Major Industries in Vietnam: food processing, garments, textiles, shoes, machine-building; mining, coal, steel; cement, chemical fertilizer, glass, tires, oil, mobile phones Industrial production growth rate: 4 percent (2012 est.), country comparison to the world: 76.

GDP — composition by sector: agriculture: 21.5 percent; industry: 40.7 percent; services: 37.7 percent (2012 est.). In 2004 the contributions to GDP by sector were as follows: agriculture, 21.8 percent; industry, 40.1 percent; and services, 38.2 percent. Construction and industry accounted for 41 percent of the economy in 2006 compared to 38 percent in 2001.

As of the 1960s, there were few machines and little modern manufacturing in Vietnam. Much of Vietnamese industry was handled on a village level and cottage level. These included making mats, furniture, processed food, and parts of houses from bamboo and thatch. Mining and metalworking have traditionally been important in the north. Efforts to develop heavy industry were hampered by war and a weak economic base. Since the Doi Moi economic reforms were introduced in 1986, southern Vietnam has been the engine for Vietnam’s industrial growth. Factories in the Ho Chi Minh City area make shows, garments, electronics, cement, feather pillows, sewing machine needles and a variety of other products. State-owned industries have reformed and become efficient but they have also put thousands out of work.

Vietnam has a large food processing industry. Factories in Vietnam produce frozen fish fillets for the American market and frozen eggplant slices for the Japanese market. Vietnam is laso said to be very active in the pirated DVD and CD business.

Although industry contributed 40.1 percent of gross domestic product (GDP) in 2004, it employed only 12.9 percent of the workforce. In 2000, 22.4 percent of industrial production was attributable to non-state activities. During 1994–2004, industrial GDP grew at an average annual rate of 10.3 percent. Manufacturing contributed 20.3 percent of GDP in 2004, while employing 10.2 percent of the workforce. During 1994–2004, manufacturing GDP grew at an average annual rate of 11.2 percent. The top manufacturing sectors—food processing, cigarettes and tobacco, textiles, chemicals, and electrical goods—experienced rapid growth. Almost a third of manufacturing and retail activity is concentrated in Ho Chi Minh City. [Source: Library of Congress, 2005]

Industry in Vietnam After the Vietnam War in 1975

The pattern of Vietnamese industrial growth after reunification was initially the reverse of the record in agriculture; it showed recovery from a depressed base in the early postwar years. Recovery stopped in the late 1970s, however, when the war in Cambodia and the threat from China caused the government to redirect food, finance, and other resources to the military, a move that worsened shortages and intensified old bottlenecks. At the same time, the invasion of Cambodia cost Vietnam badly needed foreign economic support. China's attack on Vietnam in 1979 compounded industrial problems by badly damaging important industrial facilities in the North, particularly a major steel plant and an apatite mine. [Source: Library of Congress, 1987 *]

National leadership objectives during the immediate postwar period included consolidating factories and workshops in the North that had been scattered and hidden during the war to improve their chances of survival and nationalizing banks and major factories in the South to bring the financial and industrial sectors under state control. The government's continued use of wartime planning mechanisms that emphasized output targets and paid little heed to production or long term costs caused profits to erode, however, and increased the government's financial burdens. Economic reforms undertaken in 1977 gave factory management some independence in formulating production plans, arranging production resources, and containing production expenses. Such additional pragmatic steps as the adoption of incentive-structured wages and the realignment of prices better to reflect costs were also considered. This first experiment with reform was relatively short-lived, partly because it ran counter to the overriding policy of socializing the South and integrating it with the North by reducing the centralized administrative control obviously needed to do the job. Some reform measures stayed on the books, however, and were revived in the 1980s. *

Vietnamese statistics indicate that the gross value of industrial output in 1980 was not much higher than in 1976 and that the value of output per capita declined more than 8 percent. For example, cement production was relatively stagnant; it averaged 1.7 million tons annually during the Second Five-Year Plan, but only 1.4 million tons in 1985. In general, fuel production increased at more than 10 percent annually. Coal output grew from 5.2 million tons in 1975 to 6 million tons in 1978 and fell to 5.3 million tons in 1980. According to official figures, 1985 coal production remained at, or somewhat below, the 1981 level of 6 million tons. Coal accounted for about two-thirds of energy consumption in the 1980s. Coal mining remained handicapped by coordination and management problems at mining sites, incomplete rail connections to mines, equipment and materials shortages, and inadequate food and consumer goods for miners. *

