*NEWS*NEW DRAGON , QUIET ROAR
*NEWS*NEW DRAGON , QUIET ROAR
2006-01-03 at 12:22:00 pm #13463
New Dragon, quiet roar
Vietnam is priming itself to be the next choice investment site
next year, the world’s largest laser printer factory will open. At full
capacity, it will turn out 8 million units a year, all for export, and
be the source for one-third of all laser printers sold globally.
stories about this type of manufacturing investment milestone pour out
of China so much that they’ve become routine. But this plant, being
built by Canon Inc., is going up in Bac Ninh province, near Hanoi in
The plant will add to Canon’s burgeoning Vietnam
operations. In 2002, when the company opened a 200-employee factory in
Hanoi to make inkjet printers, sales turnover was $25 million. By 2005,
with the work force grown to 6,500, turnover was expected to reach $400
million, said Sachio Kageyama, general director of Canon Vietnam Co.
To meet strong printer demand, Canon could have expanded in
nearby Thailand, where the company runs what is now its largest printer
factory, or it might have added to its China operations.
have three printer factories in China at full capacity, and we needed
the capacity,” said Kageyama. But Canon Vietnam, he added, can build
and ship a printer as quickly as any other Canon factory worldwide–and
it can do so at roughly half of China’s labor costs.
Vietnam plant is not being widely announced. Nonetheless, it highlights
Vietnam’s quiet and steady pull on manufacturing investment dollars, as
investors increasingly seek refuge from political and economic concerns
in China and as foreign companies seek to reduce the potential for
supply chain disruptions in the fast-growing communist nation.
feel they made too large a bet in China,” commented Adam Sitkoff,
executive director of the American Chamber of Commerce in Hanoi.
“Capital follows other capital.”
Today, the streets
of Hanoi and Ho Chi Minh City resemble those found in Chinese cities,
with rivers of motorcycles carrying entire families. Crammed with
cubicle shops, the streets suggest that everyone owns a small business.
Vietnam has less than 7 percent of China’s population, it makes a
persuasive argument for putting up a factory: the work ethic, social
and political stability, lower labor costs and a government warming to
electronics as an engine of growth.
Commitments to Vietnam for
foreign direct investment, or FDI, are expected to reach $4.2 billion
this year, according to the Ministry of Planning and Investment. And if
that’s small change compared with Asia’s roaring dragons, it’s
nevertheless an increase of 45 percent over 2004 and the third straight
year of FDI growth.}
Simply put, Vietnam is becoming the alternative investment site for companies suffering China fatigue.
companies already have manufacturing in China, and you don’t want all
your eggs in one basket,” said Frederick Burke, managing partner in the
Vietnam office of Baker & MacKenzie, a legal and consulting firm in
Ho Chi Minh City. “That’s the strategic mentality we’re seeing more
often than not across industries.”
Vietnam offers advantages that
seem to be slipping away from China. Take wages. A skilled employee in
China earns two to three times more than his Vietnamese counterpart.
Any further revaluation of China’s yuan currency, considered likely,
would only widen that gap.
MTEX Ltd., a Japanese chip packaging
company, has been assembling and exporting semiconductors in Ho Chi
Minh City since 2001. Taira Yasuhiko, general director of MTEX
(Vietnam) Co. Ltd., said that the packaging operation began with 50
employees and a $1 million investment. Next year, MTEX expects to put
in $10 million more and grow the employee base to 280. Then, production
of 16 million units per month should increase 25 percent.
wages have made the chip packaging plant’s costs roughly one-third
those of a comparable operation in China, Yasuhiko said.”The main
reason we are here is cost,” he added.
Moreover, employee turnover in China’s electronics hotbeds like Suz-hou is typically 25 percent annually.
hopping is a big concern in China,” said Tsuneo Sato, CEO of Vietnam’s
first semiconductor design house, Renesas Design Vietnam Co. Ltd.,
located in Ho Chi Minh City.
