In most Southeast Asian markets, over half of the companies surveyed said they would choose Vietnam as a new market for business expansion, according to the ASEAN Business Sentiment report recently released by HSBC.

Electronics production at Meiko Vietnam in Thach That Industrial Park, Hanoi. Photo: Thanh Hai/The Hanoi Times

The survey, conducted by the bank in the six largest markets, including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, involved over 600 companies with annual revenues of at least US$150 million.

The results show that the top three neighboring countries whose companies are keen to expand their operations in Vietnam are Thailand (66%), Malaysia (58%), and Indonesia (55%). Thailand is also in the top three countries whose companies are confident in their ability to develop business in Vietnam, with 93%, trailing behind local companies (98%) and those from Singapore (94%).

Thailand continues to be a significant contributor to Vietnam's FDI story, said Ahmed Yeganeh, head of Wholesale Banking at HSBC Vietnam.

According to the statistics of the Foreign Investment Agency, by the end of the first quarter of 2024, Thailand was the ninth largest investor in Vietnam, pouring in a total of over $14 billion, almost $1 billion more than Malaysia. In the Southeast Asian region, Singapore is the largest investor, with $77 billion, and the second largest globally. Other neighbors, such as Indonesia and the Philippines, each invested over $600 million in Vietnam by the end of last year.

From last year until now, Thai investors have announced plans worth hundreds to billions of USD to strengthen their operations in Vietnam. In August 2023, Kasikornbank (KBank) - Thailand's second-largest bank, announced its intention to invest over $1 billion in Vietnam by 2027.

Just at the end of February, the fourth-largest Thai bank, The Siam Commercial Bank Public Company (SCB), reported that it had acquired the entire capital of Home Credit Vietnam for $880 million.

In the manufacturing sector, Thailand’s Siam Cement Group (SCG) has confirmed the commencement of operations at the Long Son Petrochemicals Complex (LSP) and is in the machine testing phase. This first integrated petrochemical complex in Vietnam is expected to produce 1.35 million tons of olefins and 1.4 million tons of polyolefins annually, providing raw materials for the plastics industry.

Companies in Southeast Asia, not only Thailand, generally prioritize neighboring countries for business expansion due to geographical advantages and cultural similarities. This year's HSBC survey shows that 87% prefer to invest within the bloc, compared with  69% outside the bloc. At the same time, 67% believe that intra-bloc trade will thrive, more than double the optimism for extra-bloc trade. When it comes to attracting intra-bloc FDI flows, Vietnam's 16 free trade agreements (FTAs), strong consumer market growth, and a digital economy on the rise make it attractive to neighboring partners.

Last year, Vietnam attracted $36.61 billion in FDI, up over 32% from 2023 and a record high for the 2018-2023 period.

In a challenging year for the global economy, this figure continues to demonstrate Vietnam's importance as a manufacturing hub, commented Ahmed Yeganeh.

However, he believed that alongside infrastructure, the lag in labor productivity compared to other Southeast Asian markets is something investors are concerned about when looking at Vietnam. One of the top things Vietnam needs to do to move up the ladder in the supply chain is to improve labor productivity, which will require investment in people and technology, noted Ahmed Yeganeh.