From Dubai - the holy land of global trade to Singapore - the "paradise" of startups, what is the reason that Vietnamese businesses do not want to stay at home? This article will reveal the overall picture of the wave of foreign investment by Vietnamese businesses, as well as analyze the motivations and consequences surrounding this trend.

An inevitable trend to maintain competitive advantage

In the context where domestic production and processing are facing many challenges, especially the lack of competitiveness due to constraints on local raw materials and increasing labor costs. Some Vietnamese businesses have proactively sought opportunities in countries with better competitive advantages, despite the geographical distance and inherent difficulties of this trend. This is particularly evident in the agricultural processing industry, notably in companies trading in exported cashew nuts. For example, Long Son Company, a major cashew processing enterprise in Vietnam, is investing in building a production plant in Ivory Coast.

This multi-million dollar project was launched last year and is expected to start operating in the coming months. This is one of the few Vietnamese businesses daring to invest in a distant country on the African continent to develop processing and production activities. Mr. Vu Thai Son, General Director of Long Son Company, shared that "the business operations of his company and cashew nut businesses in general have faced many difficulties in the past 3 years, even losses, mainly due to the lack of local raw materials, forcing businesses to import about 75 to 80% of raw materials for processing. This leads to a situation where businesses compete to buy raw cashew nuts at high prices, then continue to compete to sell products at low prices to quickly recover capital and limit financial capacity."

This buying and selling competition has led Vietnamese cashew export businesses to eliminate each other, creating opportunities for importers to pressure prices. Recognizing these disadvantages, Long Son Company decided to invest in a factory in Ivory Coast. The country supplies a large amount of cashew nuts to Vietnam to increase its competitive advantage. According to Mr. Son, Vietnam is currently leading the world in cashew nut exports and owns advanced cashew nut processing technology, even when African countries are intensifying their processing activities, they still cannot match Vietnam.

Therefore, investing in factories and processing directly in the source region will bring superior competitive advantages to the company compared to importing raw materials to Vietnam for processing and then exporting. This trend is also observed in African countries, with a representative of a Nigerian cashew business stating that the company imported a production line from Vietnam to process cashews and now has complete products exported to Europe at a lower cost than Vietnamese products. Although the number of similar factories in Africa is not high, the trend of expanding production in the source region is increasing due to the advantages of lower costs and lower transportation costs.

The textile and garment industry, which has been a strength of Vietnamese businesses for many years, is also facing the risk of losing the advantage of cheap labor. To maintain competitiveness, some businesses have sought to expand production overseas. For example, Song Hong Joint Stock Company at its recent Annual General Meeting announced plans to invest in Egypt. Song Hong's goal is to leverage the advantage of cheap labor and Egypt's tax-free export policy to the US. The company's leadership stated that investing in Egypt will help the company significantly reduce costs, thereby increasing its competitive advantage in the market.

Specifically, labor costs in Egypt are currently much lower than in Vietnam. In addition, Egypt's free trade agreements allow goods produced in the country to be 100% tax-exempt when exported to the US, and the sea freight time to Europe and the US is significantly shorter than from Vietnam. If this plan is realized, Song Hong will become one of the few Vietnamese textile and garment companies investing overseas, especially in a distant country like Egypt. In summary, the trend of seeking and investing in countries with better competitive advantages is becoming an essential trend for Vietnamese businesses in the context of deeper integration into the international economy. This trend not only helps businesses maintain their competitive advantage but also contributes to enhancing Vietnam's position in the international market. The fact that Vietnamese businesses invest overseas is not a new story.

In recent years, most businesses, when investing in a country or region, usually focus on exploiting the market right in that country or region. However, the investment trend of Vietnamese businesses is showing an expansion to more distant countries instead of just focusing on the local market. These businesses are leveraging the advantages of countries with low raw material costs and labor costs to increase their competitive advantage in production and export activities.

Establishing companies abroad to seek advantages

The trend of Vietnamese businesses investing overseas is becoming increasingly clear, especially in the Middle East region, which is traditionally considered a challenging investment destination. According to Mr. Mohammed Ali Rashed Lootah, Chairman of the Dubai International Chamber of Commerce, 10 years ago, only 14 Vietnamese businesses registered as members of the Dubai Chamber. By July 2023, this number had increased to 89 businesses, especially since the opening of the Dubai Chamber office last July, the number of Vietnamese businesses entering the Dubai market has increased rapidly.

As of the first quarter of 2024, 147 Vietnamese businesses have registered as members of the Dubai Chamber and have received benefits from comprehensive business support service initiatives. The growth is not only reflected in the number of businesses but also in the increasingly diverse range of professions. Currently, Vietnamese businesses operating in Dubai are engaged in various fields such as product processing, coffee, textiles, finance, and software. Expanding business in Dubai not only helps Vietnamese businesses exploit the local market but also opens the door to the world.

Ms. Le Hoang Diep Thao, CEO of Trung Nguyen International King Coffee, shared her experience from opening a trade promotion office in Dubai. Previously, Dubai was a very good gateway to the world, with businesses from 198 countries enjoying tax exemptions and government support for investment procedures. Mr. Salem Al Shamsi, Global Vice Chairman of the Dubai Chamber, also shares the view that doing business in Dubai provides significant advantages for businesses. Thanks to easy global connections and being a country with tax incentives. In addition to seeking opportunities in potential markets like Dubai, some Vietnamese startup businesses have decided to establish additional companies or start businesses by establishing legal entities abroad due to the perception that domestic tax policies are uncompetitive and the legal framework is incomplete.

The wave of establishing legal entities abroad is largely dominated by technology e-commerce startups. According to a startup, establishing a company in Singapore is very simple and quick, as a foreign business only takes two days and a minimum capital of $1 USD to obtain an operating license with many preferential policies such as simple company establishment procedures, tax exemptions in the first few years, support for foreign businesses to establish companies in the local startup ecosystem, improve opportunities for fundraising, and easier global expansion. Singapore is becoming a destination for foreign startups, including young Vietnamese people in Vietnam.

Many startups, in one way or another, are establishing companies in Singapore, but the key personnel are still in Vietnam. In fact, there are still some industries that are not open to foreign investors or have restrictions on ownership ratios, which has led some startups to leave Vietnam. Startups believe that they have to go to other countries like Singapore to register new businesses to receive foreign investment. Uncompetitive tax policies have also led Vietnamese businesses to circumvent the law by opening additional companies abroad. Recently, the Vietnam Chamber of Commerce and Industry VCCI has reported that many Vietnamese businesses have established additional companies abroad to provide services to customers in order to reduce tax obligations.

Specifically, when commenting on the Value Added Tax (VAT) amendment, VCCI believes that under the current regulations, services for exporting business on the internet, producing digital content, and applications for electronics are entitled to a 0% VAT. However, many businesses have stated that they are still subject to a 10% tax because the distinction between domestic consumption services and exports is not clearly defined. According to VCCI, businesses have provided the tax authorities with a lot of information such as data from intermediary platforms like Google, Apple, IP, user bank payments, email contracts, and even units that are required to separate products into two versions for the domestic and international markets, but the tax authorities have not accepted them. Many individual businesses have established additional companies abroad to provide services to customers worldwide to reduce the tax burden.

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