Tag Archives: Vietnam manufacturing

The Opportunity in Vietnam’s Spat with China

Last week’s anti-China riots in Vietnam spooked investors, rattled the stock exchanges, threatened foreign business deals, and ignited conversation about whether that the political and economic risks in that region outweigh the potential rewards.  But where some see the unraveling of peaceful co-existence in Southeast Asia, others see a golden opportunity.

Are businesses and investors over-reacting?  Consider some of the more encouraging news coming out of Vietnam this month:

  • Samsung is going ahead with expansion of manufacturing in the northern provinces of Thai Nguyen and Bac Ninh.  As a result, about 50% of its smart phones made globally will be made in Vietnam.  Already, Samsung’s factory in Bac Ninh was one of its largest worldwide, and the company accounted for $24 billion in exports from Vietnam.  The Thai Nguyen factory opened in March will employ 16,000 workers and produce eight million units per month.
  • The Saigon port welcomed the largest ship ever docked there,  a 54,000 ton vessel able to navigate the river safely thanks to a mammoth dredging project that will allow ships of this size to save $500,000 a year in transit costs.  The port projects moving 120-150 million tons by 2025.

  • The investment ministry unveiled a proposed law that will cut red tape and streamline foreign investment by eliminating certificates for many projects, simplifying procedures, ending favorable treatment of domestic investors, and improving transparency.

  • Foreign investors have been snapping up stocks that domestic investors are rushing to sell in an over-reaction to last week’s riots.  Foreigners are taking advantage of sharp drop in the VN Index, which peaked at 610 points earlier this year and fell below 530 before climbing back to 544 today.

  • McKinsey released a study concluding that ASEAN, composed of Vietnam and nine other countries, will be the world’s 4th largest economy in 2050.

Business is getting done in Vietnam.  Opportunities abound.  The ugly events of last week are not likely to lead to war in the South China Sea.   More likely, they will turn out to have been an exchange of moves in a chess game of diplomacy that will help clarify the figurative boundaries between two of the world’s fastest growing economies.

Conquering Health-Conscious Vietnam

Vietnam is quietly emerging as a center of health-conscious consumption — with surging marketing and manufacture of so-called functional foods: products intended to provide both nutritional and health benefits.

Local media report 1,800 functional food makers and distributors — including American companies Amway, NuSkin, Unicity and Herbalife — are selling 10,000 products in Vietnam, and business is booming.

Herbalife says the Vietnamese market contributed significantly to its $4.8 billion in global sales last year.  Unicity reports its success in Vietnam is above expectations.  NuSkin reported 30% growth last year in Vietnam and projects 33% this year by conquering the central Danang market.

Amway’s second factory in Vietnam is expected to produce 24,000 products valued at $200 million starting early next year.  The company began cultivating the Vietnam market in 2008 and last year generated $90 million in revenue, a one-year increase of 14%.

Vietnam is a lucrative and growing market for functional food because its consumers tend to be educated, health conscious, and concerned about obesity, cardiovascular health and physical beauty.  The Vietnam Supplement Food Association reports 56% of Hanoi residents and 48% in Ho Chi Minh City use functional food.

Even more important to American companies, the ASEAN free trade agreement that takes effect next year will facilitate the export of products they make in Vietnam to Southeast Asia’s 600 million consumers.

Dreaming in Vietnam on $1 a Day

Vietnam’s statistics office and the World Bank shed new light on income in the country — and quantify the  rural-urban gap.  They say the typical city dweller earns $142 a month compared to $76 for rural residents.  Average earnings for Vietnam’s poorest citizens are estimated to be $24 per month, a 39% increase over the highly inflationary period between 2010 and 2013.

This helps explain two things: (1) why the world’s multi-national manufacturers are flocking to Vietnam to source their products, and (2) why entrepreneurial dreams are flourishing in the world’s 13th most populous country.

Vietnam has a young, educated, eager — and, most important, plugged-in — workforce accustomed to wages far behind its peers in China and elsewhere in Southeast Asia.  Even citizens who earn $1 a day tend to be literate and have someone in the family who is connected to the Internet.

And despite urban migration that is spurring explosive growth in Hanoi, Saigon and other cities, Vietnam’s population remains mostly rural and the employment mostly agriculture.  In this sector, $1 dollar a day remains the standard wage — and a job offer from a Japanese or German widget-maker looks like an attractive stepping stone to the entrepreneurial dreamland that is the World Wide Web.

 

 

10 Dark Hours For Vietnam’s Infrastructure

Garment factories, fish processing facilities, traffic signals and everything else that runs on electricity in 22 Vietnamese provinces shut down this week for half a day when a crane operator accidentally knocked down a tree — and cut the power supply for a third of the country.

Accidents happen, but this one heightened investors’ anxieties about Vietnam.  As global manufacturers rush to Vietnam as an otherwise stable, lower-cost alternative to almost every other country in Asia, some of them wonder if Vietnam can keep with the surging demands on its transportation and energy infrastructure.

