Vietnam has taken the spotlight as a representative low-wage production base in Southeast Asia. Recently, very high estimates were made regarding Vietnam’s growth potential due to the favorable economic conditions such as stable inflation, robust economic growth, increase in FDI inflow, multi/bilateral FTAs, AEC(ASEAN Economic Community) and so on. As abundant low-wage workers, political stability, large scale population became positive factors attracting investment to Vietnam, FDI inflow to Vietnam is increasing rapidly. Recently, with Korean companies eyeing Vietnam as a strategic production base, Vietnam has emerged as a major investment destination which accounted for 40% of Korea’s investment to Southeast Asia. Therefore, the time has come to review Korea’s investment strategy to Vietnam, considering the country’s increasing strategic importance. That requires us to make reference to cases of investment strategies of the major investors such as USA and Japan, and revise the investment strategy to suit Korean Companies.
   Although the Vietnamese economy has been sluggish during the global finance crisis, internal and external economic conditions such as inflation, trade, investment, and industrial structure have improved and economic growth rate returned to the pre-crisis level (6.68%) in 2015. Recent robust economic growth of Vietnam is due to the surge of FDI inflow, which reached an all time high of 14.5 billion USD. In terms of trade, China and USA account for the biggest shares in Vietnam’s trade; yet as the amount of trade between Korea and Vietnam increased, Korea also emerged as the 4th largest export and 2nd largest import destination of Vietnam. Vietnam’s potential as a global production base will only get bigger due to recent favorable internal and external economic condition, but there are a few negative factors as well; such as corruption, lack of skilled workers, and inefficiency of SOE (State Owned Enterprises). According to the Doing Business Index of the World Bank Group, which analyzes the business environment across economies, Vietnam ranked 90th out of 189 economies. Among 10 indicators for business environment analysis, Vietnam scored relatively high in dealing with construction permits, registering property, and acquisition of credit; but low in payment of taxes, protecting minority investors and resolving insolvency. Recently, investment environment of Vietnam has become more favorable due to improvement in FDI and employment terms by the revision of foreign investment laws and labor regulations.
   Vietnam’s economic growth and industrialization began with a program of economic reform called ‘Doi-Moi’ in 1986. Since the lifting of US trade sanction on Vietnam in 1994, Vietnam started to attract large scale FDI projects. Based on FDI, Vietnam was able to achieve industrialization and rapid economic growth. In the 1990s, investment in labor-intensive industries from major Asian investors such as Japan, Korea, and Taiwan accounted for the major share of FDI in Vietnam. However, as the main FDI sectors changed from labor-intensive to technology and capital-intensive industry, Vietnam’s industrial structure has been transitioning to include more high value-added industries. Before the global financial crisis, Korea’s direct investment to Vietnam had mainly focused on labor-intensive industries, with large scale investments in electric-electronic industries by MNCs starting to increase following the global financial crisis. While initial investment represented the major share in Korea’s total investment in Vietnam, the share of extension investment began to increase and FDI sectors also diversified since 2014. Japan’s direct investment started to increase since Vietnam’s accession to the WTO in 2007, and the Vietnam-Japan EPA in 2009. Japan has operated a consultative group organized by economic units, and also improved the business environment by establishing exclusive industrial parks for Japanese investors. Meanwhile, US-Vietnam economic relations mainly focused on trade rather than large scale FDI. Bilateral trade and investment environment are expected to improve as a result of the conclusion of the TPP in 2015. The US also had a summit meeting with Vietnam on important agendas such as effectuation of TPP, and dispute-settlement in the South China Sea as a part of its rebalancing strategy to Asia. Based on large-scale FDI attraction, Vietnam is pursuing to take part in GPN(Global Production Network) corresponding to the entry of major investors into the Vietnam market. However, there are still lingering problems such as lack of infrastructure and skilled workers which remain as barriers to GPN. The Vietnamese government is promoting physical and institutional improvement by operating a variety of consultative working groups.
   Vietnam became a major investment destination for Japan through the latter’s ‘Thailand plus one’ strategy, enacted in order to reduce the risk associated with Japan’s high dependency on the Thai market. In addition to the traditional type of FDI, there has also been rapid increases recently in Japanese M&A investment in the Vietnam market. Entry modes of Japanese companies in Vietnam market are diverse, and includes cluster strategy based on anchor companies, local partnerships like OEM, licensing, joint venture, and partnership with Japanese investors that have entered previously such as Line Gari and Nokisaki. These modes of entry are intended to minimize the risk in the initial stage, and share the infrastructure and know-how with accompanying firms or companies that entered previously. Japanese companies also tend to take advantage of large scale ODA projects and the supporting policies of government or related agencies. Meanwhile, US companies started to enter the Vietnam market since the US lifted its trade sanction on Vietnam in 1994. Then the large scale investment projects began to be carried out following Vietnam’s accession to the WTO in 2007. However, US-Vietnam bilateral economic exchange is still focused on the improvement of trade relations rather than investment issues. US companies have a tendency to establish their own investment strategies rather than take advantage of the support from government or related agencies. There are several supporting policies by government or related agencies for US companies, but AmCham usually acts as the interest group for US companies in Vietnam.
   Based on case studies on investment strategies of US and Japanese companies in the Vietnam market, a series of implications for Korean government and companies can be suggested as follows. First, the Korean government should pay attention to establishment of industrial parks to encourage investments by Korean companies to create clusters. In order to do this, Korean government also needs to prepare financial support as well as elicit cooperation from the Vietnamese government. Second, Korean companies need to arrange a compensation system which promotes sharing of experience accumulated by already-established Korean companies in Vietnam with the new-comers, while providing incentives to established companies in return. Third, a capacity building program should be prepared for Korean SMEs, especially for the analysis of local regulations and business environment. Fourth, Korean companies need to build cooperative relations to share production facilities, as Japanese companies have done. This could be a good solution for reducing the burden of fixed capital investment and lack of information at the initial stage. Fifth, Korean government and investors should establish a consultative group with the Vietnamese government to facilitate the improvement of the business environment. Sixth, the Korean government need to make efforts to minimize external risk by considering the entire Southeast Asia region as a single production base for Korea, and should build linkages between Vietnam and neighboring countries as part of a ‘Vietnam plus one’ strategy.