Value context and insight. lkm@koreatimes.co.kr
Korea's investments in Vietnam plunge due to strengthened regulations
Samsung Electronics' manufacturing plant in Bac Ninh Province, Vietnam / Courtesy of Samsung Electronics
By Lee Kyung-min
By Lee Kyung-min
Korea's investments in Vietnam plunged significantly in the first quarter of this year compared to the same period of 2022, mainly due to tightened labor and safety regulations, according to industry officials and government data, Monday.
The marked year-on-year drop contradicts previous market expectations that many global manufacturing powerhouses will move their production facilities from China to the Southeast Asian country, prompted by a growing need to diversify global supply chains amid an intensifying U.S.-China trade feud.
Experts say the downtrend has also come as businesses are increasingly reorienting supply chains to better respond to the U.S. Inflation Reduction Act (IRA), the details of which were released recently. Also at play is the rapid growth of India, a major emerging market and a competitor of Vietnam.
According to Vietnam's Ministry of Planning and Investment (MPI), Korean firms invested $474.4 million in Vietnam during January to March of this year, dropping 70 percent from a year ago.
The number of investment projects declined 16.9 percent over the same period to 344.
Korean companies with production plants based in Vietnam accounted for 35 percent of the Southeast Asian country's exports and about a quarter of them were electric and electronic goods manufacturers including Samsung Electronics.
Korean firms operating businesses in Vietnam say tightened work visa rules and fire safety standards are among the factors deterring them from expanding investments in the once-popular alternative to China.
“Korea is among many trading partners of Vietnam curtailing their investments due to tighter regulations,” said Kim Hyung-mo, the Vietnamese office head of the Korea Chamber of Commerce and Industry.
In his view, these issues can pose major roadblocks to the stable business planning of Korean companies, which are already feeling the pinch of the global economic slowdown and subsequent softening of demand.
“The government should promptly outline policy assistance measures to help local firms expand businesses in Vietnam on the 30th anniversary of diplomatic relations with Korea this year,” Kim said.
Korea Institute for International Economic Policy senior researcher Kim Je-gook said businesses will not be able to find an alternative to Vietnam any time soon.
“Vietnam is known for its infrastructure and political stability, stable enough to run businesses without unexpected volatilities, relatively speaking,” he said.
“Businesses will find it hard to identify an investment partner country with cheap labor costs and manageable risks any time soon.”