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Vietnam steps up its game 丨 Asia Weekly - China Daily Asia
Vietnam steps up its game
If you thought your Samsung smartphone was made in China or South Korea, think again. Chances are you might find a “made in Vietnam” label if you look closely.
From Samsung to LG, and Intel to Panasonic, tech giants have expanded manufacturing operations in Vietnam over the years.
Electronics have been the country’s No 1 export item since 2013. In the first half of this year, export turnover of telecom equipment grew by a quarter to more than $13 billion from last year.
And it is not only the big tech names that have set up shop in Vietnam.
Since 2011, more than 5,000 companies including garment manufacturers from South China’s Guangdong province have relocated to Vietnam, according to the Hong Kong General Chamber of Commerce.
Top reasons cited for relocation include cheaper work force and more tax incentives. Minimum wages in Vietnam are about two-thirds the levels in traditional manufacturing hubs such as Dongguan in Guangdong province.
More importantly, numerous free trade negotiations give the emerging economy a competitive edge.
Since mid-2013, Vietnam’s benchmark purchasing managers’ index for manufacturing has expanded every month — with readings above 50, according to data from Markit Economics.
Vietnam will be a part of any free trade agreements that will be signed in the future, according to Alberto Vettoretti, managing partner at consultancy Dezan Shira & Associates. “This is a strategic advantage Vietnam has over other countries,” he added.
Vietnam, too, is poised to benefit from the launch of a common market by the Association of Southeast Asian Nations (ASEAN) at the end of this year. The ASEAN Economic Community (AEC) aims to allow the free flow of goods, services and labor in the region.
The AEC is expected to boost regional trade in manufacturing goods while Vietnamese products can be sold cheaper with tariff reductions.
The average intra-ASEAN tariffs are virtually zero for the six older ASEAN members including Singapore. Tariffs for the newer members including Vietnam are between zero and 5 percent, and will be eliminated gradually by 2018.
But with markets opening up, Vietnam will have to compete with other ASEAN countries.
“Indonesia, Thailand and Malaysia can now sell to Vietnam as part of this agreement … but I think there will be more good than harm,” said Vettoretti.
“Vietnam is still the best option in ASEAN if you look at (factors) like labor, free trade, exchange rate and government.” He added that companies are well positioned to benefit from the “China plus one” strategy, referring to the expansion of their operations in China to a lower-cost Southeast Asian country like Vietnam.
Vietnam will soon become a party to free trade pacts with the European Union and the United States, the two largest export markets for the Southeast Asian country. Currently, half of its garment exports go to the US and about one-fourth to the EU.
Vietnam will boost garment exports to the US with the conclusion of the 12-nation Trans-Pacific Partnership (TPP). This is a proposed trade deal in which the US agrees to slash custom duties on Vietnamese goods from 17 percent to zero.
The trade pact between Vietnam and the EU signed in August is also expected to be finalized this year.
Once this agreement takes effect, the EU will open up its markets for seven years and will eliminate nearly 95 percent of tariffs on Vietnamese imports, including pharmaceutical products.
“EU agreements are coming, and if you can have the TPP as well, it’s lovely,” said Mark Sim, assistant vice-president of investment promotion at SembCorp Industries.
SembCorp is an investment holding company engaged in utilities, marine and urban development businesses worldwide and is partially controlled by the Singapore state-owned investment firm Temasek Holdings.
The company has operations in ASEAN countries including seven industrial parks in Vietnam and several others in Cambodia and Indonesia.
“Mind you, the only country that really benefits from TPP as a manufacturer is Vietnam,” Sim said, adding that other ASEAN economies do not have the necessary conditions to drive manufacturing.
DBS Bank forecasts Vietnam will overtake Singapore to become Asia’s fifth-largest electronics exporter over the next two years, having already surpassed the Philippines and Thailand.
“Malaysian politics is a bit of a tricky business just like political instability is an issue in many ASEAN countries. I would bet my future on Vietnam,” Sim said.
