Yoon's visit highlights economic ties with Vietnam

Industry

Published: 21 Jun. 2023, 19:39 Updated: 21 Jun. 2023, 19:58

Yoon's visit highlights economic ties with Vietnam

Employees of Hyundai Motor celebrate shipping of its Accent sedans at its Ninh Binh plant on July 8. [HYUNDAI MOTOR]

Discussions during President Yoon Suk Yeol's visit to Vietnam will likely set the tone for the Southeast Asian country's role in supply chain dynamics in key products like smartphones, display panels and materials for electric vehicles.

The three-day state visit that begins Thursday comes as big Korean companies are looking for a backup to China as a factory floor amid protracted tensions between Washington and Beijing.

Vietnam is already home to manufacturing complexes of Samsung Electronics, LG Electronics and Hyundai Motor, but the Vietnamese government has called for a larger sum of investment to host more advanced, expensive facilities like chip production lines. Korean companies operate no chip factories in Vietnam.

The issue will no doubt come up when Yoon and the heads of around 205 Korean companies meet with high-ranking Vietnamese officials during the trip.

The business delegation includes Samsung Electronics Executive Chairman Lee Jae-yong, SK Inc. Chairman Chey Tae-won, Hyundai Motor Group Executive Chair Euisun Chung, LG Corp. Koo Kwang-mo, Hyosung Vice Chairman Cho Hyun-sang, and chiefs of commercial banks, including KB Kookmin, Shinhan, Hana, Woori and Nonghyup.

Korea and Vietnam elevated their relations to a comprehensive strategic partnership last year, and ties are likely to deepen as the two reached an agreement — as part of 14 countries in the U.S.-led Indo-Pacific Economic Framework for Prosperity — for supply chain resilience in an effort to reduce economic dependence on China in May.

Korea's largest trade surplus in 2022 was with Vietnam, the first time since the two established diplomatic ties in 1992. Korea's exports to Vietnam totaled $60.98 billion last year, and imports $26.72 billion, resulting in a surplus of $34.25 billion.

Trade volume between the two countries, which was only $493 million in 1992, had surged 164-fold to $80.8 billion as of last year. In terms of export volume, Vietnam is now No. 3 after China and the United States.

But during that time, Korean companies like Samsung, Hyundai and LG have also committed billions of dollars to the country.

Around 8,800 Korean companies have invested $80.8 billion in Vietnam as of November, making Korea the biggest foreign investor followed by Japan, according to data from the Korea Customs Service and Korea International Trade Association.

“The economic relationship between Korea and Vietnam achieved remarkable development over the past three decades,” said Kim Bong-man, head of the international affairs division at the Federation of Korean Industries (FKI).

“We anticipate trade volume will double to $150 billion by 2030.”

Samsung Electronics Executive Chairman Lee Jae-yong, fourth from left, participates at the opening ceremony of Samsung's research and development center in Hanoi, Vietnam, on Dec. 23, 2022. [NEWS1]

Samsung is at the forefront of bilateral commercial ties.

Samsung C&T, the construction unit of Samsung, opened a trade office in Hanoi in 1989, three years before Korea and Vietnam established formal diplomatic relations in 1992. Samsung Electronics opened its Vietnam office in Ho Chi Minh in 1995 to manufacture television components and sales.

Currently, Samsung Electronics runs a total of four manufacturing plants in Vietnam, which generated $71.3 billion in 2022, a decrease of 0.7 percent on year. Its annual net profit, on the other hand, recorded an all-time high of $4.64 billion. Export sales for 2022 recorded $65 billion and take up 17.5 percent of Vietnam’s total export sales of $371.8 billion.

Samsung injected over $20 billion into Vietnam until last year and also established a research & development center in Hanoi in 2022, the largest in Southeast Asia. The center conducts research on smart devices, network technologies and software.

About half of Samsung smartphones are produced in Vietnam. But to reduce the external risks, the manufacturer plans to reduce Vietnam's portion in smartphone production, according to local media outlets.

A Samsung Electronics spokesperson declined to comment about its plan in Vietnam but mentioned that the company is "working to diversify supply chain network in an effort to mitigate risks."

