Vietnam is considered by many the “hottest” tiger in terms of near-term growth and buzz in manufacturing circles. Since U.S. trade sanctions were lifted in the 1990s, the economy has grown at a healthy 8-percent clip. The U.S. is now Vietnam's top trading partner. Exports have shot up as much 20 percent annually, according to data from ASEAN.
Vietnam joined the WTO within the last year. Its chief exports include textiles, footwear, and furniture. Vietnam's energy sector also is growing, with crude oil output on the rise. But there's little doubt that Vietnam will be a significant player in high-tech in the near future. In 2006, chipmaker Intel announced a $1-billion investment plan in an industrial park outside Ho Chi Minh City. That's more than the company has invested in China in the last decade.
Overall, capital investment in the manufacturing of electronics and computer products is expected to reach U.S.$3 billion in 2007, representing a big chunk of total foreign direct investment in the country.
Jabil, a St. Petersburg, Fla.-based contract manufacturer and supply chain services provider, opened a 55,000-square-foot facility in Ho Chi Minh City's Saigon Hi-Tech Park to serve Hewlett-Packard's imaging and printing business. “We are developing Vietnam as a production-for-export location,” says Bill Muir, Jabil's regional president for Asia. “Vietnam offers a globally competitive cost base, a strong workforce, and good balance to our Asia footprint.”
According to Kok Chwee Lui, VP, HP Imaging & Printing manufacturing operations, “On our own, HP probably would not be investing in an HP factory in Vietnam, but Jabil can start small and then bring in other customers. Also, Jabil can drive material costs down by pooling the spending power of its many customers, which helps us bring new supply bases or new ecosystems into the equation. If we were on our own, we would just have our own suppliers, but working with Jabil gives us the benefit of their combined supply base.”
According to a recent report from East-West Associates, a Charlotte, N.C.-based consultancy, “Vietnam is a more favored low-cost locale compared to China,” adding that Vietnamese workers make about $60 per month—i.e., less than their counterparts on the highly developed south coast of China. Plus, they work a longer work week.
In response, the Chinese government encourages investment in the less-developed Western and interior regions of China. The problem is workers in the Chinese hinterland are less skilled, and transport costs are necessarily higher. Instead, many manufacturers apply a “China plus one” strategy, whereby they open plants in a second Asian nation to complement their Chinese production.
To some degree, China is a victim of its success, while Vietnam feeds off its own. With large players like Intel and Jabil moving into Vietnam, many smaller suppliers will follow.What about infrastructure?
Of course, global manufacturers share the same concerns about Vietnam's infrastructure as they do about China's. Vietnamese commerce officials appear to have learned some lessons from China and are investing heavily in ports, power plants, and telecom systems. There are multibillion-dollar energy projects in both southern and northern provinces.
Technology will likely play a big role in solving what might be called the high cost of sourcing in low-cost countries. For instance, recognizing that fast, efficient customs processing is very attractive to exporters, the Vietnam customs bureau is working with American companies—including FedEx and Unisys Corp.—on an e-manifest project to streamline clearance at major seaports and airports.
The system allows Customs agents to screen and review cargo manifests in advance of shipment arrival. E-manifest also improves risk management and profiling. It appears that Vietnam believes stronger supply chain security, achieved through government-industry collaboration, could provide a competitive edge against China.