Opened in 2004 with $4 million in
capital investment, Renesas Vietnam has 49 employees and will design
system LSI chips and software in conjunction with Renesas Japan,
according to Sato.
Renesas came to Vietnam for the favorable
skilled-labor conditions. The company had considered LSI design in
China and India. But they were jammed with chip design houses, which
drove up wages and employee turnover. Management turned to Vietnam,
which has no comparable problems, Sato said.
in China tend to have dormitories housing staff from all over the
country, creating a kind of manufacturing campus, added Jason Craft,
the managing director of Spartronics Vietnam Co. Ltd., an electronics
manufacturing services (EMS) provider owned by U.S.-based Sparton Corp.
He believes that distance from family and hometown pushes up the
employee turnover rate.
At Spartronics, in Ho Chi Minh City, most employees live nearby and go home on motorbikes every day.
labor is also plentiful. The Vietnamese have put the war behind them
and see education and hard work as the path to victory. By some
accounts, 700,000 people in Ho Chi Minh City are going to some type of
night school, whether vocational, English or business.
Craft said he
had no trouble finding qualified staff. “A lot of people with
technology and business degrees are unemployed or working in garment
factories, way below what they’re educated for,” he said.
thing universally mentioned is tenacity. Manufacturers are deeply
impressed with the diligence of the average Vietnamese employee. “After
I hired several engineers and managers, they read through the equipment
manuals,” Craft said. “By the time the equipment arrived, they knew all
about it. I can’t say enough about the work ethic.”
opened a modest $8 million plant earlier this year and is building
low-volume industrial products for a U.S. customer, shipping directly
to the States. Management intends to test the market and see how much
interest companies have in outsourcing to Vietnam. Companies typically
see a 20 to 30 percent cost reduction by getting products made in
Vietnam, Craft said.
Cang Tran, vice president of overseas
engineering for Renesas Technology America (San Jose, Calif.) and
executive manager at Renesas Vietnam, added that employees are willing
to work hard at any task.
“Some engineers consider verification
tedious and not glamorous work,” Tran said. “Over here, engineers look
at it as a chance to practice design skills that they previously only
learned from a book.”
On a larger scale, Vietnam’s political stability has been a primary attraction, particularly with Japan.
Computer Products, which already runs a pc-board assembly operation
that is expected to account for $515 million in export revenue this
year, plans a $10 million expansion. Matsush*ta Electric Co. Ltd. runs
manufacturing plants in both Ho Chi Minh City and Hanoi for Panasonic
consumer electronics and household appliances. Sanyo Electric Co. Ltd.
recently opened a digital camera factory.
Representatives from Casio
Computer Ltd., Toshiba Corp. and Hitachi Ltd. all have visited Renesas
Vietnam to learn about establishing a branch of their operation in the
country. “When Japan and China tensions erupted last year, there was a
sudden interest from Japan to have fallback capacity in Vietnam,” said
Baker & Mackenzie’s Burke.
But Japan is not the top investor in
Vietnam. Taiwan, which walks a political tightrope with China, has
about $7 billion in total registered FDI capital in Vietnam, making it
the country’s biggest investor.
“Taiwan has a huge a mount in Vietnam due to cultural affinities and concern about overdependence on China,” Burke added.
Tough domestic market
set up in Vietnam’s industrial parks have advantages. The government
has opened problem-solving channels between officials and
manufacturers. Most industrial parks have on-call fixers, people who
keep the supply chain oiled.
Spartronics’ experience constructing a
factory and setting up SMT lines has been painless because someone from
the park’s customer service operation came to see Craft three times a
week. “After we signed the lease agreement, they brought a road map of
all the further steps that needed to be done,” Craft said.
officials are also set up in most parks. In Spartronics’ case, the
freight forwarder picks up assembled products and takes them to customs
for clearance, then to the port for shipping. The on-site arrangement
also tends to speed the importation of materials and supplies.
there are any snags, Craft calls the mobile phone of Nguyen Ngoc Tu,
senior customer service officer for Vietnam Singapore Industrial Park
JV Co. Ltd.
