30th Anniversary of Diplomatic Relations with Vietnam... Emerging as the 'Second China' for SMEs

President Yoon Suk-yeol and First Lady Kim Keon-hee are saluting the national flag at the state banquet held at the Blue House's State Guest House on the 5th in honor of Nguyen Xuan Phuc, President of Vietnam.
[Photo by Yonhap News]

[Asia Economy Reporter Choi Dong-hyun] Exports, the backbone of the Korean economy, are in crisis. They have recorded negative growth for two consecutive months, staggering under pressure. The trade balance has also continued its deficit streak for eight consecutive months. While global economic recession, the Russia-Ukraine war, and the US monetary tightening are cited as major causes of export sluggishness, small and medium-sized enterprises (SMEs) point to the fact that the atmosphere in China, Korea's largest trading partner, is no longer what it used to be as a significant difficulty. Exports to China plummeted by 25.5% just last month. In this situation, voices are growing louder that Vietnam, which marks the 30th anniversary of diplomatic relations this year, should be regarded as the 'second China' and that a large-scale market expansion should be pursued. The recent invitation of Vietnamese State President Nguyen Xuan Phuc as the first state guest since the launch of the Yoon Seok-yeol administration is also in this context.

30th Anniversary of Korea-Vietnam Diplomatic Relations... Vietnam as the 'Second China'

Vietnam is Korea's fourth largest trading partner after China, the United States, and Japan. When diplomatic relations were established in 1992, the trade volume between the two countries was $490 million, which increased 164 times to $80.69 billion (approximately 106 trillion KRW) last year.

At the same time, Korea is also Vietnam's largest investor. From 1998 to 2021, Korea invested $74.7 billion in Vietnam. To date, over 9,000 Korean large and small enterprises have entered Vietnam in large numbers, creating 1 million jobs and accounting for 30% of Vietnam's total exports. In the first to third quarters of this year, Korea invested $3.8188 billion in Vietnam.

As of last year, Vietnam's population was 98.51 million, making it the third largest in Southeast Asia. The average age is 32.5 years, indicating a young population. The unemployment rate is low at 3.22%, meaning there is a large economically active population, which implies a solid consumer base. Last year, the size of Vietnam's retail market was $204.2 billion, growing at an average annual rate of 10% over the past five years. International credit rating agency Moody's forecasted Vietnam's economic growth rate this year to be the highest among Asian countries at 8.5%.

3rd Quarter SME Exports to Vietnam Popular in Auto Parts, Cosmetics, etc.

Looking at the export status of Korean SMEs in the third quarter of this year, Vietnam ranked fourth with $2.62 billion, following China ($5.43 billion), the United States ($4.14 billion), and Japan ($2.72 billion). Although exports decreased by 4.8% compared to the same period last year due to the Vietnamese government's loan restrictions aimed at curbing inflation and reduced production of electronic products at local factories due to weak demand, this result was relatively better than China (-8.9%) and Hong Kong (-19.7%).

By industry, there were good performances in auto parts (75.8%), cosmetics (94.7%), and electronic application devices (23%). Auto parts exports surged due to increased investment in Vietnam by major automobile manufacturers such as Hyundai and Kia. In the case of cosmetics, while performance was sluggish in China and Japan due to patriotic consumption trends and the weak yen, exports of color cosmetics surged in Vietnam influenced by Korean Wave content such as K-pop and K-drama. For electronic application devices, exports of medical laser equipment used for skin care increased, driving strong performance.

However, plastics (-13.9%), synthetic resins (-5.2%), and semiconductors (-16.8%) showed declines compared to the same period last year. In the case of semiconductors, it is understood that production adjustments were made at four Samsung Electronics Vietnam subsidiaries in response to worsening market conditions. The export value of these four Samsung Electronics Vietnam subsidiaries accounts for about 25% of Vietnam's total exports, indicating their significant influence.

Need for Marketing Support through Exhibitions and Online Channels

With the spread of the Korean Wave in Vietnam, the market entry conditions for our SMEs are favorable. However, unlike large corporations, SMEs face many difficulties in market development due to low local recognition of their products. In the '2023 SME Export Outlook and Trade Difficulties Survey' recently conducted by the Korea Federation of SMEs, the task that the government should focus on most to expand SME exports was 'expanding export marketing support such as overseas exhibitions,' accounting for the largest share at 30.4%.

However, it is encouraging that Vietnam's e-commerce market is rapidly growing as digital transformation and non-face-to-face industries have expanded following COVID-19. Last year, Vietnam's e-commerce market growth rate ranked second among Southeast Asian countries after the Philippines. Unlike the past, when it was difficult to find local buyers and deliver goods, local officials say there are now many opportunities to market and sell products at low cost through online channels. Kim Deok-ryong, head of the ASEAN office at the Korea Federation of SMEs, said, "In Vietnam, continuous consumption is taking place due to high interest in Korean Wave content, and Korea's premium image is well established locally. If strategic national marketing linking these resources with IT, tourism, medical care, and education is carried out, the future outlook for the Vietnamese market will be even brighter."

This content was produced with the assistance of AI translation services.