Articles
Vietnam is the next destination for multi-national manufacturers – Opportunities and challenges come hand in hand

29 - 05 - 2020
 
 
Vietnam can potentially be the new factory of the world

The steadily rising manufacturing costs in China caused by the ongoing US – China trade war have left many manufacturers with little choice but to break down their manufacturing activities and relocate to other territories outside of China. With the addition of the COVID-19 pandemic, the urgency to reduce manufacturing costs and stabilize operations has become even more relevant. With these dual crises in mind, Vietnam emerges as one of the most attractive potential markets for relocation—with its relatively low labor costs, favorable investment conditions, affordable rent, a reliably growing economy, and success in restraining and controlling COVID-19.

Many technology giants have commenced relocation of manufacturing facilities to Vietnam. In an April report by VNDirect Securities Corporation, Google and Microsoft are mobilizing parts of their supply chains from China to Vietnam and Thailand and are expecting to start retailing their products, namely Pixel4A, Pixel5 smartphones and Surface branded equipment in Vietnam in the 2nd quarter of 2020[1]. Nikkei has reported that Apple will manufacture between 3 to 4 million Airpods in Vietnam. A number of Apple’s key business partners, including Foxconn, Pegatron, and Compal Electronics have also expanded their business in the north of Vietnam[2].

BIDV Securities Company also predicts a growth in industrial property in 2021 due to the effect of free trade agreements that Vietnam has entered, with the EVFTA perhaps the most significant. But are there other causes for increased demand of industrial property in Vietnam?

Other sources of demand for industrial property

It used to be that industrial land was leased, but this trend has shifted so that many foreign manufacturers, with a desire to commence business operations immediately, opt to purchase or lease ready-built factories already integrated with supportive facilities and key infrastructure. Thus, demand for ready-built industrial properties is on the rise.

Border restrictions and compulsory social distancing methods instituted due to COVID-19 also led to a leap in e-commerce activities. As more and more consumers switch from traditional in-person shopping to online shopping, even for products that they would usually purchase in stores, demand for warehousing facilities has increased, especially cold storage warehouses for fresh and frozen products.

Vietnam is scrambling to construct ready-built factories and warehouses

In anticipation of the new relocation wave, more local developers are constructing warehouses and factories across major industry clusters. Over three hundred and twenty thousand square meters of ready-built warehouse and factory space was added in northern cities and provinces in 2019 alone, accounting for 20% of the total factory and warehouse space in the region. Southern cities and provinces have seen the same trend, with an additional 559,000 sq. m of ready-built warehouse and factory space for the same period[3]. These numbers are predicted to continue to grow in 2020, with a 25.3% y-o-y increase in warehouse and factory space in the north and a 28.2% y-o-y increase of the same in the south[4].

Industrial zones are following suit with construction accelerating. Long An Province has commenced the development of two industrial zones since the beginning of May, in hopes of meeting rising demand by foreign investors relocating in Vietnam. Industrial zones in Hai Duong Province and Bac Giang Province are expected to be in demand due to the development of Bac Giang – Lang Son highway, which will help reduce the trip Ha Noi to Lang Son Province by an hour. In the south, Ba Ria – Vung Tau Province is emerging as a potential hub to attract investors because of the highway system connecting Cai Mep – Thi Vai deep-water port with Ho Chi Minh City, Dong Nai Province, and Binh Duong Province[5]. Some developers have also commenced the construction of the 4.0 generation factories in addition to the traditional factories as part of an efffort to ride the new wave of investment relocation.

Challenges remain for Vietnam

Vietnam will face fierce competition from regional competitors like Thailand, Malaysia, Indonesia, and India in attracting investment. Mr. Pham Sy Thanh - Director of the Mekong - China Strategic Studies Program (MCSS) at Vietnam National University of Agriculture said that the infrastructure of industrial zones in Vietnam is still lacking in synchronization, especially in the South where the supply of industrial real estate increases slowly while demand increases quickly causing industrial property prices to soar[6]. Let's hope that Vietnam can catch up and construct the supply to equal the rapidly growing demand for industrial property.

________________

[1] “Bất Động Sản Công Nghiệp Đón ‘Sóng’ Dịch Chuyển Từ Trung Quốc.” Tạp Chí Tài Chính, 14 May 2020, tapchitaichinh.vn/thi-truong-tai-chinh/bat-dong-san-cong-nghiep-don-song-dich-chuyen-tu-trung-quoc-322928.html. 
[2] “Apple Sản Xuất Hàng Triệu Tai Nghe AirPods Tại Việt Nam.” Kinhtedothi.vn, Kinh Tế Đô Thị, 9 May 2020, kinhtedothi.vn/apple-san-xuat-hang-trieu-tai-nghe-airpods-tai-viet-nam-383808.html.
[3] CBRE Research.
[4] “Bất Động Sản Công Nghiệp: Thời Của Nhà Xưởng Và Nhà Kho Xây Sẵn.” Nhipcaudautu.vn, Nhịp Cầu Đầu Tư, 22 May 2020, nhipcaudautu.vn/bat-dong-san/bat-dong-san-cong-nghiep-thoi-cua-nha-xuong-va-nha-kho-xay-san-3335007/.
[5] Huy, Quang. “Xây Khu Công Nghiệp Lớn Đón Làn Sóng Đầu Tư.” PLO, Báo Pháp Luật TPHCM, 20 May 2020, plo.vn/bat-dong-san/xay-khu-cong-nghiep-lon-don-lan-song-dau-tu-913872.html.
[6] “Bất Động Sản Công Nghiệp Đón ‘Sóng’ Dịch Chuyển Từ Trung Quốc.” Tạp Chí Tài Chính, 14 May 2020, tapchitaichinh.vn/thi-truong-tai-chinh/bat-dong-san-cong-nghiep-don-song-dich-chuyen-tu-trung-quoc-322928.html.

Authors

Le Nguyen Huy Thuy




Related Articles

Special Alert | Draft Decree Amending Decree 52 on E-commerce

Special Alert | Radical Changes Proposed for the Vietnam’s New Investment Law and Enterprise Law

Special Alert | Vietnam's Government continues to support solar power

Returning to Work in Ho Chi Minh City after Social Distancing

City Government Plans to Shorten the Commercial Housing Project Development Process



Contact Us | Legal Notice | Site Map | © 2006 – 2020 Indochine Counsel. All Rights Reserved.