Whether you are looking to outsource your business’ operations to Vietnam or setting up a business, choosing a location for manufacturing activities in Vietnam can be a daunting task for investors unfamiliar with the market.
Factory locations may be located inside or outside industrial zones or special economic zones, export processing zones, or hi-tech zones. When choosing a location to set up manufacturing business, investors need to take into account the industry specialization, infrastructure, and scale of business operation. The following options are recommended to investors looking to set up factories in Vietnam.
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- Pre-built facilities
Investors can rent ready-built factories and warehouses for lease by companies registered in Vietnam. According to Vietnam’s Briefing in 2019, ready-built factories were in the highest demand with investors increasingly moving factories to Vietnam, recording more than an 85 percent occupancy rate. Binh Duong and Dong Nai in the southeast are the markets with the highest demand, given their access to transport infrastructure. This plan is suitable for small to medium scale businesses looking to lease land of less than 8 hectares. These facilities are designed in accordance with production and business requirements and international safety standards. This ensures brisk business set-up while gaining access to strategic economic regions.
- Industrial zones
This plan is suitable for investors looking to lease land with a lease term of 40-50 years and an area of more than 8 hectares. Industrial zones are specific areas earmarked by the government for the production of goods and services. Industries are usually concentrated in certain industrial zones, which provide incentives for businesses that set up there. Industrial zones are popular locations for manufacturing businesses in Vietnam. As of 2018, according to Vietnam briefing reports, there are 328 industrial zones countrywide, 249 of which are in operation.
Preferential tax rates are offered by the government to investors located in industrial zones in Vietnam. Other indirect taxes, such as Value Added or Special Consumption Tax, may also be reduced on a good-by-good basis. These tax incentives can help offset the higher wages and rental fees in these areas.
See more at Top locations to start businesses in Vietnam to learn more about Industrial zones and how to narrow down your list of potential business locations.
- Export Processing Zones
In the case of investors seeking support from specific exporting regulations, it is required that the business be an Export processing enterprise (EPE). EPEs, as defined by Decree No 82/2018/ND-CP, are enterprises that are established and operate in an Export Processing Zones (EPZ) OR that specialize on a manufacturing product for export and operate in an industrial zone. EPEs are also required to be separated by fence systems, have ports, entrance and exit doors and fulfill requirements by customs authorities related to non-tariff areas and rules on import and export duty. Export processing zones are often located within industrial zones and focus on manufacturing goods for export.
Export processing zones have become a popular destination for foreign investors now that Vietnam has emerged as a China-plus-one destination for companies looking to outsource operations to reduce cost. Their tariff-free trade and access to low-cost labour make export processing zones an ideal location for manufacturing business in Vietnam. Due to their location within industrial zones, businesses can also enjoy tax incentives. EPEs set up in export processing zones are allowed to sell goods to the local market with import duties payable by the recipient. However, EPEs set up in industrial zones other than export processing zones are prohibited to sell to domestic enterprises in the Vietnamese market.
- High-tech zone
Hoa Lac Hi-tech Park in Hanoi is the first Hi-tech Park in Vietnam to receive special mechanisms and incentive policies, allowing investors and companies investing in Hoa Lac Hi-tech Park to enjoy preferential tax rates and other support. It was built as a center of research, development, and hi-tech application and consists of various functional zones such as research and development zone, software park, high tech industrial zone, education and training zone. However, the downside of this high-tech zone is that it is operating like industrial parks rather than like sci-tech hubs, except that the cost of factory rental is much higher. Thus, the high-tech zone receives no foreign-invested project and only 4 domestically high-tech projects in 2019.
- Land lease from the state
Renting land directly from the state is suitable for investors who plan to lease land for 40-50 years or more and need a large area. The drawback of this plan is that it is a time-consuming and costly process to get approval for land use plannings as well as site clearance plans from the government
When a company intends to locate its business outside the industrial zone, export processing zone, hi-tech park, economic zone, etc., the investor must contact the Department of Natural Resources and Environment for consultation as to where to implement the projects. If a specific location has been decided outside an industrial zone, export processing zone, high-tech park ... (for example, leasing facilities, factories of another enterprise ...), the above company needs to work with The Province's Department of Natural Resources and Environment to find out if the proposed site is consistent with the land use planning.
Whether you are eyeing Vietnam as your next FDI destination or in the process of market research, choosing a location to set up business in Vietnam is no simple task in this vast country. Luckily for investors having Vietnam on their list of business locations, there are various industrial zones in key economic regions designated by the government to encourage FDI inflow into the country. This article will provide a broad picture of strategic business locations and major FDI hubs in Vietnam to help ease the process of choosing a business as well as set up business in Vietnam location for foreign investors.