Vietnam and Cambodia are close competitors as the latter is vying to become a low-cost manufacturing base for foreign fashion labels.
“Electricity is unstable in Cambodia and (low) wages there will not hold very long,” Sim said.
Studies show that wages in Cambodia have risen to a level comparable with Vietnam. Minimum wages in Vietnam are between $104 and $147 per month. Cambodia raised garment workers’ monthly wages from $100 to $128 last year.
In Indonesia, substantial devaluation of the rupiah — a loss of 30 percent over the last two years — could make the country attractive to investors.
“It’s huge for manufacturing, but how can you plan for things like currency drop?” said Vettoretti of Dezan Shira & Associates.
He added that the large Muslim population in Indonesia means there is a very different way of doing business in the country.
And the fact that Indonesia is an archipelago with three time zones makes logistics difficult for manufacturers.
“You cannot possibly ship your products from Vietnam to Indonesia and redistribute to 17,000 islands, because it’s too spread out,” said Goh Puay Guan, vice-president of business development and commercial at SembCorp Development, a unit of SembCorp Industries.
“It makes more sense if you look at Indonesia as a domestic market and manufacture in Central Java.”
With experience in both markets, Goh said Vietnam is becoming more open to foreign investment than Indonesia. “You can think of it as China 10 to 20 years ago when Guangdong was hungry to lure foreign capital,” he said. “As countries become well off, regulations become tighter.”
For instance, a “made in Indonesia” smartphone law requires manufacturers that sell 4G phones in Indonesia to produce 30 percent of their devices locally by 2017.
Meanwhile, Vietnam has scrapped rules forbidding foreigners from owning more than 49 percent of a company from September, although sectors like banking are still subject to a 30 percent cap.
Vietnam also offers tax breaks to high-tech manufacturers such as Samsung — paying no tax for the first four years and half the standard rate for up to nine years.
Standard tax rate stands at 22 percent but the government plans to reduce it to 20 percent next year.
“Samsung is paying an average 6 percent of tax every year, which is not bad for its $10 billion investment in northern Vietnam,” said Vettoretti. “There are a lot of good tax incentives. You don’t have to be Samsung to get this.”
But smaller businesses are less optimistic.
Sharlyn Chen, deputy general manager at a metal supplier in southern China, is hesitant about moving the company’s production base to Vietnam to stay near its major client, Midea Group, a Chinese electrical appliance manufacturer that has opened factories in the Southeast Asian country.
“Operation cost is undoubtedly lower, but Vietnam is unfamiliar to many investors,” she said. “Infrastructure is just average; language and anti-Chinese sentiment are an issue.”
Labor strikes are not unheard of in Vietnam. An outbreak of anti-Chinese protests escalated into riots that affected some 1,000 factories last year.
But Vietnam’s manufacturing seems unaffected by the incident. Order was quickly restored and foreign manufacturers soon resumed operations. Last year, its foreign direct investment reached $15.6 billion, a rise of nearly 10 percent from 2013.
So is Vietnam going to overtake China as the world’s factory? Not quite yet.
Vietnam will be a major manufacturing hub in Asia, said Brian Wong, senior manager of the Chinese service group at Deloitte Vietnam. “Of course, China is still there, but Vietnam will be the second-largest in the region because a lot of trade will move there,” he said.
Last year, China’s electronics exports reached more than $500 billion compared to about $40 billion in Vietnam.
In other words, China is still at least 10 times bigger than Vietnam when it comes to electronics manufacturing although Vietnam is growing much faster in absolute terms.
As Vettoretti said: “China will dominate global manufacturing output in the foreseeable future, but part of it is trickling out to other ASEAN countries.
“Vietnam is just another bright spot. It will benefit most out of what is happening in China.”
***
@liubang , @Viet , @DaiViet , @Rechoice
Any chance for China-Vietnam signing an FTA (outside the CAFTA)?
