28 Jun

Investments in Vietnam require thorough preparation

Tuesday, 28 June, 2016

Germany and Vietnam increasingly count on improved economic cooperation. While politics and administration in both countries are promoting this, German entrepreneurs still raise many questions.


**Photo: Vietnam, Skyline of Hanoi**

New appointments at the embassies both in Hanoi and Berlin send out clear signals: since six months Ambassador Christian Berger is now the representative of the Federal Republic of Germany in Vietnam. Previously he had been the commissioner for foreign trade and investment promotion at the Federal Foreign Office. Vietnamese Ambassador Doan Xuan Hung also resides in Berlin for more than six month now. He had previously been based in Japan and was very successful in the promotion of economic cooperation.

Both ambassadors represent economic expertise. Such is required in order to meet the ambitious goals that Germany and Vietnam have agreed upon: the annual trade volume shall increase from currently eight to twenty billion Euro. German Chancellor Merkel and the Vietnamese President at that time Truong Ngoc Sang have agreed upon this, during his state visit in Germany 2015. However without setting a concrete timeline.

Promotional Event

In order to promote Vietnam as location for business, Ambassador Doan Xuan Hung has invited a high-ranking delegation under leadership of Deputy Secretary of State Bui Thanh Son to Berlin. Around 300 interested parties from politics and business have participated in the event which has taken place in the second half of June.

Represented on the conference by the Parliamentary State Secretary of the Federal Ministry for Economic Affairs and Energy Uwe Beckmeyer, the Federal Government of Germany welcomed the initiative explicitly. “We support the consolidation of the economic relationships.” The potential for the economic cooperation between Germany and Vietnam is not yet at all exhausted.

Center of Free Trade

Vietnam as a business location offers: a large market with almost 90 million predominantly young people who are keen to consume. Comparatively low labor costs ranking notably below those of China. A number of free trade agreements which have already been signed by Vietnam or that are currently being negotiated. They make Vietnam one of the centers for free trade in Asia.

To name a few, there are the Transpacific Partnership agreement (TPP) or the ASEAN Economic Community (AEC). And from a German perspective the EU-Vietnam Free Trade Agreement is of particular importance. One of the most comprehensive agreements which the EU has ever concluded with a developing nation. It does not only aim at a reduction of tariff barriers but also the removal of non-tariff trade barriers. Its ratification is expected in 2017.

Infrastructure- and skilled labor shortage

However, there are also challenges ahead: In many regions of Vietnam the infrastructure is insufficient. This does not only concern roads and energy supply but also the components industry, which is particularly important for medium sized enterprises, and also commodities supply, which is not always meeting international standards.

German enterprises are also hesitant moving to Vietnam because of legal uncertainty and corruption. Talking to Deutsche Welle, Björn Koslowski, Deputy General Manager of the Delegate of German Industry and Commerce in Hanoi said: “There is no legal certainty of the law.” However, this does rarely become a problem because a smooth cooperation is in Vietnam’s interest. “A large part of the economic output is achieved by foreign enterprises that invest in Vietnam.” Overall, neither legal uncertainty nor corruption are any challenges that are specific to Vietnam, which would inherently contradict investments. This was expressed on the event in Berlin several times.

Another problem that was emphasized by Frank Hopfenbach, who was based in Vietnam as country manager for the industrial gas producer Messer Group until 2014, is the shortage of skilled labor. A project for a dual vocational education and training that had been initiated by Messer following the German example needed to be discontinued because it had not received sufficient support from the Vietnamese government. This also concerns decision making processes that, from a perspective of German entrepreneurs, have been explained as being excruciatingly slow. He called repeatedly upon the Vietnamese government: “Decisions have to be made faster.”


