Vietnam has become the third largest partner of South Korea in export and investment, according to the latest government data.
South Korea's export to Vietnam rose 25 percent in the period of January to May, compared to the same period of last year, according to latest report done by the state-run Korea Institute for International Economic Policy. The nation became the third largest export partner with South Korea, followed by China and the U.S.
The trade volume of the two nations has surged more than 60 times since they first established diplomatic ties in 1992. The government expects that when the free trade agreement between the two nations takes effect, the trade volume is expected to hit $70 billion by 2020, from $20 billion last year.
The governments of the both nations met last week to speed up the process of the trade agreement, which was signed last May to expand trades in goods and services and to boost investment in both nations.
"Vietnam has a 90 million population and 60 percent of them are people under 30 years old, reflecting strong spending power among young people. The nation is becoming the important market for South Korea with the largest trade volume among 10 ASEAN nations,” said Kim Jung-kwan, vice chairman of the Korea International Trade Association.
Further, when proposed trade agreements such as Trans-Pacific Partnership is launched, products made in Vietnam can be exported to other nations with low tariff, which can attract more foreign investment.
Apart from the rising economic ties, the investment from South Korea's tech companies including Samsung Electronics, LG Electronics and Doosan Heavy Industries has seen a surge in recent years.
In May, South Korea's largest tech company Samsung Electronics had a groundbreaking ceremony for its Consumer Electronics complex in Saigon Hi-Tech Park Training Center in Ho Chi Minh City, set to open later next year.
Along with the initial investment of $550 million in the project, Samsung’s total investment in Vietnam stands at around $5 billion, according to industry observers. Sales of Samsung's Vietnam arm also came to around $26.6 billion last year, accounting for 14 percent of the nation's total GDP.
Samsung's rival company LG Electronics also plans to set up a massive production complex by investing $1.5 billion in Haiphong by 2028. In the campus, LG plans to produce most electronics including televisions, smartphones, home appliances and in-vehicle infotainment, the largest size among its foreign production bases.
The reason behind their forays into the nation are its abundant and inexpensive workforce along with attractive tax benefits.
"Vietnam has abundant workforce and their labor cost is less than half of that of China and Thailand. Plus, various tax benefits and the improvement in business environment are becoming a strong point," said Lee Dong-hyun, a manager at Korea Trade-Investment Promotion Agency’s Ho Chi Minh office.
Both nations are also strengthening the e-government sector, having recently signed a memorandum of understanding for the cooperation between the two governments early this month. That was the second deal since 2009 when both nations signed to share their knowledge in informatization. Since then, South Korean government helped to build Vietnam IT cooperation center and exported its intelligent transportation business to connect Ho Chi Minh and Trung Lương.
The Minister of Government Administration and Home Affairs said during the ceremony, "We will share diverse administration practices including e-government with Vietnam to have a tangible result based on the agreement.”
