Samsung Display received an investment license earlier this year for its $2.5 billion expansion project in northern Bac Ninh province’s Yen Phong Industrial Park (IP), increasing its investment in Vietnam to $6.5 billion. 

It was also the first billion-dollar project in the country this year. A representative from Samsung told VET that the Yen Phong IP meets all its requirements regarding geographic location and transport infrastructure. 

“The infrastructure outside of the IP, including electricity, telecommunications, and water supply are synchronous and completed,” he added. “These are very important factors in raising productivity.” 

Impressive investment 

Samsung is a major investor in IPs in Vietnam’s north. The South Korean technology giant has now invested a total of $17.363 billion countrywide. Its two biggest projects are Samsung Electronics Vietnam (SEV), on a total area of 110 ha at Yen Phong, and Samsung Electronics Vietnam (SEVT), on 170 ha at the Yen Binh Industrial Zone in Thai Nguyen province. 

Total export value from SEV and SEVT in 2016 was $36.2 billion, up 10.3 per cent compared with 2015’s $32.8 billion and representing more than 20 per cent of Vietnam’s total export turnover. 

South Korea’s LG Innotek Company, meanwhile, a subsidiary of the LG Group, has been licensed to build a $550 million factory manufacturing camera modules in the northern port city of Hai Phong. 

A representative from LG Innotek Vietnam said that the company received an investment certificate from local authorities at the Hai Phong Investment Promotion Conference, with operations to commence by the fourth quarter of 2017. 

The project will be built on an area of about 10 ha at the Trang Due Industrial Park in the Dinh Vu Cat Hai Economic Zone and will produce around 30 million different types of camera modules for major phone makers such as Apple and LG itself. 

Additionally, LG Display held a breaking ground ceremony in May for the $1.5 billion LG Display Vietnam Hai Phong project, on an area of more than 40 ha at Trang Due. 

It will manufacture and process certain types of organic light-emitting diode (OLED) display modules for mobile phones, smart watches, tablets, and TVs, with exports to account for 80 to 90 per cent.

Figures from the Department for Economic Zones Management (DEZM) at the Ministry of Planning and Investment (MPI) show that southern Binh Duong and Dong Nai provinces have consolidated their positions as industrial centers in the south, with each attracting approximately $1 billion in the processing and manufacturing sector in the first half of 2016. 

Previously an IP development laggard, the Mekong Delta’s Long An province has received increased interest of late, with 16 operating IPs supplying approximately 3,000 ha of leasable land. 

In the first half of 2016 it received $350 million in registered foreign direct investment (FDI); the highest among Mekong Delta provinces.

South Korea’s Kolon Industries Inc., a subsidiary of the Kolon Group, is planning to develop a $1 billion plant manufacturing airbags and industrial fabric for automobile tires in Binh Duong province, to capture a larger share of the domestic and international markets. 

Its first phase, from 2017 to 2018, will see investment of $220 million and the second, from 2018 to 2026, $600 million. The $1 billion mark will be hit sometime after 2026, in the third phase.

Mr. Duong Tan Thanh, Head of the Foreign Economic Relations Cooperation Division at the Binh Duong Department of Planning and Investment, said that the South Korean investor has selected the Bau Bang Industrial Park for its project. Kolon Industries has also announced it will lease an area of 42 ha from the Investment and Industrial Development Corporation (Becamex IDC) at the expanded IP.

By the end of 2016 there was a total of 325 IPs in Vietnam with an occupied area of 94,900 ha and a total leasable area accounting for 67 per cent, according to DEZM. 

In particular, 220 IPs have been put into operation and 105 are in the process of paying site clearance compensation. 

IPs and Economic Zones (EZs) attracted 873 FDI projects last year, while 680 projects increased their capital, for a total of $14.9 billion, or 72 per cent of FDI in the country. IPs and EZs account for over 90 per cent of processing and manufacturing FDI. 

IPs had attracted 7,013 FDI projects as at the end of 2016. Total registered investment stood $111.4 billion, with disbursed capital representing 61 per cent. 

IPs also attracted 6,504 domestic investment projects with total registered capital of VND710.6 trillion ($323 million), with disbursed capital at 51 per cent.

Short of ideal 

Industrial real estate is an attractive investment channel and can expect continued foreign investment. 

There are a number of IPs, however, that have not attracted as many tenants as expected, despite having full infrastructure. According to figures from MPI, half of all industrial land for lease in the country is empty. 

The Dai Tu IP in Long Bien district, Hanoi, is typical. It was considered a symbol of industrialization when opened, and was the first IP in Hanoi with 100 per cent foreign capital, of $12 million. 

Last year, however, the government agreed to allow the Hanoi People’s Committee to transform the IP into an urban area. 

Though boasting full infrastructure, only 40 per cent of space had been leased. Hai Phong city, meanwhile, has proven to be a pioneer in Vietnam’s north in developing IPs. 