**Photo: About 300 guests were interested in German-Vietnamese economic relationships**

Bilateral German-Vietnamese Chamber of Commerce

A bilateral Chamber of Commerce could have positive repercussions. Representatives from Germany attending the conference expressed repeatedly their desire for such an institution. The advantage would be that not only German but also Vietnamese enterprises could join, which would result in improved cooperation. Germany has bilateral Chambers of Commerce in almost 100 countries worldwide. However the Vietnamese government is not familiar with this concept and hesitant. Though, it was promised that the proposal will be reviewed and that legal barriers will be removed, if possible.

Representatives of the Vietnamese government have commented on all mentioned points, and pledged to work on these. Most of the mentioned topics have already been addressed in government decisions, which now have to be implemented.

Deputy Secretary of State Bui Thanh Son repeatedly promoted confidence. On the political level a strategic partnership has already been established, now the economic one has to follow suit. Vietnam wants to create conditions that invite a large number of small and medium sized enterprises from Germany to Vietnam.

Germany is not Japan or Korea

According to Timo Prekop and Daniel Müller from the enterprise network German Asia-Pacific Business Association (OAV) this point exemplifies a specific problem. The Vietnamese side is not always aware enough of the differences between German and Korean or Japanese economic cooperation. Müller says: “What bothers German companies at time is a kind of subsidy mentality. There are many interesting projects, also for German enterprises, but the Vietnamese side expects that the funds are provided.” Means: German companies shall not only invest into the actual project, but in addition into the creation of the necessary prerequisites.

Prekop adds: “This is fueled by East Asian countries such as Japan and Korea.” They move with massive conglomerates, such as for example Samsung, into a region and deliver at the same time streets, harbors and power plants.” That happens often through official development assistance projects. This however doesn’t work for Germany, especially not for small and medium sized enterprises. “It is necessary that the possibilities and limits for these companies are communicated more clearly. The German government can support, but the prerequisites for a new wave of investments have to be created first and foremost by Vietnam itself.”

Entrepreneurial perspective

Heinz Witte identifies a similar problem, however on the German side. The Managing Director of GW nature cosmetic, a company selling high-priced bio-cosmetics “Made in Germany” which is particularly successful in East Asia, plans to market its products also in Vietnam, Thailand and Indonesia. In Cambodia, the company is already active. Know-how for the Asian market exists. “The problem is that investments of small and medium sized enterprises are very different from those of large companies. The amount of attention that large enterprises receive from the political side is of course not experienced by small ones.”


**Photo: In industrial zones such as Vung Ang in North Vietnam mega-corporations such as Samsung invest also into the infrastructure.**

Witte consequently wishes more support in coping with administrative barriers, the establishment of contacts to universities and to companies in Vietnam. “I sometimes come under the impression, that discussions are only led on the highest level, and that the basis is not even noticed anymore.” Here, he addresses especially the Federal German Government, the Chambers of Industry & Commerce (IHK’s) as well as Delegate of German Industry & Commerce (AHK’s). These need to better focus their experiences and make them available.

Thorough preparations are inevitable

Everyone who would like to involve in entrepreneurial actions in Vietnam will need to thoroughly prepare. That is not only emphasized by Björn Koslowski of the Delegate of German Industry & Commerce (AHK) in Hanoi, but it was also heard repeatedly at the conference in Berlin. Nguyen Cong Chinh, who have studied in Germany and who is today CEO in Vietnam of the Sado Group mentioned in an interview with Deutsche Welle: “Many German entrepreneurs are worried. Vietnam is far away and unfamiliar. And it is not sufficient to contact the Chambers of Industry and Commerce or the Delegate of German Industry & Commerce. The best and shortest way to success is to find a good partner in Vietnam.” As for this, however, as Koslowski said, the Delegate of German Industry & Commerce can help. Also the Vietnamese embassy emphasized its willingness for support. Ambassador Doan Xuan Hung said: “We are happy to help with contacts.”

Despite all concerns and challenges, Mr. Witte of GE nature cosmetics said at the end of the interview: “We will keep it rolling.” With his comment he captured the spirit of the conference. There is much to be done, but it may pay-off well.

By Rodion Ebbighausen






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