Set up company in Vietnam: the Southern Key Economic Region

Introduction

Over the past twenty years, Vietnam has established four Key Economic Regions (KERs): Northern, Central, Southern and the Mekong Delta regions, which comprise of the main investment and economic zones of the country. In our previous articles, we discussed the characteristics of the Northern Key Economic Region (KER), which is a strategic area for companies pursuing a China+1 strategy.

In the following article, we will look at Vietnam’s Southern KER, which continues to shine as a pivotal hub of economic strength of the country, showcasing remarkable growth in both trade and investment sectors. Let’s now look at why the Southern KER (along with the Northern KER) remains as the most convenient areas to invest in Vietnam.

Economic Outlook

This region, has a total population of 16 million people and comprises of Ho Chi Minh City, Binh Duong Province, Ba Ria – Vung Tau Province, Dong Nai Province, Tay Ninh Province, Binh Phuoc Province, and Long An Province. In the dynamic year of 2022, the Southern KER demonstrated its resilience and attractiveness to investors, contributing upto 28.74% of the nation’s GDP with Ho Chi Minh City being the main hub amounting to the contribution of 15.5%. The average GRDP (Gross Regional Domestic Product) growth of all cities and provinces of the Southern KER is estimated tobe from 7% to 9%. It has also recorded an impressive figures of over USD 27 billion in foreign direct investment (FDI) and a staggering USD 700 billion in imports and exports. Other provinces within the Southern KER also displayed strong growth trajectories. For instance, Tien Giang and Tay Ninh demonstrated remarkable year-on-year growth rates of 42% and 23.6% respectively.

The Southern KER stands as a vibrant and multifaceted hub, offering an array of compelling strengths and promising opportunities for local and foreign investors alike. With fundamental and basic manufacturing at its core—encompassing energy, mining, mechanical engineering, metallurgy, chemicals, materials, as well as food, garment, footwear, and equipment—the KER retains a significant share of the industry and construction sector.

Ho Chi Minh City and Binh Duong Province as Main FDI Attraction Areas

Ho Chi Minh City, which is homes to over 9 million people, stands as the nucleus of the KER and reigns as Vietnam’s largest business city. It not only hosts the headquarters of major enterprises but also embodies a vibrant business ecosystem that bolsters its allure for investors. In addition, the city emerges as a fertile ground for startups.

It’s robust economy relies on various sectors including services, industry, and construction. Benefitting from well-developed infrastructure like Cat Lai port and Tan Son Nhat International Airport, the city maintains efficient links to vital regions and international trade networks. The city boasts of 19 industrial zones, including hi-tech parks and prioritizes eco-friendly and high-value projects, garnering substantial FDI from key countries in the Asia Pacific region such as South Korea, Japan, and Singapore. In 2022 the city contributed 34.92% to the regional FDI. Notable investments encompasses Samsung’s R&D center and the Saigon Peninsula Project, showcasing the city’s commitment to innovation and sustainable growth.

After Ho Chi Minh City, Binh Duong Province takes the second lead as a remarkable transformational force. Recognized as “The manufacturing hub of Vietnam,” Binh Duong is characterized by a multitude of factories. As the second largest FDI recipient in the nation, the province is strategically pivoting towards high-tech manufacturing, signaling a determined departure from dependence on fundamental manufacturing. With 30 industrial parks, Binh Duong has the aspiration to become a bright spot for high-tech production. One of the most recent and important FDI in the province is the renowned Lego, Danish toymaker, which invested over USD 1 billion for a carbon-neutral factory in the province.

Strategic Position and Skilled Labor Force

The strategic proximity of the Southern KER to ASEAN partners remains a compelling factor. Countries like Singapore, Malaysia, South Korea, Japan heavily invest in this region due to its advantageous geographical proximity. This strategic positioning serves to reduce transportation costs, streamline logistics, and enhance the overall viability of business operations.

The national master plan’s emphasis on transitioning to high-tech and digital manufacturing seamlessly aligns with the region’s aspirations. With consistent reductions in unemployment rates, a friendly investment environment is encouraged. An expanding pool of highly educated individuals, especially in Ho Chi Minh City, enhances the skills of the workforce. Impressively, the city boasts the highest proportion of English speakers among citizens in Vietnam, facilitating seamless international interactions.

Most importantly, the concentration of the labor force in key industrial centers like Ho Chi Minh, Binh Duong, and Dong Nai dramatically increases the availability of skilled workers—a strategic asset for business success. Furthermore, the vibrancy of Ho Chi Minh City’s lifestyle further enhances its appeal as a magnet for startups and foreign investments. All these qualities together place the Southern KER as a prime investment destination, underscoring its pivotal role in steering Vietnam’s economic trajectory towards innovation and prosperity.

Conclusion

Finally, Vietnam’s Southern KER relies on a thriving economy, and has some key strategic advantages such as a solid economy, proximity to ASEAN partners, and skilled labor force, making it the best area where to invest in Vietnam along with the Northern KER. However, to further enhance its appeal, the region should consider rebranding and lay emphasizes on its high-tech potential rather than just a “clothing and garment manufacturing hub”. Moreover, it should transparently communicate the benefits of its skilled labor force, which can be more expensive than in other areas, for the foreign investors. These steps can solidify the Southern KER’s position as a dynamic hub for innovation, growth, and economic prosperity in Vietnam.

Disclaimer：

The above content is provided for informational purposes only. The provision of this article does not create an attorney-client relationship between D’Andrea & Partners and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel.