Vietnam loses former investment lustre to Thailand
11-DEC-2007 Intellasia|The Nation
Dec 11, 2007 - 7:15:00 AM
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Rising wages, high cost of finance, shortage of skilled labour, low worker efficiency, a lack of corporate culture, the spiralling cost of living and rentals, endemic official corruption at every level and a quagmire of a legal system in place purely to line officials' pockets are all factors steadily eroding Vietnam's former competitiveness edge over regional countries, in particular, Thailand.
According to Lt Cdr Preechachai Chauychoo from Thailand, a former adviser on industrial park investment in Vietnam, there five 'M' factors—money, manpower, mechanism, materials and marketing—that should be thoroughly considered by investors in Vietnam before they make commitments,
Industrial park space in HCM City today is oversupplied, making it harder for investors to get local loans. Terms are very tough while loan interest rates are quite high—around 12% per year compared to 7% in Thailand.
"The cost for infrastructure development is about 15% higher than in Thailand due to higher costs of raw materials, transport and office overhead," said Lt Cdr Preechachai. "Industrial park investment generates less profit than housing development, where developers are enjoying good sales from increasing demand."
The former adviser to Thai Hua Industrial Park in Vietnam says skilled manpower in Vietnam is also in short supply and costs are high for qualified local staff. Investors can expect to pay wages to Vietnamese that are 3.5 times higher than they pay to Thai staff.
There's also an extreme shortage of unskilled labour as the Vietnamese government is trying to attract people who had moved to Ho Chi Minh City over the past 10 years back to work in their home communities. The incentive is big-city wages for hometown jobs.
The cost of foreign employees also is 40% higher than in the past due to the higher cost of living in the city.
Lt Cdr Preechachai suggests that Thai investors bring their own staff including project engineers, sales management teams or even personnel managers as local labour productivity remains low.
"Their [Vietnamese's] efficiency is 30% lower than that of Thais," he said. "They control their own time in working. Most of them spend the free time for further study, not overtime jobs, as they want to add more value to themselves."
Some garment firms, he noted, have been unable to establish or expand business in HCM City as they need 3,000 factory staff but cannot recruit any. "The best way is to use semi-automated production rather than fully manual due to the scarcity of labour."
For an industrial park to succeed in Vietnam, he says that incentives alone are less important than an understanding of how to work with all levels of authority. "Besides location, the most important factor for any property business, utilities are another key to success as infrastructure in Vietnam is not adequate. Investors should provide and develop good utilities in an industrial park."
He suggests that investors planning an industrial park need to do a careful market survey and also make good use of public relations to attract business, as it is more valuable than advertising.
Investments in industrial zones are eligible for incentives from lower corporate income tax rates of 10-20%, instead of the regular 28%, no tariffs on profit repatriation, exemption from import duties and value-added tax if raw materials are sourced domestically.
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