Samsung is of many foreign investors to have dialed in impressive profits in Vietnam
Key fundamentals like cheap labour, a favourable geographical position and political stability still make Vietnam a promising manufacturing base. Ninh Kieu reports.
Wintek Corporation, a Taiwanese maker of touch screens for Apple iPads and iPhones, is one of many international corporate heavyweights who still recognise Vietnam’s investment pulling power. As the demand for smartphones and tablets grows globally, Wintek decided to expand its production capacity to meet growing orders from clients.
Though having five manufacturing factories in Taiwan, mainland China and India, the company picked Vietnam to expand its production. Last month, Wintek received an investment certificate from Bac Giang People’s Committee to increase its Vietnam factory’s investment capital from $250 million to a giant $1.12 billion.
Wintek’s move came just a week after Nokia kicked-off development of its manufacturing facility in Vietnam. Nokia will invest $302 million to build a mobile phone factory in northern Bac Ninh province, part of the firm’s plan to expand business in Asia.
“Nokia is committed to extending our positive reputation as an employer and as a corporate citizen. We expect to attract competent and energetic employees from the local skilled labour force,” Nokia’s executive vice president of mobile phones Mary McDowell said at the factory’s launching ceremony late last month.
Nokia and Wintek’s investments, in the context that Vietnam’s foreign direct investment (FDI) commitments are declining, is a welcome bright spot amid the gloom.
From 1987, when the country started moving from a planned to a market economy and opening the door for foreign investors, Vietnam licensed 7,758 manufacturing sector projects with total committed capital of $96.5 billion. Many well-known multinational companies made Vietnam their manufacturing base, including Panasonic, Foxconn, Intel and Samsung. Early this year, the world’s largest rubber and tire manufacturer Bridgestone announced a plan to build a $575 million passenger car tire manufacturing in Haiphong.
FDI commitments and wilting confidence
Foreign Investment Agency data showed that FDI commitments to Vietnam reached $5.32 billion in 2012’s first five months, a 31.8 per cent fall year-on-year. During the period, foreign investors committed to invest in 283 new manufacturing projects and expand capital in 82 existing projects.
The Ministry of Planning and Investment (MPI) said FDI inflows were badly affected by the global economic recession. However, foreign investors pointed the finger at Vietnam’s economic turmoil.
Last year, inflation climbed to 18.13 per cent and the government tightened monetary and fiscal policies causing a slide in domestic consumption and investments. In 2011, the Vietnam dong devalued by 10 per cent, raising concerns for foreign manufacturers who had to import materials and components at higher costs.
Due to the economic turmoil, foreign investors’ confidence plummeted. Ken Atkinson, managing partner at auditing and business consultancy firm Grant Thornton Vietnam, said the confidence was at the lowest level he had seen during the past 20 years in this country. EuroCham two weeks ago released the EuroCham Business Climate Index which showed that business confidence among European businesses in Vietnam remained at the “neutral” index midpoint of 50.
“European businesses that participated in the survey continued to be cautious about their business outlook and in assessing their current situation as well as the overall economic outlook in Vietnam,” EuroCham stated.
Promising FDI manufacturing fundamentals unchanged
Despite the economic chaos, Vietnam’s gross domestic product (GDP) continues to grow at a healthy rate. Vietnam’s government is trying to keep economic growth at 6 per cent this year and even though many international institutions forecasted a 5.2-5.7 per cent growth rate, many foreign investors still consider it a good result.
Susumu Yazaki, manager of Bridgestone’s Vietnam project, said Vietnam’s healthy economic growth was an important factor in his company deciding to drop anchor in the country. Yazaki said Bridgestone believed the current economic challenges in Vietnam would be addressed in the long term.
“Our decision to choose Vietnam to expand production was a result of comparing the investment climate between Vietnam and other Asian countries,” he said.
A recent ASEAN Business Council survey ranked Vietnam as the second most attractive investment destination behind Indonesia and ahead of Singapore, Thailand, and Malaysia.
Indeed, in comparison with the neighbouring countries, Vietnam still has advantages of cheap-labour costs, political stability and good geographical positioning. This year, Vietnam raised monthly minimum wage to VND2 million, or $96 at the current exchange rate, still much cheaper than Malaysia’s $297 minimum wage set in March.
The Philippines’ National Wages and Productivity Commission early this year released a report showing that Vietnam’s minimum wage rate ranged from $2.21 to $3.16 a day, the second lowest rate in South East Asia. Meanwhile, the rate in Indonesia is $2.68-$4.94 and Thailand $5.03-$7.00. In China, the rate ranges from $3.72-$6.91. Wintek, Nokia and Samsung are not the only big foreign players recognising Vietnam’s continued potential.
Italian motorbike-maker Piaggio last month opened a new engine manufacturing in Vietnam to serve Asia and General Electrics in March decided to increase investment capital to expand production of its wind turbine factory in Haiphong.
“We are doing well and are going to continue to grow our numbers in the production of wind turbine generators, as well as looking at additional products to build in the plant,” said Nguyen My Lan, chief executive officer of GE Vietnam.
The MPI reported foreign manufacturers’ export turnover (excluding crude oil) from January to April rose 43.7 per cent year-on-year, while the turnover of domestic companies rose 8.42 per cent.
This figure shows that many foreign manufacturers are still doing well in Vietnam. To resolve the current economic challenges, Vietnam’s government is preparing a comprehensive restructuring plan for the economy, to promote the role of private investment and FDI, while reducing state investment in the economy.
Atkinson of Grant Thornton said the government had moved quickly to address many fundamental issues causing macroeconomic problems. “For the more seasoned campaigners who have been through many crises in Vietnam going back to 1990 when the Soviet Union withdrew its financial support, the one thing we have learnt is, Vietnam does have the capacity to address and resolve economic problems even though it may be slow to react,” he said.
“So why are we all so negative? My glass is certainly half full not half empty and we must remember the fundamentals which attracted us all in the first place are still there, although our game plans may need to be modified,” Atkinson added.