Mid-corporates can realise regional expansion goals

By Nirukt Sapru - CEO, Vietnam, ASEAN and South Asia Cluster Markets, Standard Chartered

Vietnam belongs to the so-called “7 per cent club” – countries that Standard Chartered forecasts will deliver GDP growth rates of over 7 per cent through the 2020s, thereby doubling the size of their economy every 10 years. One driver of Vietnam’s success will be its high level of foreign direct investment (FDI). Many overseas businesses have already recognised Vietnam’s potential, with disbursed FDI reaching a record $19.1 billion in 2018, up 9.1 per cent on-year. The figure hit $9.1 billion in the first half of 2019, up nearly 8 per cent on-year.

This strong performance is thanks in part to Vietnam’s position as one of the ASEAN’s most open economies. The country has 16 free trade agreements (FTAs), including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, opening the door to plenty of new opportunities for mid-corporates in the region that choose Vietnam as a base. This strong trading environment will be enhanced when Vietnam’s FTA with the European Union comes into force later this year.

Vietnam also enjoys strong demographics that lend credibility to its long-term growth prospects. For instance, its young, educated population is digitally savvy. Not only does this create a strong foundation for an effective workforce, it is also driving demand for retail and consumer services, one of the industries that we believe will have the most far-reaching impact on the ASEAN’s growth prospects.

The retail and consumer services industry is a key economic pillar, with revenue rising 11.7 per cent in 2018 to $191 billion. And it offers plenty of potential for ASEAN mid-corporates with the country’s wholesale and retail sector attracting FDI worth $3.37 billion in last year, 10.3 per cent of total FDI.

A second significant sector for the ASEAN’s future prosperity is manufacturing. With FDI growing at 11 per cent annually in the five years to 2018, this has long been an important industry in Vietnam thanks to its cost-competitive labour force and the government’s support of the supply industry. Over half the $100 billion of FDI has gone into manufacturing since 2013, and Standard Chartered expects incoming investments to the sector to remain high in the medium term.

Rounding out the trio of the ASEAN’s important industries is infrastructure. The Vietnamese government has pledged to spend $920 million on infrastructure by 2020 while renewable energy is expected to be a strong focus over the next five years.

The ASEAN’s mid-corporate sector is especially well-placed to capitalise on Vietnam’s improving economy, demographics, and development. It has a stronger capacity to fund innovation than smaller businesses and a more agile approach than larger multinationals.

In addition, it is key for mid-corporates to adopt the strategies that will deliver the best results. Strategies such as smart operations or the use of technology can help improve productivity and reduce costs. For example, Vietnam has emerged as a key centre for business process outsourcing while the government’s continued investment in STEM education (science, technology, engineering, and mathematics) is helping industries like electronic manufacturing to flourish in the country.

To seize the opportunities, mid-corporates need to partner with a financial institution that understands Vietnam’s business landscape and offers a comprehensive ASEAN and global network that can support businesses as they expand across borders, and help them navigate local nuances.

Ensuring effective cash management is one of the first challenges companies face when establishing themselves overseas. From automating collections, payments, and reconciliation to providing straight-through processing or helping set-up a centralised treasury team, Standard Chartered offers a full range of services to help mid-corporates improve their capital and liquidity management.

For example, when one of South Korea’s biggest conglomerates was expanding into Vietnam, it needed an established banking partner to address its full suite of cash management requirements. To help boost efficiency and speed up processing, we provided innovative collections and payments solutions. These included adding a virtual accounts function to its cash pick-up, enabling the company to identify sales turnover of each store and each business line, and mobile wallet collections.

As the only international bank present throughout the ASEAN, and having been located in seven of the 10 markets for over 100 years, our long history in the region puts us in good stead to partner companies across a wide range of sectors seeking to grow in the ASEAN.

From fast-growing industries to strong demographics, Vietnam’s economy presents a compelling case for mid-corporates wanting to expand across the region and help lead the ASEAN to a strong and prosperous future.