The Trang Due IP is the most appealing among investors, with comprehensive infrastructure. 

It was a destination for major investments in the first half of last year, including LG’s $1.5 billion and SL Electronics’ $425 million manufacturing projects. 

Nomura and Nam Cau Kien are also successful IPs in the city, with occupancy rates from 90-100 per cent.

In a report released in late 2016, Savills noted that Hanoi and neighboring provinces are strongly supported by Noi Bai International Airport but there are no nearby seaports, and air transport is not necessary for certain industries. 

The north could become more competitive, it noted, through increased investment in highway networks connecting to China and to Hai Phong’s ports. 

The representative from Samsung said that selecting suitable locations for factories in Vietnam is a key strategy for all its businesses. 

“With Samsung, the field of electronics is unique in that it requires plants be located close to each other, to serve needs relating to logistics, research and technological development,” he said.

In the Mekong Delta there were 78 IPs and export processing zones (EPZs) with a total planned area of 14,787 ha as at the first half of 2016. 

Occupancy, however, is 3,688.47 ha, with more than 11,099 ha lying empty. 

Mr. Greg Ohan, Business Development Director at JLL Vietnam, said that infrastructure is the main factor in attracting investment. 

“Key IPs now provide more than just land,” he said. “They also provide integrated solutions, with a combination of ready-built warehousing and factories, as well as land for commercial, retail and even residential uses. Therefore, a lot of new FDI tends to go to IPs that offer fully-integrated services and a one-stop investment shop, while larger, older IPs only provide land.” 

Mr. Hiroshi Horaguchi, General Director of Nobel Electronics Vietnam, located at Hoa Lac Hi-Tech Park in Hanoi, said that many businesses would continue to invest in Hoa Lac if there were efforts to promote different channels and attract more investment in infrastructure.

Another factor and challenge for investors in Vietnam’s industrial real estate sector is rental prices. Mr. Troy Griffiths, Deputy Managing Director of Savills Vietnam, told VET that as the domestic economy improves then demand to service local providers will put price pressure on traditional IPs. 

Although industrial activities in Hai Phong are impressive, average rents in the city’s IPs are relatively high due to a lack of incentives for IP developers, according to a Savills report. “This dampens average occupancy at Hai Phong’s IPs,” the report noted.

On the other hand, the reality is that the space you take now as an operator or a manufacturer is going to change over the course of five to ten years, according to Mr. Ohan. 

“Therefore, if you are securing a 50-year land lease, flexibility for a longer-term solution is key,” he said. 

New possibilities

Over 75 per cent of FDI to Vietnam is in the manufacturing sector, so there is a growing demand for integrated IPs around the country. 

The latest JLL report revealed that Vietnam’s manufacturing sector has focused primarily on more labor-intensive segments, such as apparel, shoes, agribusiness, and food processing, which account for 37 per cent of the country’s GDP; among the highest in Southeast Asia. 

Mr. Griffiths said that labor costs in China have risen substantially over recent years, pressuring labor-intensive industries such as garments and textiles and even processing and manufacturing. 

China is facing an outbound wave of foreign companies seeking better production factors, especially regarding labor costs. According to JLL figures, manufacturing wages in Vietnam range from $1 to $1.4 per hour. 

“As a neighboring economy with convenient waterway and road connectivity to China, Vietnam stands out as an ideal recipient of this wave,” said Mr. Griffiths. “Supporting factors include ASEAN membership, FTAs with large export markets, and labor costs at less than half of those in China.” 

Moreover, Vietnam’s edge in its young and skilled workforce is likely to continue to drive manufacturing sector growth of 7-8 per cent annually, according to JLL’s report. 

Mr. HyunWoo Bang, Vice President of Samsung Vietnam, said that compared with the 24 countries that Samsung has research and development (R&D) centers in, Vietnam’s workforce ranks extremely highly in terms of potential and skills.

According to the World Economic Forum (WEF), the quality of infrastructure, which includes transport, electricity and telephony, in Southeast Asia is still weak. But the situation is improving in Vietnam. 

Shimizu Corporation from Japan has committed to development support for the country’s first urban railway line, while South Korea’s Lotte Engineering and Construction is building the first section of the 14.6-km Da Nang - Quang Ngai Expressway.

Policies also add to Vietnam’s appeal. “Vietnam has one of the lowest corporate income taxes rates in the region and will often negotiate further to attract key industries,” Mr. Griffiths said. “Lengthy front-end tax holidays as well as economic zone privileges can be found.” Mr. Ha Chan Ho, Strategic Advisor at Samsung, said that provincial leaders have adopted policies to attract businesses supporting Samsung. 

“When investing in Bac Ninh, we were concerned that no enterprise could meet our needs in high tech electronics when required,” he said. “Now, when we need product packaging or plastic coverings, there are many businesses in the area that can supply them.” 

VN Economic Times