What's luring Danish companies to Vietnam?

Denmark has emerged as a major investor in Vietnam this year, thanks in large part to a $1 billion (€1.01 billion) commitment by Danish toy giant LEGO Group to build its first factory in the Southeast Asian nation — which is planned to be the company's first carbon-neutral plant.  

Since the EU-Vietnam Free Trade Agreement (EVFTA) came into effect in August 2020, trade and investment from Europe has boomed. EU trade with Vietnam surged by 14.8% in 2021 to $63.6 billion.

As well as fast becoming an important hub for high-end manufacturing — with the likes of tech giants Apple and Samsung recently announcing an expansion of their operations in the country — Vietnam is also investing considerably in renewable energies in its push for net-zero carbon emissions by 2050.

Vietnam has the fastest growth of renewable energy production in Southeast Asia.

Denmark's largest energy firm, Orsted, has committed to investing as much as $13.6 billion for a vast 3.9-gigawatt (GW) wind farm zone in Vietnam's Binh Thuan and Ninh Thuan provinces. The first projects related to this investment should be online by 2030, a company representative told DW.

Last month, Orsted signed an agreement with a subsidiary of PetroVietnam, a Vietnamese state-owned conglomerate, to collaborate on a number of renewable energy projects.  

The pull of Vietnam

"Denmark and Vietnam have had very close ties and last year we celebrated our 50th year of diplomatic relations, so Vietnam has always been a major investment destination for Danish companies," said Troels Jakobsen, head of the trade department at the Danish embassy in Hanoi. 

"There are twice as many Danish companies in Vietnam as there are from other Nordic countries combined," he pointed out.

He added that more and more companies are aiming to diversify their supply chain "and here Vietnam is very high on the shortlist for Danish companies that wish to expand in Asia."

In early August, the Vietnamese embassy in Denmark published a Vietnamese-language handbook for businesses about the Scandinavian market. Days later, a Danish agri-food delegation visited Vietnam to boost sectoral ties.

The embassy also organised a forum on Vietnam's digital and green transformation this month, while the Vietnam-Denmark Business Forum took place in Copenhagen on September 5.

Building a carbon-neutral site

Danish companies will accompany Crown Prince Frederik on a trade visit to Vietnam in early November.

One of Denmark's largest firms to recently expand into Vietnam is LEGO, whose $1 billion factory in the country will be its second in Asia.

A contract was signed last month with a local contractor to build the 160,000-square-metre site in the Binh Duong Province around 50 kilometres (31 miles) from Ho Chi Minh City. The groundbreaking ceremony is expected sometime in the final quarter of this year.

"We wanted a location that offered proximity to our major markets, enabling us to support customers and consumers with speed. We also needed a location where we can recruit a highly qualified workforce to produce the high-quality LEGO products we make," a company spokesperson told DW.

"And not least, it was very important to us to establish a factory where we really can deliver on our sustainability agenda," the spokesperson added, noting that the company will later this month plant 50,000 trees near the factory site.

Offshoring and near-shoring

Trinh Nguyen, a senior economist covering Emerging Asia at French corporate and investment bank Natixis, said that Vietnam's attractiveness as a manufacturing centre has markedly improved in recent years.

The country has rapidly climbed the value-added ladder and is fast becoming a key hub for tech manufacturing.

US tech giant Apple announced last month that it will begin to manufacture its Apple Watch and MacBook products in Vietnam. South Korean smartphone manufacturer Samsung has been Vietnam's biggest foreign investor and exporter for a number of years. 

The country also continues to attract inward investment as neighbouring China persists with its "zero-COVID" policy and as international companies look to relocate away from China amid Beijing's geopolitical tensions with the West, said Nguyen.

On top of that, Vietnam has a favourable location, being close to China and also other markets, and is improving its infrastructure and connectivity, she added.

Energy is a key factor

Key for European investors is the EVFTA, which cuts almost all tariffs on exports from Vietnam into European markets.

Another attraction for Danish firms is Vietnam's drive towards renewable energy.

Lina Hansen, Denmark's state secretary for trade and global sustainability, noted that energy is a key determining factor for investment in Vietnam, according to her remarks at the recent Vietnam-Denmark Business Forum.

Vietnam is currently among the world's top ten producers of solar power, generating more than 11% of its electricity needs from solar. With a 3,260-kilometre coastline, it is also investing heavily in wind power.

Presently, Vietnam has solar and wind capacity of around 16.6 GW and 0.6 GW, respectively, but the government wants to increase their joint capacity to 20 GW by 2030.

"Vietnam has world-class natural advantages for offshore wind. With 3,000 kilometres of coastline, shallow water depths and high consistent wind speeds, Vietnam offers excellent conditions to develop reliable and cost-competitive offshore wind projects," said Sebastian Hald Buhl, country manager of Orsted, which is investing billions of dollars to build wind power facilities in Vietnam

David Hutt is a journalist and analyst. He is an associate editor at 9DashLine.

Disclaimer: This opinion first appeared on DW, and is published by special syndication arrangement.