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 user 2005-03-09 at 10:08:00 am Views: 88
  • #10756
     follow my leader
    MARCH 05

    Canon’s plans to manufacture in Vietnam
    have placed the spotlight on a new contender for China’s glory. How does it
    match up?

    Just last decade, Vietnam was likened to the American Wild
    West – an expanse of badly-connected towns governed by little regulation. The
    cause? Ravaging years of war and the loss of financial support from the old
    Soviet Bloc.

    So with such a solemn backdrop, news in December that Canon
    plans to start manufacturing laser printers for export in Vietnam as of January
    2006 (and
    inkjet printers as of June 2005)
    still makes headlines. The tech giant, which has been making bubble-jet printers
    there for export since 2002, has earmarked ¥5 billion ($48.7 million) to build a
    large industrial park in the Bacninh province, at which it expects around 3,000
    workers to knock out 700,000 units a month by 2007.

    Indeed, modern day
    Vietnam is a lot less wild and unruly than last time many of us looked. Since
    the beginning of the decade, the Vietnamese authorities have reaffirmed their
    commitment to economic liberalisation and attracting competitive, export-driven
    industries. Vietnam is expected to achieve a GDP of 7.4 per cent this year, and
    the industrial sector grew by a whopping 39.7 per cent in 2004.

    although these figures are impressive, can Vietnam really market itself to
    foreign manufacturers as a viable alternative to China?

    Canon would say
    so. A company spokesman told OPI: “From a strategic point of view, a Vietnamese
    location offered many real advantages. At the top of our list was the perfect
    match between the skilful, highly motivated Vietnamese workers and the cell
    production environment we employ at our plants. For the production of printers,
    Canon Vietnam is a self-sufficient operation.

    “And although
    manufacturing costs are comparatively low in Vietnam, the local wage structure
    was peripheral to our decision to locate a plant there,” he adds. In fact, the
    average salary of Vietnamese workers is about 60-70 per cent of that of China
    and Thailand, according to Vietnamese minister of planning and investment Vo
    Hong Phuc.

    Certainly, the Vietnamese government is out to woo foreign
    manufacturers. It has already lowered land rental fees; loosened approval of
    investment licences for new factories from central to local level; and set out
    plans to give foreign companies the right to mortgage their assets.

    Trading environments have warmed too. And in the two years after the
    US-Vietnam Bilateral Trade Agreement came into force in 2001, the export of
    computers and electronic single parts to the US increased more than 480 times;
    furniture and plastic products three times – good news for OP and furniture
    manufacturers. And if Vietnam enters the WTO as scheduled this year – even

    But, despite the advantages, many manufacturers are still
    reticent. According to a survey released in December on business sentiment among
    115 foreign and 80 domestic companies conducted by the World Bank, the
    Vietnamese government and the International Finance Corporation, a significant
    number of businesses expressed concerns over uneven regulations, bureaucracy and
    poor legal enforcement.

    Furthermore, the country does not yet possess a
    wide range of supporting industries that are able to provide manufacturers with
    raw materials. Rather than import, OP manufacturers could be forced to look to
    China where supply chains are more established.

    But, according to
    Desmond Wong, America’s coordinating partner for China at Ernst & Young,
    Vietnam’s largest downfall is its limited domestic market. He says: “In China
    you have a surging middle class with increasing purchasing power. Vietnam may
    boast favourable conditions for manufacturers, but its market can never compete
    with China’s.”

    OP manufacturers, however, may be among the few that can
    enjoy a market on their doorstep. With Vietnam’s services sector estimated to
    have grown 38.5 per cent in 2004, a huge amount of new offices are springing up.

    Wong agrees that OP manufacturers could find their niche in Vietnam. “In
    general they make smaller products, which do not require a huge amount of skill
    or an economy of scale.” he says, citing Canon’s printer cells and printer
    cartridges as good examples.

    Therefore, although Vietnam cannot compete
    on an even keel with China quite yet, it should not be dismissed outright.
    Vietnam has the benefit of learning from its neighbours and has proved willing
    to implement the necessary changes to entice foreign manufacturers – although,
    ultimately, they will judge the country on actions not words in the long