BANGKOK -- Thailand's Charoen Pokphand Foods is boosting investment into Vietnam, marking one of the first big moves to piggyback on Vietnamese access to Trans-Pacific Partnership countries since the pact took effect at the turn of the year.
CP Foods, part of Thailand's biggest conglomerate, Charoen Pokphand Group, will invest more than $200 million to create an export hub for its poultry and pork business. The project represents a significant inflow into Vietnam, equal to more than 25% of the total invested by Thai companies between 2015 and 2017.
The Thai company is hoping to take advantage of the free trade agreement which came into effect at the end of last year, which offers Vietnam advantageous trading terms with such countries as Japan and Australia, as well as Mexico and Canada. Thailand has yet to join the TPP.
Vietnam in November 2018 became the seventh country to ratify the TPP, with economists expecting the agreement to boost Vietnamese exports by 4%. The scale of growth was revised downward after the U.S. pulled out of the agreement in January 2017.
CP Foods will use Vietnam as a hub for the export of chickens and shrimp. The company claims to be a "kitchen of the world," with units in 17 countries, including in its domestic market.
CP's investment is the latest example of Thai companies expanding into neighboring countries with growth potential, a trend which has nurtured a range of industries in the Mekong region.
Thai investment in Vietnam stood at about $780 million over the 2015-2017 period, more than triple that of 2010-2012, according to data from the Association of Southeast Asian Nations.
CP Foods' bet is also part of a broader overseas expansion drive. On April 22, the company announced an acquisition of Canadian pork producer HyLife for 498 million Canadian dollars ($372.79 million), pushing deeper into the North American market. CP Foods will take 50.1% of the Canadian company, with Japanese partner Itochu holding the remainder.
The company's sales outside Thailand made up 67% of its $17 billion in consolidated revenue in 2018, up from just 16% back in 2008.
Montri Suwanposri, CEO of CP Vietnam, a unit of CP Foods, said the company had so far invested a total of $1 billion in Vietnam after the entry into the country in 1993. CP Foods will expand its Vietnam operations, which account for 15% of the company's total sales, by making an additional investment in meat-processing plants.
The completed chicken factory will have processing capacity of 1 million of chickens per week. Total chicken production from CP Foods' Vietnam operations is still below its Thai unit, but the company plans to enhance capacity in the future.
CP Foods aims to start exporting meat, as well as shrimp and fish, from its Vietnam hub, with almost all of its processed meat set to head to Japan, the Middle East, the European Union and other countries.
"CP Foods is to use Vietnam as a hub to export, to enjoy [free trade agreements], tax privileges and export quota," said an analyst at Bualuang Securities, a leading securities company in Thailand. "Thailand, for example, has an export quota for chicken to the EU. They can export more by using a quota from Vietnam, once they use up their quota from Thailand."
CP Vietnam CEO Montri said Vietnam had an advantage over Thailand in terms of exports.
Vietnam's strength also lies in its lower labor costs. A Vietnamese manufacturing worker makes $227 a month on average, much lower than Thailand's $413 and China's $493, according to data from the Japan External Trade Organization.
CP Foods is also planning to boost shrimp exports with the backing of the Vietnamese government. The company is considering increasing its shrimp farming capacity in the country to 50 billion units a year from the current 12 billion. To that end, the company will increase its annual production capacity of shrimp feed from 300,000 tons to 500,000 tons in 2019, said an executive in charge of fishery products at CP Vietnam.
In the fiscal year to December 2018, CP Foods saw its sales in Vietnam jump 26% on the year to 81.7 billion baht ($2.56 billion), in stark contrast to those in Thailand, which remained flat.