The country has been rapidly modernizing roads, seaports, airports, and energy supply — including oil refineries, hydroelectric facilities, and planning for two nuclear power plants — much to the chagrin of environmentalists concerned this is happening at the expense of Vietnam’s health and culture.  They may have considered the brief delay in economic expansion a breath of fresh air.

For a few hours, restaurants served tourists by candlelight.  Water supplies began to dry up.  Factories shut down.  Traffic jammed, especially near nonfunctional traffic lights.

When a tree falls in a developing country, the sound you hear is usually called progress. But when this particular tree fell on the nation’s main high voltage transmission line, the air conditioners stopped.  And the sound the government heard was sweaty criticism of the state-owned electricity company.

Coca-Cola’s Ugly Americanism in Vietnam

Coca-Cola is facing a boycott in Vietnam in response to reports the American company hasn’t paid any taxes over the past decade of exploiting consumers there.

Vietnamese media say Coca-Cola’s financial reports show $120 million in revenue and $129 million in expenses for 2010, for a loss of $9 million.  Since the company began its Vietnamese operations a decade ago, a $180 million cumulative loss has been reported.  Therefore, no corporate tax has been due.

The Vietnamese public doesn’t believe it.  The perception is that the company has used transfer pricing to take losses while continuing to make heavy investments to exploit Vietnamese consumers.  Local newspaper reports inflamed public opinion, while Coca-Cola was announcing a $300 million expansion plan for Vietnam over three years.

In addition to claims Coca-Cola evaded taxes while gaining Vietnam’s largest share of the soft drink market, the company got in hot water with local authorities in Danang for trying to add 4,700 square meters of land even though it hasn’t used all the land that already had been allocated.

And health authorities in Vietnam aren’t happy about rising obesity among children that they say is partly explained by consumption of Coca-Cola’s products.

Coca-Cola’s public relations nightmare in Vietnam is a problem for US businesses in general.  American investors need to be supportive — not just exploitive — partners in Vietnam.  That’s what sets them apart from China and others in one of the world’s most dynamic frontier markets.

Big Corporate Bets on Vietnam

Online publication Vietnamnet reports big companies are regaining confidence in Vietnam.  French retailer Auchan, which abandoned Vietnam in the downturn five years ago, is back with plans to invest $500 million over the next decade.

Panasonic, already building a detergent factory in Vietnam, also plans a $40 million factory northwest of Saigon in Binh Duong Province, aiming at production for the domestic market by next April and products for export later.

Samsung has begun a $3.2 billion high-tech complex starting with the world’s biggest mobile phone factory that will employ 2,000 in Thai Nguyen province, north of Hanoi.  Over the past four years, Samsung has made phones in a $670 million factory East of Hanoi.

And the world’s biggest brewer, Anheuser-Busch, is planning to enter the Vietnamese market next year to compete with previously established Carlsberg, Heineken and Miller.

Earlier this year, American icon Starbucks started opening stores in Vietnam, joining established US brands KFC, GE, Nike, Intel and others.

The world’s multinationals appear to be discovering what visionary investors have been saying for two decades:  Vietnam is fast becoming a good place to expect a profit.

Vietnam’s Surging Trade Surplus

Vietnam, a relative newcomer to global trade, reports a $482 million trade surplus in the first quarter on this year, far above the $300 million surplus for all of 2012 — when even its economic optimists had expected a significant deficit.  Vietnam is fast becoming a leader in exports, especially food and clothes.

The country reported nearly $30 billion in exports through March, up 20% from the previous first quarter (doubling the government’s goal) — with state-owned businesses accounting for one-third and foreign-invested businesses two-thirds.

The US is Vietnam’s biggest customer as trade between the two countries has grown very rapidly (some years exponentially) for well over a decade.  In 1992, the US exported $5 million in products to  Vietnam and reported no imports.  By 1996, bilateral trade approached $1 billion, and the US enjoyed a $300 million surplus.   In the years 2001 through 2003, Vietnam’s exports to the US went from $1 billion to $2 billion to $4 billion.

By 2012, Vietnam’s exports to the US exceeded $20 billion, and this year the number could be in the $25 billion range.  US exports to Vietnam were valued at $4.6 billion for a trade deficit of nearly $16 billion.

Last year, Americans imported $10 billion in Vietnamese shoes and clothes;  and well over $2 billion in food, mostly fish and coffee.  Vietnamese imported roughly $1 billion each worth of food, building/industrial materials and computer/telecommunications technology.

In the first month of 2013, Vietnam’s exports to the US were up 13% from the previous January while US exports to Vietnam were up nearly 30%.

The pattern over the past two decades suggests the Vietnam trade momentum is just getting started.  The country seems destined to be a major player in the global economy, while bilateral trade with the US surges.  This is one of the brightest lights in Vietnam’s otherwise fragile economy.

The Most Competitive Places in Vietnam

Vietnam’s foreign investors often focus their efforts on either Hanoi, the political capital, or Saigon, the financial capital — or both.  But new data show the country’s more promising places to do business are far from both major cities.

top_site_international_businessThe latest Provincial Competitiveness Index ranks more rural areas in the Mekong Delta, the far north and the central coast highest overall on nine critical factors such as transparency, entry costs, land access, workforce training, and support services.   Ho Chi Minh City ranks 13th among Vietnam’s 63 provinces and Hanoi ranks 51st — partly because bureaucracy and corruption in the big cities stifles business.

