 |
| Vice Minister for Planning
and Investment Lai Quang Thuc: Determined to
integrate further. |
| Photo by Thomas Jandl |
It’s not quite a country yet, but the ASEAN
Free Trade Area, of which Vietnam is a member, offers
an almost tariff-free internal market of 500 million
consumers hungry for quality products.
While U.S. companies have a strong presence in the
Asian market, the general consensus is that they are
focusing too much on the various domestic markets
where they are active.
This pattern is visible in Vietnam as well. While
Asian investors, especially those from South Korea
and Taiwan, produce in Vietnam for re-export to the
home market and for the North American and European
as well as the SE Asian markets, American companies
focus largely on Vietnam’s growing consumer market.
That is not in line with the ideas of the government,
which sees Vietnam with its cheap, yet qualified labor
as an ideal location for export production.
Vietnam is a full member of the Association of South
East Asian Nations (ASEAN), a free-trade zone that
encompasses Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, the Philippines, Singapore, Thailand and
Vietnam with a total of half a billion consumers.
And most ASEAN markets are bigger and more liquid
than Vietnam’s, explains Professor Do Duc Dinh
of the Department for Development Economic Studies
in Hanoi.
Vietnam also works towards World Trade Organization
(WTO) membership, with a target date for full accession
of 2005. “Along with the Bilateral Trade Agreement,
WTO accession will be another signal for investors,”
says Vice Minister for Planning and Investment Lai
Quang Thuc. “Vietnam is determined to integrate
further with and open its markets to the world.”
But few U.S. companies are making use of Vietnam as
a base for (almost) tariff-free sales to ASEAN, and
most exports from Vietnam to the United States are
produced by Vietnamese, Taiwanese or South Korean
factories. This is a problem the government takes
very seriously, as it has negative impacts on downstream
industry development.
When a company produces exclusively for domestic consumption
and the domestic market is not yet very big, as in
the car market, for example, it is very difficult
for the producer to assist in the development of a
local supplier industry. Ford Vietnam’s general
director Jason Liu, for example, says it is hard to
meet the 30% local content rules, because there are
not enough Vietnamese spare parts suppliers around.
But Thuc contends that it is impossible for a supply
parts industry to emerge if the number of parts to
be produced is extremely low. Who would start a factory
for rearview mirrors if total annual sales could be
expected to be in the range of 750?
Thus, large international companies should become
incubators of such supply chains, by using spare parts
for their domestic plants, but also export them to
other plants around the world. Ford, for example,
could equip its Vietnamese production line with domestically
produced parts, and provide its other plants around
the world with low-cost, yet high-quality Vietnamese
spares.
That is feasible, says the Vice Minister of Industry,
Nguyen Xuan Chuan. He refers to a car manufacturer
that has made Vietnam a supply center and exports
spare parts to other plants around the world. “Toyota,”
says Chuan, “uses only 5% of the locally produced
spare parts domestically.” The rest is exported.
Low cost quality products
Vietnam has the potential to act as a springboard
to the ASEAN market, and with the Bilateral Trade
Agreement into North America as well.
“Over the last few years, we started to export
some of our [Vietnam-made] products to Japan, Thailand,
the Philippines and Australia,” says Vaidyanath
Swamy, Procter & Gamble’s Vietnam country
manager. “We like to manufacture in a central
area where cost is really competitive.”
With the Trans-Asian Highway, the continent is becoming
smaller, says Huynh Quang Hai, the marketing manager
for the Vietnam Singapore Industrial Park, one of
the biggest in Vietnam. The highway connects –
or will in the near future – Vietnam’s commercial
hub Ho Chi Minh City with Malaysia and Hanoi with
Kunming, China.
Hai would like to see more companies taking advantage
of these infrastructure improvements and see more
exports from Vietnam-based international manufacturers
to ASEAN as well as North America. Moreover, “the
proximity to China allows to manufacture components
for Chinese plants in Vietnam at highly competitive
rates.” |
