Vietnam Emerges as Global Growth Engine Buoyed by Macroeconomic Environment and Focus on 'Higher Quality' FDI: Report

• Vietnam's strategic shift to 'higher quality' FDI pushes Vietnam ahead of other growing SEA economies
• Vietnam benefits from global shift in production due to escalating geopolitics between China and the West
• Recent announcements of closer collaboration across innovation and tech between Singapore and Vietnam add to the perfect confluence of events to change the game for Vietnam: Golden Gate and Boston Consulting Group experts

SINGAPORE, Sept. 7, 2023 /PRNewswire/ -- Golden Gate Ventures, a venture capital fund in Southeast Asia (SEA) founded by Silicon Valley natives, has co-authored a report on Vietnam's investment environment as the country enters a new phase of economic development, in partnership with Boston Consulting Group and BCG X - the pioneering new tech build and design division of Boston Consulting Group.

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Citing the 'perfect confluence' of events: Vietnam's growing role in global microchip manufacturing; Vietnam's shift to 'higher quality' FDI (foreign direct investment); recent announcements of stronger trade ties between Singapore and Vietnam; and the favorable business environment which puts Vietnam 70 out of 190 countries for ease of doing business – the joint report 'Vietnam: A Global Engine of Growth' by Golden Gate Ventures and Boston Consulting Group captures how Vietnam is at yet another critical turning point as it leapfrogs other ASEAN markets to take its place as a global growth engine.

Global Shift in High-tech Microchip Production to Vietnam Due to Escalating Geopolitics Between China and the West

According to the report, there is an expected increase in trade for ASEAN of US$1 trillion by 2031, with China, Japan and South Korea, the EU and the US being some of the largest contributors. Within ASEAN, Vietnam will take center stage in under a decade as the country is already leading the pack in GDP growth.

Vietnam's emergence as a frontrunner in global high-tech manufacturing amidst escalating geopolitics between China and the West has also buoyed the market's performance in recent years. With the continued uncertainty between the West and China, Vietnam has emerged as a hotspot for FDI especially for the high-tech manufacturing sector, with Asia Pacific nations (Singapore, South Korea and Japan) as some of its major contributors. Vietnam's FDI disbursement has been accelerating at a steady CAGR of 6.4% from 2015 to 2022 and is set to continue, on the back of the Vietnamese government's administrative report, legal and tax incentives. Since 2020, Apple, Foxconn, Google, Hyundai, Intel, LG Electronics and Samsung are some of the global behemoths that have set up new manufacturing facilities in Vietnam, presumably to de-risk their reliance on China.

Strategic Pivot to 'Higher Quality' FDI Pushes Vietnam into Next Phase of Growth

For the past five years, the world has watched Vietnam's growth closely, comparing its trajectory to other ASEAN markets like Indonesia. In a strategic move, the Vietnamese government has pivoted its economic engine from 'high speed' to 'high quality':  de-emphasizing low-cost, labour-intensive industries to focus on innovation and building its talent pipeline as it lays the groundwork for building its digital, green tech and high-tech industries. If this momentum keeps up, Vietnam is well on its way to becoming a global tech powerhouse, following in China's footsteps over a decade ago.

The Vietnamese government has highlighted several key factors that define 'high quality FDI', namely, value-added investments to its people, including education, R&D and supply chain linkages; encouraging advanced, new high-tech and clean-tech enterprises; and businesses that drive environmental impact by improving standards and technical regulations in line with regional and global standards.

"The move from drawing 'any and all FDI' to being a magnet for 'high quality FDI' is perhaps the nation's most strategic one to-date, helping to break the country out of the 'emerging market' status to a global growth engine. This move is yet another key inflection point in Vietnam's story as a growing economic powerhouse and sets the tone of the nation's next golden decade of growth," said Vinnie Lauria, founding partner for Golden Gate Ventures. 

Singapore and Vietnam have also announced strategic partnerships to boost innovation and tech collaboration amid stronger economic ties in recent weeks, further accelerating Vietnam's growth engine. In 2022, Vietnam was Singapore's 11th largest trading partner. As at end-2022, Singapore was also Vietnam's second-largest foreign investor, with a cumulative investment of $70.8 billion^[1]. The strong political and long-standing diplomatic relationship between Singapore and Vietnam provides a great environment for startups to scale across both markets. Initiatives like the Bilateral Innovation Centre will also foster greater cross-border innovation, funding and mentorship that will benefit startups in both markets.

