With Southeast Asia’s strategic position at the heart of international trade routes, there is no shortage of international investors seeking to engage with the region. At the crossroads between China and the rest of South Asia, the ASEAN region is particularly attractive to international corporates looking to relocate production and optimise supply chains. Vietnam and Thailand, two of the region’s fastest-growing economies, have been vying for foreign trade and investment. By Franz Murr, Regional Head Asia-Pacific, Ha Bach, Chief Vietnam Representative and Thira Nuntametha, Senior Thailand Representative, Commerzbank
One of Vietnam’s key strengths is its young population of almost 100 million. It has exhibited political stability in recent years, and the World Bank forecasts Vietnam to have the fastest growth in Asia-Pacific in 2023. Neighbouring Thailand, with a larger economy but slightly smaller population, has also posted positive growth figures in recent years, displaying resilience in the face of global economic headwinds.
Building tomorrow’s industries on strong foundations
For years, the region’s manufacturing industries have attracted strong levels of foreign direct investment (FDI). Ever since the US embargo was lifted in 1994, Vietnam has developed a particular focus on the pharmaceutical, fast-moving consumer goods (FMCG) and automotive industries. The country has hosted production facilities for large European pharmaceutical manufacturers such as B. Braun, DKSH, GSK and SANOFI. It is also home to the large-scale manufacturing plants of FMCG giants Unilever and Nestle, as well as Mercedes-Benz – which assembles its AMG sports cars in Ho Chi Minh City.
Similarly, Thailand’s skilled labour force has enabled it to establish a competitive edge in the production of electronics and automotive parts. The country’s private sector, meanwhile, is making advancements in the sector of agricultural technology. But increasing labour costs, as well as ongoing political instability, have made some foreign investors wary. Indeed, for at least the past five years Thailand has been losing out to Vietnam when it comes to attracting investment from markets such as Japan, Korea, China or the US.
As a result, the Thai government is keen to promote a more forward-looking industrial strategy. The Thailand 4.0 programme aims to pivot from labour intensive industries towards a more skills-based economy through infrastructure, innovation and technology. Indeed, Thailand is currently constructing its high-speed rail link that will better connect its ports and industrial areas with the rest of the country.
Vietnam is adopting a similar approach – looking to shift away from heavy industry and becoming more selective in the sectors it promotes for foreign investment. Building upon its status as a manufacturing hub for global brands, it is orienting itself towards technology, embracing more technical industries. Nevertheless, the country continues to be a key hub for textile manufacturing, and this industry is likely to remain a major national employer.
