William Hung
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Thank you. Can you shed any light on why Intel would choose Vietnam as a location for this? No local sourcing, no local talent pool, and probably comparatively inferior infrastructure, let alone a government that's not known for friendliness to business--on the surface, a mind-boggling decision. Why bother exporting chips to Vietnam for this specific step, instead of co-locating with the foundries?
Electronics Manufacturers Bet Big on Vietnam » Techonomy
1.) Extremely cheap labor - note that test/assembly is the most labor intensive and least capital equipment intensive part of the semiconductor manufacturing process.
2.) Unlikely to leak IP to local competitors.
3.) Huge incentives to move.
A quick Google search also showed this news piece about VN's supporting industrial problem:
English - VietNamNet News
Vietnam urged to quickly improve supporting industries
The Japan External Trade Organization (JETRO) in HCMC called for Vietnam to speed up improvement in supporting industries to help companies, particularly those from Japan, reduce heavy dependence on imports.
Hirotaka Yasuzumi, managing director of JETRO in HCMC, raised the point at a seminar on solutions to develop supporting industries in Vietnam in HCMC last week. The event was organized by the Industrial Policy and Strategy Institute, Heavy Industry Department and Vietnam Trade Promotion Agency in collaboration with the city’s Department of Industry and Trade.
Yasuzumi said Japanese enterprises in Asia generally spend 60% of their costs on materials and components. If they can cut spending on this part, they will be able to reduce selling prices of their products and enhance their competitive edge.
A survey conducted by JETRO in 2012 indicated that the local content ratio of Japanese products made in Vietnam accounted for less than 28% , well below 61% in China and 53% in Thailand.
According to the Ministry of Industry and Trade, the manufacturing sector has to import some 80% of material and component needs. As a result, prices of Vietnam’s exports are often higher than those made in other regional countries and the world.
For example, automakers in Thailand have parts provided by local companies, and this is why autos assembled in Thailand are cheaper than in Vietnam.
Yasuzumi said supporting industries in Vietnam have been set up for a long time but are now underdeveloped due to the lack of appropriate policies to fund enterprises in the sector. Notably, finances for supporting industries are limited.
Yasuzumi gave an example that small- and medium-sized enterprises (SMEs) in Vietnam take out loans with annual lending rates of 8-15% while SMEs in Japan enjoy preferential rates of 1-3% per annum. The Japanese government is also willing to share risks with its enterprises.
Speaking at the seminar, Truong Thanh Hoai, deputy head of the Department of Heavy Industry under the ministry, said the Government will issue a decree propping up supporting industries.
So these Japanese owned manufacturer need to import about 80% of materials or components. And I'm guessing these Japanese companies are relatively lower-tech than Intel. Not quite 100% component importation, but 80% is still shockingly high. Like what FairAndUnbiased said, it's been 28 years since VN started it's economic reform, and over 10 years since large foreign companies been making investment into the country. So what have their leaders being doing the last decade? we would normally expect their supporting industries to be relatively developed by now. But they are now only at the stage in drafting policy to address these supporting industry problem.
Why have foreign companies moving into VN all these years? I think FairAndUnbiased have covered the main points, but I'd like to make another two speculation of mine:
1. If a MNC also owns or control (through partnership, etc) their supporting industries, whether locally or outside the country, then they could cook up or manipulate their balance sheet in order to maximise their overall profits. I suspect, without evidence, that Samsung could be doing this. They bring along with them "partners" in the their supporting industry chain and can manipulate or dictate the "cost" of the components or materials being imported. Likewise, Intel could dictate the value of the "product" that are getting exported out of VN back to other Intel factory abroad.
2. Contrarily, some foreign companies may indeed be losing profits due to poor local supporting industries and really want to see it getting improved and developed. When first making the investment, they probably predicted that the local supporting industries will develop, but the local govt have failed them and didn't produce this expectation.