Vietnam: The new China?

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It’s been more than a decade since I was last in Ho Chi Minh City.  The city then was dusty, noisy, frantic and, well, disorganized – a lot of energy but not a lot of focus.

But there are very few cities in Asia that you can return to after 10-year absence and expect things to be the same (except, perhaps, for Yangon and Colombo). Ho Chi Minh in 2010 is booming. The familiar landmarks are still there but this city is spreading – upwards and outwards.

This is what 10 years of an average annual growth of 7 percent looks like: The streets are even more clogged with motorbikes but now compete with a stream of Toyotas, Kias and Fords. The city center is clean – the dust in the air now is from building sites rather than badly-paved roads. (From my hotel room looking across the bustling Saigon River I can see perhaps 20 cranes perched on top of semi-completed high-rises.)

The brand name stores are starting to appear although still – some would say thankfully –no sign of McDonald’s.

To say Vietnam is open for business is an understatement – and this Southeast Asian growing powerhouse is deadly serious about drawing foreign business.

The World Economic Forum’s East Asia meeting chose Ho Chi Minh City (or Saigon, if you prefer) for its first event in a true emerging market. Organizers were expecting about 250 to 300 business people this week, but more than 400 came from across the world.

The government is out in force too. Prime Minister Nguyen Tan Dung is everywhere, chatting up the opportunities. He wants Vietnam to be Asia’s manufacturing base of choice after China.

It’s a tall order, and at the moment Vietnam is seen as a production base for lower value-added goods like textiles, furniture or footwear.

But times are changing. Samsung and Canon are both investing heavily in electronics manufacturing and service bases. Most of the big Asian carmakers as well as Ford are producing for the local market with an eye on exports later down the line.

I met Tom Schneider, a German businessman who has just outlaid $12 million to build a tanning factory at an industrial park on the outskirts of Ho Chi Minh City.

Forthright and ebullient, Schneider’s built eight factories in Asia in the past 16 years. In Vietnam it took him just 22 months, from finding the land, building the factory, and training the workforce – his fastest project anywhere.

He now produces 80,000 hides a month, enough for about 1.5 million pairs of shoes. Timberland is his biggest customer.

And he’s quick to point out that although tanning is “environmentally hostile” his new plant is greener than his existing plant in China, which has received a silver medal standard for environmental protection from Timberland.

So why move to Vietnam?  It’s cheaper. Labor costs are about 60 percent of China’s although senior management is still more expensive. The country is close to many of his key customers, and there’s little state intervention, as long he observes workplace and environmental standards.

And in the long run, Vietnam has key access to a vast and cheap labor pool across the borders of Cambodia and Laos.

It’s not all upside. Transport links are still – as Tom describes – at the same level as China in 1988. And the law is still open to interpretation (nearly all big foreign investors insist in any contract on having litigation settled in an offshore court).

Foreign investment is coming. In 2008 about $70 billion was committed to Vietnam, up more than threefold from five years year. It’s fallen back to $20 billion last year. Not surprising, though, given the global economic picture.

I asked the Prime Minister how he would describe Vietnam’s economic model.

Vietnam, he replied, is a socialist system embracing capitalism. Helping the poor get out of poverty through foreign investment is key to his planning, he says.

Like China, Vietnam’s government looks long-term. And like China, it appears to be achieving its economic goals.

via http://business.blogs.cnn.com/

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About indonesianurbanfamily

We are a young, Indonesian urban family who are exposed to many things in our lives. This is what we see, hear, think, feel and desire.
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