Italian businesses pivot from China to Vietnam

“Vietnam has become a more attractive destination for Italian small-and medium-sized enterprises as labour costs in the country are 3.5-4 times lower than they are in China. The legal policies are also more flexible,” Pham Hoang Hai, executive director of the Italian Chamber of Commerce in Vietnam (ICHAM), told VIR.

“Another important thing is that intellectual property rights protection in Vietnam is better than it is in the neighbouring nation to the north,” he added at last week’s annual area meeting of the Italian chambers of commerce in Asia and South Africa.”

According to Hai, “European enterprises are now more increasingly interested in Southeast Asia. And many Italian firms, which are export-oriented, are no exception”.

Another important motivation is the landmark EU-Vietnam Free Trade Agreement (EVFTA), which is expected to take effect in early 2018 and reduce tariffs bilaterally on select imports and exports.

“EVFTA will provide tremendous growth and innovation opportunities for European firms, including those from Italy. Thus, they are preparing to benefit from it. And this area meeting is one among many preparation activities to help them”, Michele D’Ercole, president of ICHAM, told VIR. “I see good growth by the end of this year and next year”.

“Italian enterprises coming to explore Vietnam focus on trade. Bilateral trade increased by tenfold in 10 years to US$4.6 billion in 2016, with the majority coming from Vietnamese exports to Italy. Italy is Vietnam’s eighth commercial partner and fourth among the European Union,” he added.

According to statistics from Vietnam’s Ministry of Planning and Investment, Italian investment in Vietnam increased from US$340 million in 2015 to over US$360 million a year later, with 78 projects in 2016.

Manufacturing, transport, agricultural processing, and green energy are gaining the most attention among Italian firms in Vietnam. Successful Italian investors in Vietnam include reputable manufacturers such as Piaggio, Datalogic, and Ariston.

The move away from China by international groups has increased in recent years, mainly due to legal barriers, rising taxes, labour costs, and fierce competition from Chinese firms.

US-based Seagate, the world’s largest hard disk producer, has shut down its plant in Suzhou China, laying off more than 2,000 employees. Other firms that have shifted operations away from China include Metro, Home Depot, Best Buy, Revlon, L’Oreal, Microsoft, Sharp, Panasonic, Sony, and Marks & Spencer.

Experts forecast that the list will be longer in the coming months.

China has imposed restrictions on the Korean companies in the tourism and distribution sectors because of its deployment of the Terminal High Altitude Area Defence system (THAAD). It is believed that this may prompt more Korean firms to leave China. Recently, US President Donald Trump called on US firms to bring operations back to the US, as China is the manufacturing base for many US companies.

Apple has been studying the possibility of moving Iphone production from China to the US. A key Apple assembler, Hon Hai Precision Industry (also known as Foxconn Technology Group), has been toying with the idea of moving their production stateside.

The corporate exodus from China provides Vietnam with a major opportunity to attract more foreign investment. However, not all groups leaving China are choosing Vietnam.

For example, some Japanese firms sought investment opportunities in Vietnam after exiting China, but many have instead chosen Singapore and Indonesia as their targeted investment destinations.

Economists say that Vietnam should further improve its business climate by solving problems related to legal policies, its workforce, and supporting industries.