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Is Vietnam Asia's next superstar?

Posted: 02 Jan 2008 ?? ?Print Version ?Bookmark and Share

Keywords:Vietnam semiconductor industry?

China is hot, and so is India. And Vietnam? Sizzling.

Intel Corp. is partly responsible for Vietnam's meteoric rise in investors' hot list. Ever since the chipmaker announced two years back that it would allocate $300 million (which later increased to $1 billion) for the establishment of an assembly and test facility in the country, Vietnam has been making the headlines all throughout 2007.

There is the $5 billion plan of the Foxconn Technology Group, the Panasonic research activities, the Toshiba software development center, Olympus' digital camera plant move, STMicroelectronics' R&D facility, and Samsung's handset and printer production talks among others.

"It's really a combination of internal and external factors," remarked Huy Do, chairman and president of Vietnamese Strategic Ventures Network, a group of entrepreneurs, executives, inventors and other professionals supporting the global Vietnamese technology and business community, about all the interest in Vietnam these days. "The external factor is the continual need for transnational companies to find a more cost-effective way to do business, but maintain a certain level of quality. Part of this also includes the China + 1 theory, where a company does not want to be overly dependent on China. Internally, Vietnam has made great strides in making economic reforms. The real change was made in 2001 when it signed the Bilateral Trade Agreement with the U.S. and began to transform its laws to comply with the BTA, which prepared Vietnam for its entry into the WTO in early 2007."

Pro-business government
"Vietnam has done a good job attracting potential investors to date," stressed Udi Landen, VP of software and IP engineering at Altera Corp. The company in September opened the Vietnam Technology Center, and it plans to add 30 engineers this year to its initial roster of six.

The government indeed has worked very hard in luring investors into the country. In his Validating VietnamA Resurgence in Southeast Asia EMS/ODM Activity report, Adam Pick, iSuppli Corp. principal analyst, electronic manufacturing services (EMS) and ODM services, noted that "the government has adopted a liberal approach toward foreign players? Who can now acquire 49 percent stake in local firms and participate in their operational management," which was not the case prior to the country's accession to WTO. This liberal attitude of the government has paid off, with Vietnam's 2007 foreign investments expected to hit $16 billion, up more than 30 percent compared with $12.2 billion recorded in 2006, according to the Ministry of Planning and Investment.

Other factors have helped Vietnam reach investment stardom. Pick pointed out that in terms of cost, "Vietnam is as economically viable as China." However, there is the "support labor cost" factor that may help propel Vietnam as an efficient destination especially in electronics outsourcing. According to Pick, the support labor cost is especially important in the production of high-mix/low-volume products, and the lower support cost in Vietnam has made the country an interesting location for contract manufacturing.

Greatest strength
Then there are the people. "A hardworking and highly diligent nation," said Hirotaka Ohno, assistant manager, corporate communication group, corporate communication department, Renesas Technology Corp., of Vietnam. The company is one of the early locators in the country, having established Renesas Design Viet Nam in 2004, one of its main design centers for developing advanced system LSI.

"As big as China is, its available pool of talent is limited to certain major cities where the educational system and infrastructure to support international investment are," added Do. "The same can be said of India. The cost of doing business, including turnover, is on the rise. India has a slight advantage over China due to its English-speaking population. In contrast, Vietnam's population of nearly 90 million are over 95 percent literate with a smaller land mass that allows for easy centralized management and diversification in the labor pool for a company. Over half of the population is under 35, which provides a work force for 20+ years, so investment in training will not be cut short by age. Vietnam's greatest strength is its educated and young population that is open to learning and adopting new ways to improve its economy."

Indeed, there is no denying the fact that Vietnam has made its mark in the investment community. However, "as with any new emerging market, there are always some areas for improvement," remarked Landen. "Simplifying the new corporation licensing process?improving the transportation and communication infrastructure, the stability of the national power grid, and the English language skills of the workforce."

For Do, Vietnam's tax system needs some polishing. "It has to be revised to include incentives for domestic and private investment. Unlike in the U.S. where commercial companies invest in universities to innovate and commercialize ideas, there are no tax incentives to encourage private companies in Vietnam to work in partnership with universities. This incentive will help build an even stronger domestic economy and foster innovation to commercial ideas into useful products for export."

"Social infrastructure has been improving and consumer consumption has been growing," asserted Ohno. "Vietnam certainly has the potential to become a technology-oriented nation."

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