return icon

HSBC economists report on Vietnam’s prospects during 10-day visit

Limited land and labor resources, increasing wages and a lack of local suppliers in Vietnam could make the cost/benefit equation less attractive for FD) firms in the foreseeable future, HSBC said in its latest Asia Frontier Insights report.



A worker operates equipment at the Phu My 1 thermal power plant in the southern province of Ba Ria-Vung Tau. Vietnam’s manufacturing worker wages are among the lowest in Asia, but the growth rate is high 


During their 10-day visit to Vietnam, HSBC economists found that rising land costs and the availability of appropriate land were some of the key issues facing FDI firms.

For example, an industrial park developer indicated that land prices have moved up over 20% from a year ago. Most of the factories in popular industrial areas in Vietnam have already been taken. Also, it is difficult to find large parcels of land in HCMC and Hanoi. On average, the cost of land is US$100-US$250 per square meter.

Many companies with low margins that cannot afford a high cost base are considering moving to central Vietnam and further afield to find more affordable land, the economists noted.

They added there has been a surge in demand for land from ecommerce companies. Ecommerce warehouses have to be in or near the city, so this will further increase demand.

They quoted industrial park developers as saying that their current land bank will last some two or three years. Besides this, land reviews and audits have become stricter, leading to a slowdown in approvals for new projects.

The second issue concerns the labor crunch. “Vietnam has some of the lowest manufacturing wages in the region. However, the growth in wages has also been among the fastest, behind only China. This could gradually erode its cost advantage,” said the economists.

With more companies moving to Vietnam, wage pressures are likely to persist. Anecdotally, the experts have seen examples of labor shortages affecting firms.

In one case, a garment company started preparing to open a plant in a new province, even though it had land at the existing plant, because of the shortage of labor, the economists said, adding that to continue its current operations, the company would have to organize job fairs regularly in nearby villages.

Companies are also having difficulty finding and retaining workers. Unskilled workers are available, but it takes time to train them. For skilled labor, such as manufacturing engineers, salaries are still lower than in most Asian markets.

“Vietnam has one of the highest growth (rates) in salaries in Asia over the past five years, behind only China. An electronics company we met said wages were rising sharply and one automaker said it was even considering hiring more expats to fill the gap,” said the economists.

They stressed that attrition levels are very high in Vietnam, at more than 60%. This increases the cost for companies as they have to keep spending on training new workers. This also causes disruptions to their production as new workers take time to learn the job.

Vietnam is also facing the issue of an aging population. The working age population is set to decline over the coming years. This could put an additional strain on the availability of workers if productivity does not rise quickly enough.

“Overall, we got the sense that costs are rising more than productivity. Companies have had to lower their standards and increase wages to find skilled workers,” explained the experts.

To address the labor issues, companies are increasing automation, hiring expat workers and setting up their own vocational facilities to train the labor force.

Better infrastructure is needed to cater to Vietnam’s growing manufacturing industry, and electricity is an important resource.

“Local experts believe that electricity production will probably be sufficient for two or three years. Companies also pointed out that logistics costs are increasing. Port congestion is high, and it is taking companies longer to ship products,” noted the economists.

The economists said that Vietnam does reasonably well on logistics performance overall, but it still lags behind when it comes to cross-border trade. While several major port projects are in the pipeline, they have yet to take off.

Companies moving to Vietnam find it difficult to source local suppliers of goods and services. For instance, one large electronics manufacturer has had to import semi-finished goods from China and expects this to continue due to the lack of local suppliers.

The key reason is that both State-owned enterprises (SOEs) and private companies have not been investing enough. A large part of the economy is still dominated by SOEs.

The Government, as part of its economic reforms since the 1990s, has created larger entities by combining smaller SOEs. The intention was to create economies of scale.