Choosing locations in Vietnam Industrial Zones
Industrial zones are specific areas earmarked by the government for the production of goods and services. Industries are usually concentrated in certain industrial zones, which provide incentives for businesses that set up there. Industrial zones are popular investment locations for FDI into Vietnam. As of 2018, according to Vietnam briefing reports, there are 328 industrial zones countrywide, 249 of which are in operation. By the end of 2018, industrial and economic zones had attracted 7,500 domestic projects worth US$41.75 billion and around 8,000 foreign projects with a total capital over US$145 billion.
While industrial zones are convenient go-to locations for foreign businesses to set up business in Vietnam, investors should take time to narrow down their list of potential places to visit. Below is an overview of the characteristics of Vietnam’s key economic regions.
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The North
Vietnam's key economic regions in the North include the provinces of Hanoi, Hai Phong, Quang Ninh, Hung Yen, Hai Duong, Bac Ninh and Vinh Phuc. These provinces together account for 16.2 percent of Vietnam’s population and 4.7 percent of its landmass.
Vietnam’s Northern key economic regions are the hub for enterprises looking to supplement its existing manufacturing in China with lower labor costs while maintaining a strategic location of close proximity to China.
Advantage
The influx of investment in heavy manufacturing and petrochemicals into the northern regions lead to concentrated talent and infrastructure suited to this business-line. The resulting talent pool can be one of the considerations for investors assessing business locations in this region.Cities such as Hanoi and Hai Phong have ample supplies of qualified workers and institutions that provide for specialized labor.
Disadvantage
Due to the area’s primary focus on heavy manufacturing, investors in heavy manufacturing will find the concentration of infrastructure and talent work to their advantage while investors in other sectors, such as IT, do not benefit from these networks. Land availability is also a growing concern in Northern Vietnam compared to other locations within the country. It is important for investors to explore rent or purchase options before setting up operations in the North.
The Central
Vietnam’s central key economic regions include Da Nang, Thua Thien Hue, Quang Nam, Quang Ngai, and Binh Dinh.The region accounts for 7 percent of the national population
Advantage
Investment environment is less competitive than the fully explored hubs in the north and the south. In recent years, the city of Da Nang emerges as a hub of seafood, food processing, and manufacturing. In addition to production, Da Nang also benefits from a greater degree of urban planning and development due to private partnerships between governmental authorities and investors. This may create downstream benefits for FDI in the region. See more below: Top cities to start your business in Vietnam
Disadvantage
Talent pool in the Central is more limited than in other regions. Workers in technical fields often find greater opportunities in North or South Vietnam and are likely to leave the region. However, many Vietnamese appreciate the quality of life in Da Nang and are likely to relocate if offered an attractive opportunity.
The South
The Southern economic regions encompass the provinces of Binh Duong, Binh Phuc, Long An, Ho Chi Minh City, Tay Ninh, Dong Nai. Vietnam southern regions attract the most FDI projects according to Vietnam Briefing, with 793 projects listed in 2017.
Advantage
The region is economically diversified, suitable for small and medium sized enterprises. Businesses from more niche sectors are likely to find the South a more suitable investing location than other regions. Given the availability of various institutions that provide for the workforce, in recent years Ho Chi Minh city has emerged as a major hub for startups.
Its large population also makes consumption another advantage of the region. Investors seeking to establish brand identity with Vietnamese consumers are likely to find opportunities in the South.
Disadvantage
Vietnam Southern economic regions lack the strategic proximity to China. Thus, investors ith time sensitive production chains would find the Northern region more suitable. Although the talent pool is available and diverse in Southern Vietnam, competition is high between employers.
Narrowing down your list of potential business locations in Vietnam
In considering where to locate operations of a foreign invested enterprise, investors should take into account: industry specialization, labor, infrastructure, and tax incentives.
Industry specialization
Finding an industrial zone specializing in similar or parallel industries is important for foreign investors seeking to utilize the benefits available in the zone. Infrastructure and other facilities are often tailored to the needs of the industries. Investors in these industries are likely to benefit from these specialized facilities and infrastructure networks.
Labor
The clustering of talent is also influenced by the concentration of industries in specific zones. Jobseekers often relocate to industrial izones due to the concentration of employment opportunities. Certain large industrial zones also include institutions to provide a steady stream of talent. Choosing a zone that specializes in the industry will better guarantee the supply of talent in the field. This is especially true of the Central industrial zones, where talent pool is limited and finding skilled labor for niche industries poses a challenge.
