In Vietnam, a signed contract is not always an enforceable one. Many foreign investors are surprised to learn that a fully negotiated and executed contract can be declared invalid by a court, simply because it failed to meet specific, overlooked, legal formalities. This critical gap between a contract’s formation (the moment of signing) and its […]
VSIP - A symbol of successful cooperation between Vietnam and Singapore
Vietnam-Singapore Industrial Parks (VSIP) was established in 1996 on the foundation of the two country's trade and investment relations. Main investment projects in VSIP include electronics, automotive components, consumer goods, and pharmaceuticals.
After 25 years, VSIP has completed 10 projects amounting to 10,000 hectares in seven key economic zones across Vietnam, including Binh Duong, Hai Duong, Haiphong, Bac Ninh, Nghe An, and Quang Ngai. Among these, the VSIP I in Thuan An District has now become one of the leading industrial parks in Vietnam.
VSIP has supplied production infrastructure to 880 clients from more than 30 countries and territories, with a total investment of $15 billion and creating jobs for more than 300,000 local and foreign experts, engineers, and workers. Along the way, the two nations have joined efforts in remodeling VSIP from a traditional industrial park to an integrated township and industrial park, bringing in new urban solutions. One of such projects is the Habitat Binh Duong high-end apartment project.
To date, VSIP is regarded as one of the top urban and industrial park developers in Vietnam, as well as a symbol of successful cooperation between Vietnam and Singapore, due to the success of completed projects and the prominence of continuing and forthcoming projects.
Challenges for Vietnam-Singapore Industrial Parks
Public Infrastructure Constraints
While the infrastructure of VSIP was designed to be a completely new model of industrial parks with green coverage and modern infrastructure in line with Singapore standards, the public infrastructure in Vietnam localities remain underdeveloped and poorly maintained, creating a big gap between the parks and surrounding regions. The unsynchronized infrastructure system in deep-water seaports, railways, roads, and waterway networks, creating unfavorable conditions for transporting goods, serving the economy, and investing in Singapore-Vietnam Industrial Parks.
Vietnam was placed 80th out of 139 countries and territories in terms of port infrastructure quality by the World Economic Forum in 2019. According to the Vietnam Port Association, 80 percent of container exports and imports are transshipped through smaller ports and ships. The VPA also stated that the lack of deep-water ports costs goods owners around US$2.4 billion per year. Due to rising trade volume, certain ports are overburdened with cargo, resulting in traffic congestion and significant delays.
Additionally, road and rail infrastructure have also not been able to keep up with the country’s economic growth. The railway connecting Hanoi and Ho Chi Minh City is in critical need of upgrading, as well as the fact that just 20% of national roads are paved. Due to the lack of a rail network connecting various ports, freight currently must be transported by road, adding to shipping costs.
Skilled Labour Shortage
Another constraint Singapore investors should be aware of when setting up a company in Vietnam is the lack of human capital. With a population of over 96 million, Vietnam’s labor force makes up 57 percent of the population. However, the size of this workforce is much smaller than that of other manufacturing hubs like China. Moreover, the amount of skilled labor is still modest in relation to the demand for industrialization, modernization, and the international integration process.
Currently, around 40% of FDI firms in Vietnam find it difficult to recruit skilled workers. Indeed, labor shortages have been a lingering problem for many localities, from Vinh Phuc and Quang Ninh in the north to Danang in central Vietnam to Ho Chi Minh City, Binh Duong, and Dong Nai in the south. The lack of skilled labor has become an increasingly obvious barrier to growth in value-added exports such as high-tech goods, preventing foreign firms from investing in high-tech manufacturing in Vietnam.
While having a total labor force of 1.9 million which accounts for 3.5 percent of the national labor force, recruiting skilled labor can be a challenge, especially for highly skilled engineers and senior managers in Nghe An. Nevertheless, the province is struggling to meet the growing demand of the labor force in manufacturing, which is rising 2.3 percent annually compared to the supply growth of 1.3 percent.
Considerations for Vietnam-Singapore Industrial Parks
Despite the challenges of doing business in Vietnam, Vietnam is still an attractive destination for investors because of promising economic prospects aided by the country's low-cost workforce and fast-growing market. Foreign direct investment (FDI) has contributed significantly to the economic development of Singapore-Vietnam Industrial Parks and Vietnam in general but more actions are needed to improve its efficiency and increase the quality of operations of FDI enterprises in VSIP.
The first and most significant step is to enhance mechanisms and policies to attract FDI, including providing greater incentives, administrative reform, and improving the province's business and investment climate. In the next five years, the province must evaluate and adapt the master plan for the creation of the Southeast Economic Zone, reconfiguring functional zones and industrial parks to satisfy the demands of high-quality FDI.
Infrastructure is a critical problem that must be addressed immediately if VSIP is to stay competitive. With the government’s support, VSIP must continue to develop a comprehensive system of infrastructure, transportation, seaports, urban areas, and hospitality services to help FDI investors keep up with growth and reduce logistical costs.
The objectives of educating and developing local human resources, as well as enhancing the competency of government officials, require more attention in order to attract high-quality FDI. Vietnamese authorities and human resources firms are encouraging business leaders to provide more support for their labor force and create more favorable conditions, such as facilitating job market information and publicizing recruitment needs; promoting employment service centers; and reinforcing the coordination between training institutions, enterprises, and government agencies to address this human capital bottleneck.
The FDI attraction approach should also be adjusted to be more proactive with priority given to big and multinational corporations with advanced technology, commitment to technology transfer, and environmentally friendly projects. In the long term, the province aims to lure projects with high value-added chains, including automotive and motorcycle manufacturing and assembly, key mechanical industries, and high-tech processing and manufacturing.
If you are foreign investors and businessmen who seek investment opportunities in Vietnam or in Singapore-Vietnam Industrial Parks in particular, please contact Viettonkin consultant team via email or contact page to get support. With our specialized knowledge and experience in helping foreign enterprises’ getting into the Vietnamese business environment fruitfully and economically, we can provide detailed advice on procedures, stages, and documents required to prepare for the application of a Vietnam business registration certificate.