Vietnam steps up its game
If you thought your Samsung smartphone was made in China or South Korea, think again. Chances are you might find a “made in Vietnam” label if you look closely.
From Samsung to LG, and Intel to Panasonic, tech giants have expanded manufacturing operations in Vietnam over the years.
Electronics have been the country’s No 1 export item since 2013. In the first half of this year, export turnover of telecom equipment grew by a quarter to more than $13 billion from last year.
And it is not only the big tech names that have set up shop in Vietnam.
Since 2011, more than 5,000 companies including garment manufacturers from South China’s Guangdong province have relocated to Vietnam, according to the Hong Kong General Chamber of Commerce.
Top reasons cited for relocation include cheaper work force and more tax incentives. Minimum wages in Vietnam are about two-thirds the levels in traditional manufacturing hubs such as Dongguan in Guangdong province.
More importantly, numerous free trade negotiations give the emerging economy a competitive edge.
Since mid-2013, Vietnam’s benchmark purchasing managers’ index for manufacturing has expanded every month — with readings above 50, according to data from Markit Economics.
Vietnam will be a part of any free trade agreements that will be signed in the future, according to Alberto Vettoretti, managing partner at consultancy Dezan Shira & Associates. “This is a strategic advantage Vietnam has over other countries,” he added.
Vietnam, too, is poised to benefit from the launch of a common market by the Association of Southeast Asian Nations (ASEAN) at the end of this year. The ASEAN Economic Community (AEC) aims to allow the free flow of goods, services and labor in the region.
The AEC is expected to boost regional trade in manufacturing goods while Vietnamese products can be sold cheaper with tariff reductions.
The average intra-ASEAN tariffs are virtually zero for the six older ASEAN members including Singapore. Tariffs for the newer members including Vietnam are between zero and 5 percent, and will be eliminated gradually by 2018.
But with markets opening up, Vietnam will have to compete with other ASEAN countries.
“Indonesia, Thailand and Malaysia can now sell to Vietnam as part of this agreement … but I think there will be more good than harm,” said Vettoretti.
“Vietnam is still the best option in ASEAN if you look at (factors) like labor, free trade, exchange rate and government.” He added that companies are well positioned to benefit from the “China plus one” strategy, referring to the expansion of their operations in China to a lower-cost Southeast Asian country like Vietnam.
Vietnam will soon become a party to free trade pacts with the European Union and the United States, the two largest export markets for the Southeast Asian country. Currently, half of its garment exports go to the US and about one-fourth to the EU.
Vietnam will boost garment exports to the US with the conclusion of the 12-nation Trans-Pacific Partnership (TPP). This is a proposed trade deal in which the US agrees to slash custom duties on Vietnamese goods from 17 percent to zero.
The trade pact between Vietnam and the EU signed in August is also expected to be finalized this year.
Once this agreement takes effect, the EU will open up its markets for seven years and will eliminate nearly 95 percent of tariffs on Vietnamese imports, including pharmaceutical products.
“EU agreements are coming, and if you can have the TPP as well, it’s lovely,” said Mark Sim, assistant vice-president of investment promotion at SembCorp Industries.
SembCorp is an investment holding company engaged in utilities, marine and urban development businesses worldwide and is partially controlled by the Singapore state-owned investment firm Temasek Holdings.
The company has operations in ASEAN countries including seven industrial parks in Vietnam and several others in Cambodia and Indonesia.
“Mind you, the only country that really benefits from TPP as a manufacturer is Vietnam,” Sim said, adding that other ASEAN economies do not have the necessary conditions to drive manufacturing.
DBS Bank forecasts Vietnam will overtake Singapore to become Asia’s fifth-largest electronics exporter over the next two years, having already surpassed the Philippines and Thailand.
“Malaysian politics is a bit of a tricky business just like political instability is an issue in many ASEAN countries. I would bet my future on Vietnam,” Sim said.
