Investing in Vietnam: Understanding its Industrial Parks and Special Economic Zones

Fidinam Vietnam Publication

Vietnam's industrial parks and special economic zones have become pillars of its rapid and remarkable economic development over the past two decades. With a consistent annual economic growth, it stands as an appealing investment hub for regional and global businesses.

Underlying factors contributing to this progress include a stable political system, a young and dynamic workforce, competitive labor costs and a growing middle class.

Increasingly, businesses are choosing Vietnam as a part of their diversification strategy – either as a complementary manufacturing base to their Chinese operations (China+1 strategy) or as a primary destination as part of their expansion plans.

Vietnam as a manufacturing hub

The special economic zones and industrial parks established by the Vietnamese government play a key role in attracting a growing number of foreign direct investments (FDI). In these zones, FDI can benefit from several advantages, including tax incentives (preferential rates and exemptions), import duty exemptions, beneficial land rent policies, and accelerated depreciation.

For a detailed overview of the benefits of establishing a factory in Vietnam, please click here.

Definitions of the terms

This article aims to clarify the differences between Vietnam's special economic zones (EZs), industrial parks (IPs), and key economic regions (KERs).

In practical terms, KERs are geographical regions where the government aims to attract large investments by promoting the establishment of both EZs and IPs. There is no legal definition for KERs.

On the other hand, EZs and IPs do have their own legal framework and are defined in Decree No. 35/2022/ND-CP).

EZs and IPs differ mainly in the sectors to which they are open and the different incentives they can offer. In addition, IPs mainly cover production activities and can sometimes be found within EZs.

Economic Zone

Vietnam's special economic zones, also known simply as Economic Zones (EZ), refer to areas enclosed by defined geographical boundaries, including functional zones. EZs were established to attract investment, promote socio-economic development and maintain national defense and security.

They are large areas that encompass both industrial, commercial and residential activities and are often strategically located near major transport infrastructure. There are several types, to name but a few:

  • Coastal economic zone
  • Border-gate economic zone
  • Special economic zones

Industrial Park

A typical feature within Vietnam's Key Economic Regions is the Industrial Park (IP). An IP is an area with defined boundaries within KERs. IPs specialize in the production of industrial goods and the provision of services to meet the needs of industrial production – with the aim of attracting local and foreign investment.

There are many types of IPs. To name a few:

  • Export Processing Zones
  • High-Technology Zones
  • Eco-Industrial Zones

Key Economic Regions

Across Vietnam there are four main KERs: Northern, Central, Southern and Mekong Delta. Each, with its unique economic DNA. 

vietnam-economic-regions

The Northern Key Economic Region (NKER)

It covers seven provinces: Hanoi, Hai Phong, Quang Ninh, Vinh Phuc, Bac Ninh, Hai Dong and Hung Yen. The NKER is an important economic hub for the northern economy. Its proximity to China makes it the first alternative under the China+1 strategy. In terms of highly attractive sectors, the region is particularly recognized for its manufacturing, high-tech and environmental sectors, and is home to major brands such as Apple, Samsung, Microsoft, Canon, and Goertek Vina Science and Technology.

The Central Key Economic Region (CKER)

The CKER covers the five provinces of Thua Thien Hue, Quang Nam, Quang Ngai, Binh Dinh and Da Nang. As the economic region with the largest port area, it offers interesting potential for maritime transport and tourism. Compared to the northern and southern regions, CKER is still in the development phase, but many infrastructure projects are underway and many more are planned. In this context, the government is actively promoting investment, in particular through tax incentives. Due to its characteristics, this region is mainly home to companies active in the oil and gas industry, logistics, shipbuilding and high tech. Xenia Tech, BB Group, and Quantum Group are some of the major foreign companies based in the region.

The Southern Key Economic Region (SKER)

There are eight provinces in the Southern Economic Region: Ho Chi Minh, Binh Duong, Ba Ria-Vung Tau, Dong Nai, Tay Ninh, Binh Phuoc, Long An, and Tien Giang. The SKER is home to the largest number of IPs, supermarkets and shopping centers of many large retail groups, as well as the country's largest financial center, Ho Chi Minh City. Although the region is best known for its manufacturing capabilities, it is also home to many international companies in a variety of sectors. Major multinationals include Nike, Adidas, Lego, Coca Cola and Pandora.

The Mekong Delta Economic Region (MDKER)

The MDKER occupies an important geo-economic position at the southern pole of the country, bordering the East Sea, and comprises four provinces, including Can Tho, An Giang, Kien Giang and Ca Mau. As with CKER, the government is strongly promoting this region by offering attractive incentives and a favorable business climate. Particular attention is being paid to projects in the digital economy, biotechnology and high-tech agriculture, and environmental sustainability. The region is considered an important center for rice production, agriculture, fishing and seafood processing, and is able to contribute significantly to the country's agricultural and aquatic exports. Major brands that have invested in the region include DuPont, Bunge, Wilmar International and Cargill.

Advantages of operating within Vietnam’s Economic Zones and Industrial Parks

Choosing Vietnam's Economic Zones and Industrial Parks as a business destination provides a comprehensive set of advantages. Key benefits of setting up an enterprise in Vietnam’s industrial zones or economic zones include fiscal incentives, a young workforce, strategic location in ASEAN and competitive labor costs.

More specific advantages include:

  • Competitive costing: Vietnam's economic zones and industrial parks, by design, offer cost-efficient environments for businesses. The relatively lower overhead costs, when combined with tax breaks and other financial incentives, can significantly optimize production costs. Whether you're a start-up SME or an established conglomerate, the financial benefits of operating in these zones can lead to a competitive edge in the global market.
  • Infrastructure setup: EZs and IPs in Vietnam are often strategically positioned near key transportation routes, be it roads, ports, or airports. This ensures smooth logistics and reduced transportation costs. Moreover, these zones are equipped with modern utilities, communication networks, and facilities, ensuring businesses can operate efficiently without having to invest heavily in infrastructural development.
  • Integrated ecosystem: Especially in IPs, there is an ecosystem of suppliers, manufacturers, and service providers. This proximity to suppliers and complementary businesses fosters collaborative efforts, reduces lead times, and accelerates production cycles.

Setting up a manufacturing company in Vietnam

When it comes to choosing the right place to locate your own production, the starting points are the industry of reference and the business model.

Strategic alignment with the specific characteristics of a region – such as its laws, regulations, administrative procedures, costs, tax regimes, infrastructure, investment attraction, and environmental climate – is critical. Keep in mind that these elements can vary from one region to another. Therefore, understanding and finding the right fit between the business and the zone is essential to the long-term success of foreign-invested companies.

Fidinam can help

Are you interested in learning more about economic zones, industrial parks and/or about setting up a factory in Vietnam? Fidinam supports international clients looking to invest and set up a business in Vietnam, through services such as market-entry services, strategy consulting, incorporation of Vietnamese entities, accounting, tax, HR and employment services.

Don’t hesitate to contact us for more information via the form below or at info@fidinamgw.com.

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