The Establishment Post has reproduced an article written by Edward Barbour-Lacey, that was originally published on Vietnam Briefing. It was published again in the Establishment Post on 1 May under the title of, P&G gambles on interest in Vietnam.

The original article can be viewed by clicking here. An edited extract appears below.

As Vietnam’s economy continues to prosper the country is proving increasingly attractive to foreign investors. Many of these businesses choose to form their own wholly owned company in Vietnam, however, there has also been a growing interest in pursuing the Mergers and acquisitions (M&A) track as a method of investing in the Vietnam.

The possible raising of foreign ownership caps and the improving business environment, driven by Vietnam government reform, have further motivated foreign investors interest in Vietnam for their business operations.

Recently Procter & Gamble (P&G) broke ground on a new US$100 million factory in Vietnam’s Binh Duong province at the Vietnam Singapore Industrial Park II. The factory will focus on manufacturing razor blades for the company’s Gillette brand. This new factory will take P&G’s total investment in Vietnam up to US$360 million.

P&G is but one of many multi-national companies that have significant investments in Vietnam. Currently Samsung is the largest investor in Vietnam, with US$33 billion in total capital, but there are also many other companies, such as Hanes, Exxon Mobil, Intel, Nokia, as well as a range of smaller sized companies.

Vietnam is attractive to foreign investors for a number of reasons; these include the country’s young, skilled, and low cost workforce, as well as political stability in a turbulent region.

Vietnam is also strategically located to serve as a manufacturing hub in the Asean region and beyond. Vietnam’s fast growing local consumer market is also an increasingly attractive market for foreign companies’ goods…

Vietnam Mergers and acquisitions (M&A)

In addition to setting up their own wholly owned investment vehicles, many foreign companies are also investigating the possibility of purchasing local companies as an alternative method of gaining a foothold in Vietnam.

Interest in the Vietnam mergers and acquisitions area has been generated in part by the Vietnam government’s implementation of a privatisation strategy for state-owned assets.

However, foreign investor interest in the state-owned enterprises has been slow due to the cap on foreign ownership levels and general lack of transparency surrounding the actual financial health of these companies. Many types of local companies, but particularly state owned enterprises, in Vietnam have foreign ownership caps.

As it currently stands foreign investors can generally only hold up to 49 per cent (or 30 per cent for certain industries such as banking) of the voting shares of a local company…

In a positive sign the Vietnam government is currently considering a draft measure to raise the foreign ownership cap to 60 per cent.

A raise in the foreign ownership cap has been predicted to result in a vast increase in foreign investment and a surge in Vietnam mergers and acquisitions activity…

Key sectors that offer good Vietnam mergers and acquisitions opportunities for foreign investors include retail, manufacturing, banking, and telecommunications.

Improving business environment

Vietnam has been working hard to improve its business environment and become a more attractive foreign investment destination…

Two key areas of improvement that were highlighted during (a recent) conference were the country’s simplified customs procedures and the reduction in time spent on tax payments.

According to Nguyen Dinh Cung, director of CIEM, the average time spent on tax and social insurance paperwork has been shortened from 900 hours to 400 hours.

Vietnam’s General Department of Taxation Reform has confirmed the government’s commitment to reduce the time spent paying taxes and social insurance in Vietnam to the Asean average of 171 hours by the end of 2015. Cung also highlighted the simplified customs clearance procedures at the country’s border gates.

Additionally, he explained that there had been a “mindset” change within the Vietnam government and that there was now a strong focus on improving the whole business environment.

Accordingly the government will soon issue a new resolution aimed at further improving the country’s business climate so that its World Bank Ease of Doing Business index score will rise to the average level of the Asean-4 group (Singapore, Malaysia, Thailand, and the Philippines) by 2016.

This will be an uphill climb for sure, but the recent government actions are certainly a step in the right direction.

The original article can be viewed by clicking here.