A study of Hongkong and Shanghai Banking Corporation Limited (HSBC) shows that overall investment into ASEAN to 2020 is expected to rise amongst Singapore-based companies with Vietnam to be a key beneficiary. Vietnam’s growing consumer market and overall investment climate are driving the expansion plans.
The HSBC-commission report by the Singapore Business Federation sought the insights of 1,036 Singapore-based companies on their interest in overseas expansion.
Eighty-six per cent of those surveyed were considered small or medium-sized enterprises (SMEs) defined as those with the annual turnover of $73million or less than 200 workers. Vietnam is a clear favorite destination for internationally oriented Singapore-based companies expecting to expand.
Of the surveyed companies, 76 per cent said they already had operations in Vietnam, the highest except for Malaysia at 87 per cent, Indonesia 81 per cent, and Thailand 80 per cent; and 30 per cent expected to further expand there in the next two years, behind only Indonesia and Malaysia.
Increased trade and investment activity from Singapore is a good news for Vietnam given Singapore is already one of Vietnam’s largest source of investment. In 2016, Singapore was the third largest source of FDI into Vietnam, accounting for 10 percent at $2.41 billion.
As of October 2017, Singapore invested more than $41 billion into Vietnam, taking the third largest investor into Vietnam, slightly behind that of Korea and Japan according to the Vietnam Trade Promotion Agency.
Singapore’s inbound investment into Vietnam includes companies founded in the Republic as well as many international firms. Of the 37,400 international companies in Singapore, 7,000 are multinational companies and 60 per cent have regional responsibilities.
“Whilst Vietnam’s growing consumer base is already well recognised by Singapore corporates, the report shows that many businesses are looking to double down on our demographic dividend,” said Winfield Wong, Country Head of Wholesale Banking, HSBC Vietnam.
According to the leader of HSBC, Vietnam’s manufacturing – whilst already strong - is now entering into the higher-end space. So while many corporates may base their treasury and other back-office functions in Singapore, a lot of revenue-making operations are being driven out of Vietnam. This is only expected to ramp up with Vietnam’s widening along the supply and value chain.
Partnership opportunities for local Viet firms
Most of the Singapore-based SMEs who are entering Vietnam or expanding will have or are seeking an in-country relationship. The research found more than 63 per cent of those surveyed had a distributor or joint venture arrangement in Vietnam.
“Singapore-based SMEs can make a significant contribution to Vietnam’s economy; they are looking to expand beyond their domestic markets and can benefit from the cross-border activity that was previously seen as the domain of larger corporates,” said Winfield.
“However, entering and expanding in any market is never a straight line process and it is inevitable that there will be bumps along the way, particularly for SMEs who may not have the resources and local insights to fully navigate the differences in political and business cultural norms in neighboring countries,” he added.
Winfield said that most Singapore-based SMEs recognise that the recipe for success in overseas ventures includes selecting the right local partners and advisers. While this presents new opportunities for local businesses, the downside is that it is already a new normal that pace of such business partnership formations is now even much quicker.
To seize these opportunities, according to the representative of HSBC, local enterprises need to take a proactive stance, by plugging into the network and actively reaching out to expanding Singapore-based SMEs in advance.