Nguyen, one of about a dozen of the park’s fixers, said
common problems include updated customs laws that aren’t immediately
announced or manufacturers’ forgetting to submit import documents.
goods are held up at customs and the company has an urgent need to get
them in, Nguyen speaks to customs officials. “They have allowed
shipments to clear first and the company to submit import documents
later,” he said.
Likewise, Renesas officials can call their fixer at
the Ho Chi Minh City Export Processing and Industrial Zones Authority
(Hepza) to work out similar problems.
“The experience of clients in
[industrial park] zones has been quite professional,” said Burke, the
Baker & Mackenzie partner. “The authorities are hitting a
relatively high standard, and it’s much easier to get things done.”
added that the ease of setting up an export operation contrasts with
manufacturing for domestic sale. The domestic market has problems with
fair access for foreign companies and has required companies to satisfy
corrupt officials, sources said.
“If you’re exporting, you’re almost
in a quarantined area from the economy and the legal system,” Burke
said. “Selling domestically, there’s a lot of red tape, distribution is
controlled, and there are obstacles in promotion and advertising and
getting the products to market.”
He added, however, that Vietnam’s
legal system is undergoing fundamental change. For example, in 2005 the
country adopted its first antitrust law, which in principle levels the
playing field for fair competition. “Vietnam is becoming more
transparent, and decision-making is more accountable,” Burke said.
is also expected to join the World Trade Organization soon,
underscoring progress in moving from a command to a modern market
economy. Sitkoff at the American Chamber of Commerce in Vietnam said
WTO entry may not be the turning point for investment, but it will
certainly ensure the introduction of arbitration rules and
transparency. “These have been obstacles to FDI,” Sitkoff said.
has been another hindrance. Spartronics’ Craft said some U.S customers
have a negative idea of Vietnam related to the war. “Over here not one
person ever mentioned the war,” he said.
Vietnamese authorities also
seem to be particularly proud that a U.S. electronics company has set
up operations in the country. They treat Spartronics well in the hope
that other U.S. manufacturers will follow, Craft said.
introduced to Vietnam by a U.S.-based firm with expatriate Vietnamese.
The two companies intended to set up a joint venture, but the partner
had financial difficulties and pulled out. Sparton stayed.
staff size is 70, although that could swell to 500 in two years.
Craft’s own opinion is that Spartronics then will be building another
factory beside the existing one to double capacity to 100,000 square
“Companies with operations in China have contacted me with
interest in bringing some production to Vietnam,” he said. “They’re
delighted they found a U.S. company here.”
Technologies Ltd., for its part, expects to invest $52 million in
Vietnam over 10 years. If operations go to maximum capacity, it would
require a 5,000-employee work force, said Jeffrey Soh, the company’s
executive director for Vietnam. Allied has been talking to European
customers, Soh said.
“We have the potential to transfer production
here from other areas, but we want to generate business in Vietnam and
export,” Soh said.
The company expects to ramp up production in 2006, when head count should reach 500, said Loo Boon Tong, general manager.
hopes to employ 500 Vietnamese engineers by 2008 and, in the long run,
move into mixed-signal IC design. “The Vietnamese are very similar to
the Japanese,” Renesas’ Sato said. “That makes it easy to operate here.”
the big money just hasn’t come in yet. But the feeling is, it’s just
around the corner. Intel Corp. and Flextronics International Ltd. have
made no commitments but have carefully evaluated Vietnam as a
What’s needed to get the big investors to come
in? Some think it would take only an influx of foreign suppliers. “But
manufacturers want to come in after the suppliers set up, and the
suppliers want to come in after the manufacturers set up,” Canon’s
Allied’s Soh believes there is no single big obstacle to clear. “You just need someone to say, ‘Let’s go.’ “