"92% of Companies Operating in Vietnam Have No Plans to Withdraw... Cost Advantage Over Other Countries Remains"

Minimum wages surge 11% annually, yet Vietnam remains a "key overseas base"
From simple production base to "domestic market"
KITA: "Review function-specific costs and regulatory response"

More than 9 out of 10 Korean companies operating in Vietnam said they intend to maintain their local businesses despite the recent steep rise in labor costs and regulatory burdens. This is attributed to their continued overall cost advantage over other countries and strong expectations for improved profitability in the future.

The Institute for International Trade at the Korea International Trade Association published a report on November 8 titled "Changes in the Business Environment and Challenges for Korean Companies Operating in Vietnam." The survey was conducted from July 27 to September 16 among 113 Korean companies operating in Vietnam.

Report materials for “Changes in the Business Environment and Response Challenges for Korean Companies in Vietnam,” published on the 8th by the Institute for International Trade of the Korea International Trade Association. Korea International Trade Association.

According to the report, Vietnam's monthly minimum wage in U.S. dollar terms rose from $45.4 in 2010 to $205.3 in 2024. It increased by an average of 11.4% annually, the highest wage growth rate among major Asian countries. Despite this, 92.0% of companies operating locally said they had no intention of withdrawing from the market. Companies cited "cost advantages over other countries" (87.5%) as the main reason for staying.

The Korea International Trade Association said this cost advantage does not simply mean lower labor costs. Rather, it results from a combination of high local productivity, a reliable labor supply, and infrastructure for parts procurement and logistics. The purposes of entering Vietnam have also undergone structural changes. The largest share of respondents, 54.9%, cited "sales to the local market" as their reason for entering Vietnam. This was followed by "securing a base in the Association of Southeast Asian Nations (ASEAN)" (50.4%), "exports to third countries" (38.9%), and "reverse supply to Korea" (25.7%). These findings show that Vietnam is rapidly evolving from a low-wage production base for simple manufacturing into a promising consumer market.

Companies operating locally also gave positive assessments of their medium- to long-term business outlook. Some 59.3% said their business performance would improve over the next 3 to 5 years, more than four times the 12.4% that expected it to worsen. In addition, 71.7% of respondents expected Vietnam to continue serving as a key overseas base for their businesses.

However, the outlook varied widely by industry. In textiles, apparel, and footwear, where labor costs account for a large share of expenses, the proportion expecting conditions to worsen (53.8%) far exceeded the share expecting improvement (15.4%). Local government regulations (63.7%) were cited as the leading business obstacle. Other major hurdles included sharply rising labor costs (62.8%) and delays in licensing, customs clearance, and quarantine procedures (54.0%).

The report recommended that companies carefully assess costs and contributions to profitability by function in order to adapt to the changing local business environment. Domestic-market and service companies should validate market demand through detailed consumer research and test sales before deciding on the scale of their investments. Manufacturers considering relocating their production bases should carefully weigh not only potential labor cost savings, but also factory equipment relocation expenses, the costs of obtaining new permits, logistics and delivery risks, and quality management costs.

Lim Yunho, a researcher at the Korea International Trade Association, said, "The sustainability of businesses in Vietnam depends on making use of the advantages of their existing locations while strengthening operational capabilities to meet changing conditions." He added, "Rather than maintaining operations based solely on past cost advantages or expectations of future growth, companies should continuously assess productivity, local demand, regulatory compliance, and organizational operations."

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