However, according to the economists, the SOEs functioned like conglomerates and diversified into unrelated areas with the help of easy access to land and credit, and focused more on short-term profit rather than on building economies of scale in their core businesses. SGT

Thanh Thom

Vietnam energy prospects 2019 announced

Vietnam energy prospects 2019 announced

A report on Vietnam energy prospects was announced by the Ministry of Industry and Trade (MOIT) in collaboration with the Danish Ministry of Energy, Utilities and Climate.

Vietnam real estate still an attractive prospect

Vietnam real estate still an attractive prospect

Vietnam's real estate market continues to attract foreign investors because of its growth potential, especially Korean investors, according to real estate consulting companies.  


Ngoc Linh ginseng helps Central Highlands locals out of poverty

Growers in the Central Highlands provinces dreamed of escaping poverty when they planted Ngoc Linh ginseng which has made an economic contribution to improving local farmers’ living conditions.

Soc Trang’s Khmer pagoda features giant Buddha statue

With the long-standing bonds of the Kinh, Khmer, and Hoa ethnic groups, Soc Trang boasts a special cultural identity that makes it an outstanding spiritual destination for tourists and Buddhist followers from far and wide.

Smart-homes getting cheaper in Vietnam

In Vietnam, a smart-home installation package costs VND14-25 million.

Vietnamese nationals account largest proportion of Japan’s foreign worker population

Vietnamese nationals account for 25.4% of the total 1.82 million foreign workers who were working in Japan as of the end of October last year, according to the Japanese Ministry of Health, Labour and Welfare (MHLW).

Mekong Delta develops more OCOP products

The Cuu Long (Mekong) Delta’s 12 provinces and the city of Can Tho are developing more products under the country’s “One Commune-One Product” programme.

Major Vietnamese paintings worth millions of dollars at global auctions

2022 represented a successful year for the Vietnamese painting market as three more pieces were auctioned at more than US$1 million each, bringing the total number of valuable paintings to 19. Let’s take a closer look at some of them.

Vietnamese American singer brings Tet Holiday joy to disadvantaged children

In hope to bring the children who lost their parents because of Covid-19 a warm spring holiday, Vietnamese American singer Ha Phuong spent a day to enjoy Tet with them.

How will the economy fare in 2023?

Vietnam’s economy had a prosperous year in 2022 with GDP growth rate of 8.02 percent, a one-decade high.

Female Vietnamese badminton star Thuy Linh placed 50th in world rankings

Vietnamese badminton star Nguyen Thuy Linh has risen to 50th position in the world’s latest singles women rankings, according to the Badminton World Federation (BWF).

Phin Ho ‘shan tuyet’ tea –specialty of Ha Giang

Apart from stilt houses and seemingly endless terraced paddy fields, “shan tuyet” tea, a famous specialty of Phin Ho village, is one of the special things visitors cannot forget once setting foot in Tay Con Linh Mountain in Ha Giang.

Discovering art of making vegetarian dishes in Tay Ninh

Religions and beliefs have made considerable contributions to the culinary culture of Tay Ninh.

Hoi An, HCM City among world's top 25 trending destinations in 2023: TripAdvisor

Germany’s famous travel site has run an article highlighting the world’s top 25 trending destinations for 2023, including Vietnam’s Hoi An ancient city and Ho Chi Minh City, recently voted by readers of TripAdvisor.

Make-in-Vietnam sleeping machine developed by professor

FRENZ Brainband helps users have faster, tighter and deeper sleep. It can also be used for relaxing and enhancing concentration when working.

Paris Agreement: Lessons on independence, self-reliance, int’l solidarity

The signing of the Paris Agreement on ending the war and restoring peace in Vietnam on January 27, 1973, was a resounding victory of Vietnam’s revolutionary diplomacy in the Ho Chi Minh era.

PM: Lunar New Year comes with new energy

Prime Minister Pham Minh Chinh chaired a meeting of permanent Cabinet members in Hanoi on January 27, speaking of new energy of the nation following Tet (Lunar New Year), the biggest festival in Vietnam.