The founder of South Korean tech firm Harex InfoTech, Mr. Park Kyung Yang, paid a visit to Vietnam in early May and announced plans to extend a user-centric shared mobile payment platform in the country.

Seeing huge opportunities from its high mobile penetration rate and a high unbanked and underserved population, he aims to expand investment by cooperating with experienced partners to spread UBpay throughout Vietnam and providing solutions for financial inclusion and inclusive growth.

Vietnam’s IT and financial sectors are new fields of endeavor for South Korean investors, with greater interest being expressed recently in setting up or expanding investments in the country, according to Mr. Kim Heung Soo, President of the Korea Chamber and Commerce (KORCHAM) in Vietnam.

This investment flow has been driven by vast opportunities coming from the country’s rapid economic growth, flourishing consumer lending, and ongoing technological innovation.

South Korea was Vietnam’s second-largest investor as at June, following China and with $1.2 billion coming in the first half. Two-way trade last year totaled $68.2 billion, making South Korea Vietnam’s second-largest trading partner.

The two governments have agreed to lift trade and investment demand from South Korean investors remains high. Vietnam is now the third-largest investment destination for South Korea investors, following the US and China.

Their investment has been largely to take advantage of low labor costs in Vietnam, where the minimum wage is relatively low.

“Vietnam has huge opportunities to leapfrog into a developed economy, with a very high mobile subscription rate of around 139 per cent and a large population,” Mr. Park told VET.

“Investors should look at the chance to make it a developed economy with a user-centric hyper network of billions of mobile apps around the country and imagine the future.”

As South Korean firms and investors continue to seek new growth areas and investment destinations in all of emerging Southeast Asia, Vietnam has by far garnered the most interest. With its recent economic development and rapid changes to its business environment, the investment trends among South Korean investors in Vietnam have also been changing.

Investment fields have diversified, from labor-intensive construction to manufacturing and the latest investment wave in high value-added industries such as electronics and consumer goods as well as the IT and financial sectors.

The growth in traditional financial institutions in South Korea, such as banks, credit card issuers, insurers, and securities companies, has slowed due to market maturity and low interest rates and commissions.

Vietnam, meanwhile, is an emerging market due to its large unbanked population but high smartphone penetration rate.

“The rest of Southeast Asia, such as Thailand, Indonesia, and the Philippines, are experiencing similar trends but Vietnam has unique advantages,” said Mr. Ryan Park, CEO of Ncore Ventures.

Most industries being relatively underdeveloped and requiring major improvements makes market entry more attractive as a market creator or market player, according to Mr. Sean Sunghwa Lee, Head of Investment, Corporate Venture Capital, at GS Shop. “Cooperation with local companies can also be a good option,” he said.

“There are opportunities for high returns for pure financial investors, too. Capital plays a critical role in industry growth and market development. From large companies to small startups, South Korean financial investors with specialized capabilities in each asset class are interested in providing capital.”

Growth potential

The possibility of development in the financial sector is an important element in decisions to invest, as are recent efforts by commercial banks to reduce bad loans, greater transparency, and better corporate accounting.

Mr. Kim from KORCHAM believes that Vietnam presents huge opportunities stemming from technological advancements and the potential from the fintech industry utilizing digital banking technology as well as from the development of local commercial banks implementing Basel II standards.

“Many startups and apps have achieved success by utilizing the preference and higher frequency for IT products and social networking among younger Vietnamese, which is the majority of the population,” he added.

Moreover, the IT and financial sectors are attractive because customers readily jump into a new service once they experience its convenience and ease of use.

Vietnam has a strong network of IT corporations, financial institutions, and other entities that are active in these fields, and cooperation or co-investment with these would help them scale up their customer base.

Thus, Mr. Park from Harex InfoTech said it will introduce the UBpay platform to enable users to connect with financial institutions directly without the need for a “middleman”, while enabling financial institutions and service providers of any size to freely provide their own branded payment, banking, and commerce services to these users, using the UBpay platform.

Technology is filling up empty spaces, Mr. Lee from GS Shop commented, creating more advanced industries and growing them rapidly. People in Vietnam can open their first bank account and take out their first loan via a mobile bank, not a branch. P2P lending and e-wallet services also make financial services available without a bank.

“This opportunity will be particularly appealing to South Korean financial companies, who are suffering from growth limitations as all areas at home are becoming saturated,” he said.

“While the market’s growth potential is huge, they can access it much more flexibly without having the same heavy legacy assets they do in South Korea.”

Industry innovation by digital and mobile in particular has already been proven in many countries. In its early stages still, investment in Vietnam will focus on proven models in similar markets.

The key to these investments is to estimate how seriously the market needs the solution, since this leads directly to growth potential.

If there is a need in the market, then the next step is the executional capabilities of those who meet the need. The ability to use technology in addition to experience and competence is a key component of execution.

Regarding the internal rate of return (IRR) in Vietnam, Mr. Lee believes it’s too early to comment.

“Given that the IRR is a combination of expectations for growth and implementational risk, I think that Vietnam’s IRR may be larger than other countries in the region,” he explained.

“The large population, steadily increasing FDI, growth in national income led by the manufacturing industry, and stable political system make expectations high. However, high levels of government debt, slow equitization, and rapidly declining but still widespread corruption are risk factors to watch out for.”

Hurdles to surmount

Meanwhile, earning a profit from investments in Vietnam’s domestic market remains difficult due to low purchasing power. Investors are expected to endure a tough period for a while, even though their goal is to occupy the local market.

“I think the recent rise in labor costs and inflation and especially the surge in real estate prices has an effect on Vietnam’s investment attraction,” Mr. Kim from KORCHAM said.

South Korean companies have invested in various fields, from traditional sectors like manufacturing to electronics, distribution, and finance.

They therefore have had to face and overcome a wide range of matters, from legal issues to problems regarding cultural differences between the two countries, according to Mr. Park.

In particular, companies that came to Vietnam long ago had to face problems from the lack of local laws and government policies regarding trade, accounting, taxation, customs, and labor, and had to tackle red tape when dealing with local administrative agencies.

Fortunately, in order to resolve these difficulties, the Vietnamese Government, the South Korean Government, and KORCHAM, as well as South Korean companies, have actively worked together.

South Korean firms have traditionally been more comfortable addressing investment at home, due to the ease of communication, deal sourcing networks, and understanding of regulatory affairs.

That being said, there are increasing numbers of Vietnamese startups who can communicate freely with foreign investors and legal/financial advisors whose services enable foreign investors to look deeper into Vietnam’s investment opportunities.

Legal opacity is indeed the greatest obstacle to investment in Vietnam, according to Mr. Lee.

“Many investors have doubts as to whether Vietnamese law can protect their rights when they are involved in a dispute,” he said.

“The ambiguity in regulatory policy confuses foreign investors. While many regulations are made timely, laws and regulations governing foreign investment are often inexplicable and often inaccurate. Excessive time and costs on interpreting and querying regulatory policy are clearly barriers to investment. If an agency dedicated to resolving issues arising from foreign investment was to be created, as is found in many countries, Vietnam would certainly attract more foreign investment.” VN Economic Times

Khanh Chi

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