Samsung Electronics Executive Chairman Lee Jae-yong, left, inspects smartphone assembly line in Vietnam plant in Bac Ninh on Dec. 22, 2022. [NEWS1]

LG has a total of 12 subsidiaries in Vietnam, including LG Electronics, LG Display, LG Innotek, LG Chem and LG Household & Health Care.

Three factories for LG Electronics, LG Display and LG Innotek are clustered at Hai Phong, generating 15 percent of global electronic parts.

LG Electronics’ Hai Phong plant recently established a new assembly line for refrigerators which will be exported to Southeast Asia, as well as South America and the Middle East.

Hyundai Motor is currently the No. 1 automaker in Vietnam, beating Japanese automakers that have dominated the market for decades.

Hyundai Motor sold a total of 22,903 vehicles in Vietnam this year through May, beating Toyota Motor which sold 21,547, according to data from the Vietnam Automobile Manufacturers.

Vietnam is the fourth largest auto producer in Southeast Asia, where Japanese automakers control 90 percent of the market.

Kia sold 13,951 vehicles during the same period, becoming the third-largest automaker in terms of sales.

Having established a 50:50 joint plant with the Thanh Cong Group in Ninh Binh in 2017, Hyundai produces Accent sedans, Avante sedans, Creta SUVs and Santa Fe SUVs.

It sold 79,568 vehicles in Vietnam in 2019, becoming the most popular auto brand just two years after the plant started operations.

Hyundai Motor introduces Ioniq 5 EV in Vietnam in April, 2022. [HYUNDAI MOTOR]

It maintained the No. 1 position for three consecutive years through 2021 but lost its throne to Toyota in 2022.

Hyundai completed the construction of its second plant in Ninh Binh last year, boosting its annual production capacity to 107,000. Hyundai will begin manufacturing Ioniq 5 EVs there starting in July.

Vietnam’s auto market is growing rapidly recently, with a total of 404,635 new vehicles sold last year, up 33 percent on year.

Hyosung, which established its Vietnam subsidiary in 2007, currently operates four factories in Vietnam.

It invested more than $3.5 billion in Vietnam as of last year, becoming the third largest foreign direct investor so far.

Hyosung has been operating a tire cord and airbag fabric plant in Quang Nam since 2018. Two years later, it built an ATM machine factory in Bac Ninh Province.

In 2021, Hyosung Vina Chemicals, the Vietnam subsidiary of Hyosung Chemical, invested $1.3 billion to build a Polypropylene plant in Ba Ria-Vung Tau.

Hyosung generated around $3.2 billion in Vietnam last year, and it is considering building a carbon fiber plant in Vietnam.

Hyundai's Accent sedan [HYUNDAI MOTOR]

SK Inc. Chairman Chey Tae-won in 2021 met with top Vietnamese government officials and signed a deal to boost cooperation in eco-friendly businesses, such as areas related to carbon emission cuts, hydrogen and digital technology.

It was the first time a major Korean company signed an agreement on eco-friendly businesses with a foreign government.

Financial firms started expanding into Vietnam in the late 2000s when major corporations like Samsung and LG began investing heavily in the country.

Shinhan opened a local office in Vietnam in 1992 and established the Shinhan Vietnam Bank Corporation in 2009. It now runs 46 branches in the country.

The financial players are trying to expand their footing by partnering with or acquiring local companies.

Shinhan acquired ANZ Bank Limited’s retail division in 2017. It also bought a 10 percent stake in local e-commerce operator Tiki with the goal to create synergy effects in the digital era. Its net profit in Vietnam was 67.56 billion won ($52.2 million) in the first quarter, up 68 percent on year.

KB Bank, which runs two branches in the Southeast Asian country, saw its net profit jump 245 percent in the same period. Hana Bank, which also runs two branches, acquired a 15 percent stake in a state-owned Bank for Investment and Development of Vietnam, in 2019.

The financial market in Vietnam is growing rapidly. The number of people that hold bank accounts doubled to more than 60 percent in the first half of 2022 from 2017, according to a report from the local newspaper VNExpress International.

Vietnam grew 3.32 percent in the first quarter, the lowest since 3.21 percent in 2022, but still a healthy growth rate compared to many advanced economies. The government’s goal is to raise the rate to 6.5 percent for this year.

BY SARAH CHEA, LEE JAE-LIM, JIN MIN-JI AND PARK EUN-JEE [chea.sarah@joongang.co.kr]