The Vietnam Chamber of Commerce, which first published the index in 2005, found backsliding in many provinces, especially Hanoi, in the latest annual update — based on a survey of 8,053 enterprises, including 1,540 foreign companies that tended to be less optimistic than in the past.

In contrast to Hanoi and Ho Chi Minh City, this year’s best five provinces to do business in Vietnam as measured by the competitiveness index are:

  • Dong Thap (1) and An Giang (2).  These two relatively remote Meking Delta provinces lie on the Cambodian border west of Saigon.  Dong Thap has the most proactive local government in Vietnam and also ranks ranked among the best places to deal with land access, time costs and “informal charges,” presumably a euphemism for bribery.  An Giang has a well-developed legal structure and relatively low entry costs.
  • Lao Cai (3).  Home of a multitude of ethnic minority cultures as well as Sapa, one of Vietnam’s most popular tourist destinations, Lao Cai borders China in the northern mountains.  The province ranks among the best in Vietnam when it comes to transparency, low entry costs, low informal fees; it ranks among the highest in proactivity and legal institutions.
  • Binh Dinh (4).  This central coastal province was highlighted in this blog last fall as one of the most attractive investment destinations.  Quy Nhon, provincial capital, has forward-looking managment, an ambitious development plan, advanced transportation infrastructure and the lowest business entry costs in Vietnam.
  • Vinh Long (5).  Situated in the center of the Mekong Delta in southern Vietnam, Vinh Long Province ranks especially high in proactivity, land access, and time costs.

Other regions of Vietnam that are rated high among places to invest include several other provinces in the Mekong Delta (Kien Giang, Bac Lieu, Tra Vinh, Long An and Can Tho City); Bac Ninh and Thai Nguyen in the North; and the central city of Danang.

Overall, the rankings make it clear the best return on investment is likely to accrue to those who venture outside Vietnam’s largest  cities.

Vietnam’s Worst — And Best — Jobs

The Financial Times highlights the plight of thousands of “zombie” employees of state-owned companies in Vietnam who haven’t been paid for months but report to work to protect their back wages.  Their companies can’t pay them because Vietnam’s fragile economy has ridden them with debt.

Vietnam Television reports more than 60,000 workers were going without pay in Hanoi and Ho Chi Minh City late last year.  Workers are afraid leaving their jobs would cause them to forfeit back pay,  but many are considering changing jobs anyway.

The situation underscores inefficiency and corruption in Vietnam’s public sector, which is estimated to have absorbed 45% of investment in Vietnam in a recent 5-year period without having any impact on employment.  About 100,000 companies went out of business over the past two years.

As a result, a press report in Vietnam listed the following as the five hottest jobs for Vietnamese workers today:

  • Babysitting. A person who helps a mother with her newborn baby  earns up to $350 a month, triple the salary of a newly graduated physician and, in some provinces, the most profitable job.  In addition, they save on food because they have meals with their host families.
  • Freelance nursing.  People who take care of patients can earn up to $600 a month, well above a level considered high income in Vietnam and about four times the wages of a factory worker.
  • Running a tea shop.  Tea shops serve a wide range of customers in Vietnam and require very little investment capital — less than $50 for tables, chairs and cups — while shop owners can earn up to $500 a month.
  • Shoe repair.  Shoe repairmen are always busy in the cities, where they charge at least $1 to resole shoes and can expect to earn $50 a day.  Exceptionally skilled repairmen earn much more.
  • Motorbike oversight.  High volume makes tending cars and motorbikes one of the easiest and the most profitable jobs in Vietnam.  Workers typically collect nearly 15 cents to tend each of 1,000 motorbikes a day.  That’s $150.

Vietnam’s Problem Importing Lethal Chemicals

While Vietnam’s global trade has been soaring, here’s a product the frontier market country can’t buy on the international market:  chemicals required under its law to execute prisoners.

Overseas producers refuse to export the drugs required to carry out death sentences of about 500 people convicted by Vietnamese courts of drug trafficking, rape, corruption and other crimes.

Vietnam switched to lethal injection for executions two years ago because firing squads were expensive and stressful for executioners.  But after the government installed equipment and trained staff, the country was unable to buy the three-stage drugs from Europe, where export of drugs that could be used for capital punishment is illegal.

Vietnam plans to solve the problem by changing its law to (1) allow for domestic poisons to be used, rather than those stipulated by law, (2) go back to firing squads, and/or (3) reserve the death penalty for only the most serious crimes.

The problem raises the spectre of harsh treatment by an oppressive government, at least from the perspective of some countries — but the US wouldn’t be one of them; the US has about triple the population of Vietnam but seven times as many convicts awaiting executions.  A further grim irony is that Vietnam faces a far bigger problem contending with after-effects of lethal poisons “exported” to their country in the Vietnam War.