Ease of Doing Business: Policies, Geographical Positioning and Strong Workforce Work Synergistically

A third contributing factor to the 'perfect confluence' of events driving Vietnam's growth is the series of recent regulatory reforms that have created a more conducive environment for businesses in Vietnam. Globally, Vietnam is ranked 70^th out of 190 countries for ease of doing business, and 7^th out of 78 countries as the best country to start a business, ahead of the likes of the Philippines and the US^[2].

Vietnam enjoys a strategic geographic location where important maritime and air routes converge, serving as an indispensable link into the global supply chain. This positioning is helped by the country's economic, trade and investment relationships with 224 countries and territories, as well as its sizeable and talented workforce.

"While Vietnam's growth story may share a few similarities with other fast-growing economies like Indonesia and China, the Vietnam context is highly unique and interesting because the socioeconomic environment is vastly different, the market has its unique risks and opportunities, and the country's growth strategy is much more sophisticated and orchestrated than before," said Il-Dong Kwon, Managing Director and Partner, Head of Boston Consulting Group Vietnam.

Healthtech, Edtech, Fintech in the Spotlight

Fintech opportunities abound in Vietnam thanks to its young, tech-savvy population. A significant proportion of the unbanked population remains untapped, representing 70 per cent of Vietnam's GDP.  The government's favorable policies and initiatives to promote digital payments, innovation and financial inclusion will help to accelerate fintech adoption.

Healthtech is another huge opportunity area fuelled by a rising middle class, an ageing population, as well as an expanding expatriate population. The country is well on its way towards its goal of becoming an upper-middle-class country by 2035, and a high-income country by 2045, given that the nation has the seventh-fastest growing middle class globally, and will add 36 million to its middle class by 2030^[3]. It also entered the ageing phase in 2017, and is among the most rapidly ageing countries in the world. In terms of expats, the country boasts approximately 101,550 in 2021^[4], up from an estimated 83,500 in 2019^[5], according to the Ministry of Labour statistics. This number is set to further increase with more foreign companies leveraging Vietnam to de-risk their China focus.

The edtech opportunity in Vietnam is born from the large and growing young population that has a strong focus on quality education. In fact, the higher spending propensity on education is due to deep-rooted belief in the importance of having educational advantages, coupled with rising disposable income and buoyant economic growth. 

Vietnam's tremendous growth, however, is still outpacing the country's development in some key areas like IT infrastructure gaps, lack of local expertise, and heavy regulation for certain industries like oil and gas, telecommunications and banking.

'Vietnam: A Global Engine of Growth' is developed leveraging Golden Gate Ventures' GGV Brain – an internal proprietary tool that helps us analyse trends, predict new sectors, and signal sentiment and invest-ability that guides our deal sourcing, deal screening and research processes. 

A copy of the report is available on the following link: https://ggv.sg/vietnam-report-2023  

About Golden Gate Ventures

Golden Gate Ventures is a global venture capital firm powering technology and innovation from Southeast Asia. Founded in 2011, Golden Gate Ventures combines the knowledge and experience of Silicon Valley with the passion and dynamism of Southeast Asia. For over a decade we've proudly backed some of the region's most audacious founders and companies behind Southeast Asia's incredible growth story, such as Carousell, Coda Payments, Carro, Xendit, Paper.id, Alodokter, Homage, Hijra, Rukita, and Locofy. We empower the audacious. For more information, visit goldengate.vc.

About Boston Consulting Group 

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

About BCG X

BCG X is the pioneering new tech build and design division of Boston Consulting Group. It is uniquely positioned to support companies in Singapore seeking to kickstart the journey to new markets through venture opportunities. BCG X brings together advanced tech knowledge and ambitious entrepreneurship experience to turbocharge BCG's trusted corporate offering. The division is positioned to help organizations embrace, enable, and succeed in delivering innovation at scale, backed by over 3,000 technologists, data scientists, programmers, engineers, and human-centered designers located in more than 80 cities across the globe.

SOURCE Golden Gate Ventures