Bloomberg: Today, Hanoi is rising

China and India have been the favored destinations for investment flows into Asia. However, reports the Bloomberg business wire, a wave of strikes and pressure to raise wage in these countries have prompted investors to seek more attractive destinations. And Vietnam could be a good choice.

“We are cheap, much cheaper,” says Nguyen Thanh Nam, General Director of FPT, an IT and mobile phone distributing company with annual revenue of US$1 billion.

According to Nam, Vietnam is ready to compete in luring foreign capital. “We are striving to becoming the pioneer,” Nam said.

Bloomberg wrote that in the past, investors heard similar things from Vietnamese promoters.  After the US removed its embargo in 1994, a wave of foreign companies like Coca-Cola or Procter&Gamble landed in Vietnam but were quickly disappointed by corruption and red tape.

Today, Hanoi is rising on foreign radar screens, judges Bloomberg. The government is striving to hold down corporate taxes and to upgrade roads and ports.  Plans to build nuclear power plants have been approved and Vietnam is discussing the construction of an express railway. Vietnam’s leaders are determined to roll back bureaucracy to reassure investors, adds the widely-read business wire.

CNN: Times are changing

CNN also carried a favorable report: “The World Economic Forum’s East Asia meeting chose Ho Chi Minh City for its first event in a true emerging market. Organizers were expecting about 250 to 300 business people this week, but more than 400 came from across the world.”

“The government is out in force too. Prime Minister Nguyen Tan Dung is everywhere, chatting up the opportunities. He wants Vietnam to be Asia’s manufacturing base of choice after China,” CNN told its worldwide audience.

“It’s a tall order. Currently Vietnam is seen as a production base for lower value-added goods like textiles, furniture or footwear. But times are changing. Samsung and Canon are both investing heavily in electronics manufacturing and service bases. Most of the big Asian carmakers, as well as Ford, are producing for the local market with an eye on exports later down the line.”

According to CNN, in 2008 about $70 billion was committed to Vietnam, up more than threefold from five years year. It’s fallen back to $20 billion last year. Not surprising, though, given the global economic picture.

CNN profiled Tom Schneider, a German businessman, who has has just laid out $12 million to build a tannery at an industrial park on the outskirts of Ho Chi Minh City. Schneider has built eight factories in Asia in the past 16 years. In Vietnam it took him just 22 months, from finding the land to building the factory and training the workforce – his fastest project anywhere.

Schneider now treats 80,000 hides a month, enough for 1.5 million pairs of shoes. Timberland is his biggest customer.  And though Scneider readily admits that tanning is “environmentally hostile,” his new plant is ‘greener’ than his plant in China, which has received a silver medal standard for environmental protection from Timberland.

“So why move to Vietnam,’ CNN asked. Its answer? “Vietnam is cheaper. Labor costs are about 60 percent of China’s although senior management is still more expensive. The country is close to many of his key customers, and there’s little state intervention, as long a businessman observes workplace and environmental standards. And in the long run, Vietnam has key access to a vast and cheap labor pool across the borders of Cambodia and Laos.”

BBC: low wages and able young workers

The BBC reported admiringly that Vietnam’s government has been working to attract higher value industries to Vietnam, and illustrated it with clips shot at the Que Vo industrial zone, 90 minutes east of Hanoi in Bac Ninh province. The IZ has wide avenues and modern, purpose-built offices, exclaimed BBC.  The deputy director of Que Vo, Nguyen Thu Huong is enthusiastic: "We have 50 foreign companies here, mostly from hi-tech industries, firms from Korea, Taiwan, the United States and Japan," she says.

“In 2008, Canon chose Que Vo as the home of its new laser printer plant. It is the biggest such facility in the world. And Canon is building a second plant at Que Vo’s neighbouring sister complex.  Right next door to Canon is another big international name, Foxconn. The Taiwanese contract electronics manufacturer made history last month when it announced it would, effectively, double wages at its main plant in Shenzhen in China following a spate of suicides,” BBC told its worldwide audience.

“Vietnam raised minimum wages at foreign enterprises by up to 28% this year,” the BBC gushes.  “It was the first rise in six years, yet it only raised wages to the level seen in neighbouring Cambodia. Average wages - or seen from a company’s point of view, labour costs, are still lower than in neighboring  Thailand and China. Vietnamese factory workers earn just two thirds of what their comrades in China bring home. Companies such as Foxconn, which assembles gadgets and phones for companies such as Apple and Sony, already operate on razor-thin profit margins. They rely on huge workforces turning over huge volumes of goods very quickly to make their money.”

Cut to a clip of Toh Poh-Heng, the general manager of another Taiwanese firm, Lovely Creations.  Toh’s “cuddly toys end up on the shelves of cut-price retailers such as Walmart and Family Dollar,” reports the Beeb.  “Wages in China’s coastal manufacturing areas, such as Ningpo, where his main factory is based, have risen between 15 and 20% this year.  Toh says his profit margins have been halved in just five years. Many of his competitors have already gone bust. ‘The final choice we may have to take is to move production to a lower cost area like Indonesia or Vietnam,’ the Taiwanese businessman says.”

According to the BBC, low wages are not the only attraction.  When Jeffrey Joerres, chairman and chief executive of Manpower, made his first trip to Ho Chi Minh City this month, he found that half the country’s population is under the age of 30.  Hence companies investing in Vietnam can think long-term. The world’s second biggest employment agency is really excited about Vietnam.

"If I’m here five years from now, 10 years from now, I can really work with these 30-year-olds and 20-year-olds. They’ll have open minds to the way we do business in western companies and also eastern companies," Joerres told the Beeb.

Summing up, the BBC comments that productivity in Vietnam remains lower than in China and even fell during last year’s worldwide slump.  Many of Vietnam’s industries rely on relatively small teams of skilled manual labour – people who hand-finish furniture and garments, for instance. Big, efficient, modern plants such as those in Que Vo IZ are still in the minority.

A bigger disincentive, says BBC, is Vietnam’s infrastructure. In Hanoi, cobwebs of power cables hang low from telegraph poles up and down the street. Roads are rocky and uneven. Many ports are still small and unmechanised.

For such reasons, Acer chief executive Gianfranco Lanci says he would not consider moving his factories from China to Vietnam. "There is no substitute for China’s supply chain," he says. "Other countries, such as Vietnam, are quite a way behind."