VIETNAM TYCOON LURED CANON CORP WITH CHEAP LABOR

[Anonymous]

http://www.businessweek.com/news/2010-03-19/vietnam-tycoon-tam-luring-companies-from-china-with-cheap-labor.html
VIETNAM TYCOON LURED CANON CORP WITH CHEAP
LABOR
Vietnam Tycoon
Lures China Companies With Cheap Labor
Vietnamese property developer Dang Thanh Tam, one of the
country’s richest men, is trying to lure companies from China to his
industrial parks with the promise of cheap labor costs.Tam’s Kinh Bac
City Development Share Holding Corp., Vietnam’s third-biggest publicly
traded property developer, has attracted companies including units of
Japan’s Canon Inc. and Sanyo Electric Co. Tam, 45, was one of Vietnam’s
richest men at the end of 2009 based on his stock holdings, according to
Thanh Nien newspaper.Vietnam has begun to export more higher-value
goods to the U.S., with global camera equipment companies shifting some
production from China, according to the U.S. International Trade
Commission. Manufacturers can benefit from a weakening dong in Vietnam,
which competes with China for the export of footwear, garments and
furniture, amid pressure for the yuan to strengthen.“Production costs in
China are becoming more expensive,” Tam, Kinh Bac’s chairman, said in
an interview, citing higher labor costs in the world’s most populous
country. “The transportation costs in China are also becoming very
high.”The company operates industrial zones in and around the capital
Hanoi and the northern coastal city of Haiphong, Tam’s birthplace. Two
of Vietnam’s three largest ports, Cam Pha and Haiphong, are in the
north, according to the Vietnam Seaports Association.

Diversifying
From China
Japanese companies often regard the north of Vietnam as
an extension of the Chinese economic zone, and may diversify production
by adding output in Vietnam rather than moving altogether from China,
according to Yoshida Sakae, managing director of the Japan External
Trade Organization office in Ho Chi Minh City.“The north is very near
China and it’s easy for companies in China to move to,” Tam said
yesterday. “Kinh Bac wants to focus more on the northern provinces of
Vietnam.”China’s Guangdong province, the nation’s richest region by
gross domestic product, said yesterday it will raise the minimum wage by
21.1 percent to help resolve a labor shortage. More than 50 percent of
manufacturers in the province, China’s manufacturing hub, are
experiencing a lack of manpower, according to a Hong Kong Trade
Development Council report released March. 16.

Labor Costs
“Labor
costs in some places in China have increased 20 to 30 percent in the
past three months,” said Shaun Rein, founder and managing director of
China Market Research Group in Shanghai. Wages are “probably double what
you have to pay in Vietnam.”Sanyo Electric last year started operating
an optical-parts plant in a Kinh Bac park in a province bordering Hanoi,
according to Yuko Hosaka, a Tokyo-based spokeswoman for the Japanese
electronics maker.“We chose the location because it was nearby many of
our clients’ bases,” she said. “Vietnam’s diligent workers were also
among the reasons.”Tokyo-based Canon makes laser and ink-jet printers
and scanners at a Kinh Bac park near Hanoi in Bac Ninh province,
where the Vietnamese property company is located.

Weakening Dong
Shares
in Kinh Bac, which by market value trails only Hoang Anh Gia Lai
Joint-Stock Co. and Vincom Joint-Stock Co. among property developers,
have increased 10 percent this year to 64,000 dong, compared with a 4.3
percent gain in the Ho Chi Minh City Stock Exchange’s VN Index.Kinh Bac
reported net profit of 642 billion dong ($34 million) last year, more
than double the 286 billion dong it posted in 2008. Tam’s stake of more
than 30 percent makes him the biggest shareholder in the 12.4 trillion
dong company.The company may benefit from a depreciating dong,
especially as the U.S. pressures China to allow its currency to
appreciate, said John Marron, managing director of Midas Clothing Ltd.
in Ho Chi Minh City, which exports Vietnamese-made Zara and Converse
apparel.“I’m making better margins now, and the weaker dong has
definitely helped,” Marron said. “We pay our factories in dong and we
get revenue in dollars.”

Party Congress
The dong has weakened
8.3 percent in the past year after Vietnam’s central bank devalued the
currency twice. In contrast, the yuan, which is pegged to the dollar,
was little changed in that period.In Vietnam, a Communist Party congress
next year may cause the central bank to use currency depreciation to
boost exports and create jobs, Standard Chartered Plc said in a report
this month.U.S. President Barack Obama last week urged China to move
toward a more “market-oriented exchange rate,” and the U.S. House of
Representatives plans to hold a hearing this month on China’s currency
policy.“Multinational manufacturers in China would want to diversify due
to the risk for protectionist measures in the U.S.,” said Tai Hui,
Singapore-based head of Southeast Asian economic research for Standard
Chartered. “If you are only in China, you might want to have a plan B.”
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[Author]

April 11, 2010 at 5:40 PM