Infrastructure
Infrastructure remains a constraint on FDI in Vietnam, which can suffer from lagging access to utilities, inputs, and transport networks necessary for operations. Infrastructure deficits can delay global value chains. Tax incentives and the availability of infrastructure offered by industrial zones provide a solution, assisting companies in a range of operational areas.
Proximity to ports, key road networks, and rail systems offers another significant asset to businesses. Industrial zones are usually located adjacent to a port or attached to an existing port complex. Some zones are directly linked to key roads and railway networks that reduce the time of transporting goods in and out of the country.
Incentives
Preferential tax rates are available to investors located in industrial zones in Vietnam. Other indirect taxes, such as Value Added or Special Consumption Tax, may also be reduced on a good-by-good basis. These tax incentives can help offset the higher wages and rental fees in these areas.
Top cities to start your business
Ho Chi Minh City
Being the central economic hub of Vietnam, it is no surprise that Ho Chi Minh City is first on the list of FDI attractions. One of Ho Chi Minh City’s competitive advantages is its available infrastructure and transportation networks. Tan Son Nhat International Airport is the biggest airport in Vietnam, accommodating up to 17 million passengers per annum. Saigot port network is also one of the major commercial ports in Vietnam. Ho Chi Minh City has 11 industrial zones with a total area of more 1,700 hectares, and more than half of them have land available for rent. The city also houses many institutions, research centers, and think tanks, guaranteeing a constant supply of high-skilled labour
Hanoi
Hanoi is an appealing FDI location for its extensive transportation network and investment incentives from the government. Hoa Lac Hi-tech Park in Hanoi is the first Hi-tech Park in Vietnam to receive special mechanisms and incentive policies, allowing investors and companies investing in Hoa Lac Hi-tech Park to enjoy preferential tax rates and other support, and Noi Bai International Airport is the second biggest airport in VIetnam. Regarding FDI inflows, Hanoi ranked fourth among cities and provinces in Vietnam with more than 4,489 projects in force and $27 billion in registered capital.
Phu Quoc
Foreign investors benefit from the favourable real estate market, liberalised foreign policies, international airport, seaport system, road traffic and good infrastructure in Phu Quoc.
As of April 2017, Prime Minister Nguyen Xuan Phuc has officially approved the plan to set up a Special Economic Zone. The new development model will allow 100% foreign ownership of properties and rights to conduct trading activities related to tourism. Investors can also mortgage real estate at international banks that have local branches for a loan. It is expected that Phu Quoc Special economic zone will catch up with Singapore and Hong Kong as a knowledge-based economy in 20 years.
Bac Ninh
Bac Ninh province has grown from an agricultural community to a major industrial center with multinational companies in the Northern Key Economic Zone.
Thanks to its proximity to Hanoi and China, Bac Ninh has become the second most attractive option for FDI in Vietnam. Its total GRDP (Gross Regional Domestic Product) in 2017 increased by 19% compared to the previous year – becoming the second highest per capita income of the country.
Binh Duong
Binh Duong province, located in the southern key economic region, has become a rising investing zone in recent years. Its close proximity to Ho Chi Minh City has attracted large foreign companies that seek to expand their production as part of their supply chain while taking advantage of the available land. On top of that, Binh Duong focuses on attracting investments in hi-tech, less labour-intensive, and environmentally friendly industries.
Da Nang
The city is only hours away from big domestic and foreign markets such as Hanoi, Ho Chi Minh, China, India, etc. The East-West Economic Corridor passing through Danang links the city with other neighboring countries such as Laos, Cambodia, Thailand, and Myanmar with Danang Port acting as the access point to the Pacific Ocean, facilitating the transportation of goods and people through the area. As a rising modern city Da Nang also boasts high-standard infrastructure. The city has 06 industrial zones in operation and 03 more under planning. Danang Hi-tech Park also has more than 300 hectares of land available for rent with attractive rental rates and other supports.
Hai Phong
Being the biggest port and one of the major industrial hubs in the country, Hai Phong is an excellent place to start your business. In 2016, Hai Phong was leading the foreign direct investment in the country with a total investment capital of US$2.8 billion.
Above are the key insights that help you map out potential business locations in Vietnam. Indeed, their are many other factors individual to the business that should go into the decision of location. Our Viettonkin experts team with their long-established experience in FDI in Vietnam are ready to assist.