Vietnam and Cambodia are close competitors as the latter is vying to become a low-cost manufacturing base for foreign fashion labels.
“Electricity is unstable in Cambodia and (low) wages there will not hold very long,” Sim said.
Studies show that wages in Cambodia have risen to a level comparable with Vietnam. Minimum wages in Vietnam are between $104 and $147 per month. Cambodia raised garment workers’ monthly wages from $100 to $128 last year.
In Indonesia, substantial devaluation of the rupiah — a loss of 30 percent over the last two years — could make the country attractive to investors.
“It’s huge for manufacturing, but how can you plan for things like currency drop?” said Vettoretti of Dezan Shira & Associates.
He added that the large Muslim population in Indonesia means there is a very different way of doing business in the country.
And the fact that Indonesia is an archipelago with three time zones makes logistics difficult for manufacturers.
“You cannot possibly ship your products from Vietnam to Indonesia and redistribute to 17,000 islands, because it’s too spread out,” said Goh Puay Guan, vice-president of business development and commercial at SembCorp Development, a unit of SembCorp Industries.
“It makes more sense if you look at Indonesia as a domestic market and manufacture in Central Java.”
With experience in both markets, Goh said Vietnam is becoming more open to foreign investment than Indonesia. “You can think of it as China 10 to 20 years ago when Guangdong was hungry to lure foreign capital,” he said. “As countries become well off, regulations become tighter.”
For instance, a “made in Indonesia” smartphone law requires manufacturers that sell 4G phones in Indonesia to produce 30 percent of their devices locally by 2017.
Meanwhile, Vietnam has scrapped rules forbidding foreigners from owning more than 49 percent of a company from September, although sectors like banking are still subject to a 30 percent cap.
Vietnam also offers tax breaks to high-tech manufacturers such as Samsung — paying no tax for the first four years and half the standard rate for up to nine years.
Standard tax rate stands at 22 percent but the government plans to reduce it to 20 percent next year.
“Samsung is paying an average 6 percent of tax every year, which is not bad for its $10 billion investment in northern Vietnam,” said Vettoretti. “There are a lot of good tax incentives. You don’t have to be Samsung to get this.”
But smaller businesses are less optimistic.
Sharlyn Chen, deputy general manager at a metal supplier in southern China, is hesitant about moving the company’s production base to Vietnam to stay near its major client, Midea Group, a Chinese electrical appliance manufacturer that has opened factories in the Southeast Asian country.
“Operation cost is undoubtedly lower, but Vietnam is unfamiliar to many investors,” she said. “Infrastructure is just average; language and anti-Chinese sentiment are an issue.”
Labor strikes are not unheard of in Vietnam. An outbreak of anti-Chinese protests escalated into riots that affected some 1,000 factories last year.
But Vietnam’s manufacturing seems unaffected by the incident. Order was quickly restored and foreign manufacturers soon resumed operations. Last year, its foreign direct investment reached $15.6 billion, a rise of nearly 10 percent from 2013.
So is Vietnam going to overtake China as the world’s factory? Not quite yet.
Vietnam will be a major manufacturing hub in Asia, said Brian Wong, senior manager of the Chinese service group at Deloitte Vietnam. “Of course, China is still there, but Vietnam will be the second-largest in the region because a lot of trade will move there,” he said.
Last year, China’s electronics exports reached more than $500 billion compared to about $40 billion in Vietnam.
In other words, China is still at least 10 times bigger than Vietnam when it comes to electronics manufacturing although Vietnam is growing much faster in absolute terms.
As Vettoretti said: “China will dominate global manufacturing output in the foreseeable future, but part of it is trickling out to other ASEAN countries.
“Vietnam is just another bright spot. It will benefit most out of what is happening in China.”
***
@liubang , @Viet , @DaiViet , @Rechoice
Any chance for China-Vietnam signing an FTA (outside the CAFTA)?
