Skilled, cheaper labour attract FDI to Viet Nam

Saturday, Feb 01, 2014 08:18

Workers at Samsung's factory in the northern province of Bac Ninh. The South Korean company accounted of 98 per cent of Viet Nam's export of mobile phones and accessories last year, according to Le Thi Minh Thuy, head of General Statistics Office of Vietnam's Trade and Service Statistics Department. — Photo

by Lan Dung

HA NOI (Biz Hub) — Viet Nam's total export turnover of mobile phones and accessories in 2013 reached US$21.5 billion, taking the lead in the country's export items.

Figures from the General Statistics Office of Vietnam (GS) also showed that it experienced a 69.2 per cent year-on-year rise. As stated by Le Thi Minh Thuy, head of GSO's Trade and Service Statistics Department on, the sharp increase in the exports of phones and accessories was attributed to the contribution of South Korea's Samsung Electronics Viet Nam (SEV), which comprised 98 per cent of the country's export of mobile phones and accessories last year.

In 2009, SEV opened its first factory in the Yen Phong industrial zone in the northern province of Bac Ninh to manufacture mobile phones and components, with the first investment being $670 million. In 2012, the amount was raised to $1.5 billion and invested in the Samsung Complex. In the same year, the complex manufactured more than 100 million products, with 95 per cent of them being exported to international markets such as European Union countries and Russia.

Last March, Samsung started building a $2-billion mobile phone and hi-tech product plant and a $1.2-billion printed circuit board and high-density interconnection product factory in the Yen Binh industrial zone in the northern province of Thai Nguyen. According to the Ministry of Planning and Investment, the complex helped Thai Nguyen become the province that received the largest FDI capital in the country last year.

On December 12, 2013, an article on Bloomberg, the American business and financial market news website, analysed that Samsung had shifted its plants to Viet Nam due to its lower wages and to defend profit margins. However, when asked about it, Kim Yong Seok, director of Samsung's complex planning, said that labour cost is just one of factors for their decision to invest in the country.

"If we view labour cost as important, we can invest in African countries which have cheap labour and are located near Europe, our main export market. Therefore, it can be said that the major reason for constructing factories in Viet Nam is the workmanship of Vietnamese workers," Kim said.

He said that the local workers are very skilled, hard-working and can coordinate well with their hands, which is suitable for assembling mobile phones. Kim added that the cultures of Viet Nam and South Korea have a lot of similarities such as the habit of removing shoes and sandals outside before entering houses. This fits the environment of the factories which require a high level of cleanliness.

Meanwhile, Nokia entered Viet Nam last October with the inauguration of its first mobile phone factory worth more than $300 million in Bac Ninh Province. The Finnish plant will manufacture only feature phones. Speaking to the press at the inauguration ceremony, Stephen Elop, Executive Vice President, Devices and Services of Nokia Corporation, said that Nokia chose Viet Nam because of its advantages of human resources and geographic location.

The quality of local workers is also one of the reasons for South's Korea LG Electronics Inc's decision to build its factory in Trang Due industrial zone in the port city of Hai Phong in 2013. "Compared with other countries, the workers here are smarter, abler and more energetic. They are young and skilled and the labour cost is reasonable," said Ko Tae Yeon, general director of LG Electronics Vietnam.

With a total investment of $1.5 billion, it has become the largest FDI project in the city. The 10-year project is expected to become operational this September. Its main products are smart TVs, washing machines and vacuum cleaners. It also manufactures air conditioners and smartphones as well as components for its production operations.

The rising FDI inflow in Viet Nam is partly due to efforts of the Vietnamese government during these years. They offer preferential tax policies for high technology companies and enterprises investing in economic and industrial zones. Kim said that support from the government and the administration of Bac Ninh province was the basis for Samsung's decision to make on long-term investment in Viet Nam.

Ko added that the administration of Hai Phong city is very supportive. "Foreign investors like us face many difficulties in getting clearance and procedures, and Hai Phong's Committee often organises regular meetings to solve these issues," he said.

Opportunities and challenges for Viet Nam

Workers at the first factory of Nokia in Bac Ninh Province. The plant is expected to manufacture 15,000 feature phones per day. — Photo ictnews

Looking at the increasing FDI flow, it's been asked whether this is a good opportunity for Viet Nam. The country has many advantages such as young workers and stable politics which are important elements that help develop the economy. However, Viet Nam cannot take advantage of the reasonable labour costs and needs to prepare for the future.

Apart from aforementioned reasons to invest in Viet Nam, Samsung also picked the country because of its location near China. "We have to import most of the parts and components from China because there aren't any companies providing these in the country. Therefore, if its supporting industry develops in the future, I believe that there will be more big firms investing in Viet Nam," Kim said.

The reality is that the local supporting industry has not caught up with the increasing number of FDI companies. Last October, in a survey by the Japan External Trade Organisation (JETRO) of 158 Japanese companies which have invested in Viet Nam, 74.5 per cent said that they had difficulties in finding component providers.

JETRO executive vice president Daisuke Hiratsuka told Ha Noi Moi (New Ha Noi) newspaper that the localization rate of parts and components in China and Thailand was 50 to 60 per cent, while it was only 30 per cent in Viet Nam. He added that Viet Nam's labour cost was lower than that in China and Thailand, but the country depended on component imports which increased the production costs.

More than two years since the issuance of Decision No 12 of the Prime Minister on policies to develop some supporting industries, there are no bright signs of change yet.

According to economic expert Nguyen Minh Phong, two things should be done at the same time: attract investment and build the supporting industries fast. "The advantage of cheap labour lasts only a few years. If the local supporting industry companies are stagnant, it will take more than 10 years to be able to meet the demand within the country," he said.

It can be said that the supporting industry in Viet Nam will improve in the future. However, it is not easy to tell how long it will take for the local firms to dominate the domestic market. What is clear is that the increasing number of FDI investments will be a boost for its industry. — VNS

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