maximum of five years. Furthermore, the agreement will contain an annex with provisions to address non-tariff barriers in the automotive sector.

Bosch sees potential for its long-term growth in Vietnam as well as in Southeast Asia, thanks to the ASEAN Economic Community.

“Positive signals include the prospect of a single market and production base in ASEAN, its large and young population, infrastructure development for intra-regional connectivity, the growing purchasing power of the middle-class, and the need to conserve natural resources,” Hue said. “We also see potential in the area of Industry 4.0 and the Internet of Things in this region.”

Around 300 German companies are currently operating in Vietnam, through greenfield investment or 100 per cent foreign-owned companies, with 268 valid investment projects registered at $1.363 billion.

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German Ambassador to Vietnam, Carl Georg Christian Berger, said that, besides Mercedes Benz, BMW, Siemens, and Bosch, almost all German firms in Vietnam are small- and medium-sized enterprises.

“During our meetings with Vietnamese leaders and enterprises, they often ask me why German firms don’t increase their investment in Vietnam. But as you know, much is needed for Vietnam to improve its business and investment climate,” Berger said.

According to the embassy, like investors from many countries, German ones are facing a series of obstacles in Vietnam, especially from complicated administrative procedures and a weak judicial system.

“German investors don’t want to take risks doing business in Vietnam. If they face any legal trouble in Vietnam, [they hope that] the trouble can be solved quickly. However, this is not the case,” Berger said.

The embassy is now co-operating with Vietnam’s Ministry of Industry and Trade and Ministry of Planning and Investment to devise a mechanism to support German investors in Vietnam. This plan will specifically target the sectors in need of German investment.

However, despite the difficulties, German firms currently doing business in Vietnam expect to keep improving on their investments.

“Fiscal year 2016 is expected to be another very successful financial year for Siemens Vietnam,” Siemens’ Lai said. “Siemens is committed to accompanying Vietnam on the exciting journey toward becoming an industrialised nation, and being an integral part of the Vietnamese society.”