Some light industry and handicrafts sectors mirrored the difficulties experienced in agriculture because they used agricultural raw materials. By 1980 the Vietnamese press was reporting that many grain, food-product, and consumer-goods processing enterprises had reduced production or ceased operations entirely. Although detailed statistics on sector performance were insufficient to show annual results, the total value of light industry output peaked in 1978; by 1980 it was nearly 3 percent lower than it had been in 1976. Increasingly severe shortages of food (particularly grain and fish) and industrial consumer goods lessened workers' incentives. *

Total industrial production during the Third Five-Year Plan reflected high levels of investment, averaging some 40 percent of total annual investment during the plan period. In 1985 the industrial sector accounted for some 32 percent of national income, up from approximately 20 percent in 1980. From 1981 through 1985, industrial growth was unevenly distributed and in many instances simply restored production levels to their 1976 levels. The highest production growth rates were recorded in the manufacture of paper products (32 percent per year), and food processing (42 percent per year). Both sectors had declined in production during the Second Five-Year Plan. Production of processed sugar increased from 271,000 tons in 1981 to 434,000 tons in 1985, almost ten times the 1975 production level. The processing of ocean fish increased from 385,000 tons in 1980 to 550,000 tons in 1985, not quite reaching 1976 and 1977 levels, but clearly reversing the steady decline this sector had experienced in the late 1970s. (The decline had been generated in part by the use of fishing boats in the South as escape craft to flee the communist regime.) Other light industries grew at annual rates of 10 percent or more during the early 1980s, which essentially restored production to 1975 or 1976 levels. Brick production increased steadily to 3.7 billion bricks in 1985, after regular declines during the previous plan. Production of glass reached 41,000 tons in 1985, exceeding 1975 levels for the first time. Paper production in 1985 again reached the 1976 level of 75,000 tons, up from 42,000 tons at the beginning of the plan in 1981; and the textile subsector exhibited an 8-percent average annual growth rate during the plan period as cloth production more than doubled to 380 million square meters in 1985. *

Heavy Industry in Vietnam After the Vietnam War in 1975

Among heavy industries, machine-building and chemical industries (including rubber) registered annual average production gains of approximately 25 percent between 1975 and 1985. Chemical fertilizer production continued to exceed the 1975 level and, in 1985, reached 516,000 tons despite relatively underdeveloped mining and enrichment processes for apatite and pyrite ore and underutilization of the Lam Thao Superphosphate of Lime plant (Vinh Phu Province). Pesticide production also maintained a decade-long growth trend to reach 11.74 billion tons in 1985. [Source: Library of Congress *]

Fragmentary figures for iron and chromium ore production were discouraging and suggested a continuation of the decline from 1975 levels. Ferrous and non-ferrous metallurgical production actually declined overall, reflecting exhausted and obsolescent plants, low investment rates, and probably dwindling supplies of scrap left from the end of the Second Indochina War. Modest gains were reported annually in steel production, which reached 57,000 tons in 1985. *

Electric power production, although handicapped by uncompleted projects and shortages of oil and spare parts, grew at an average of 8 percent per year. Vietnamese statistics on the annual output of primary products showed that production of electricity increased by almost 60 percent to nearly 3.8 billion kilowatt hours from 1976 through 1978, then declined to around 3.7 billion kilowatt hours in 1980. By 1985, however, production of electricity had increased to 5.4 billion kilowatt hours. Energy-producing industries generally remained stagnant, however, which caused tremendous difficulties for the other sectors of the economy. Power output grew very slowly, and power shortages forced many factories to operate at only 45 to 50 percent of capacity. The government planned that in the 1980s energy production would be tripled by the completion of three big Soviet-assisted projects: the 500-megawatt thermal plant at Pha Lai, Hai Hung Province; the 300-megawatt hydroelectric plant at Tri An, Dong Nai Province, and the giant, 1,900-megawatt hydroelectric plant at Hoa Binh, Ha Son Binh Province, which has been called the "Asian Aswan Dam."

Good and Bad Points on Basing Industry in Vietnam

Tomoko Hatakeyama wrote in Yomiuri Shimbun, The expansion of Japanese manufacturing companies “into Vietnam to establish new production bases has continued to accelerate due to several attractive features, including the Southeast Asian country's proximity to Japan and promising market prospects. However, some problems, such as rises in consumer prices and labor costs, are beginning to surface, and may impede Japanese firms' direct capital investment in the country. I recently visited Long Hau Industrial Park in southern Vietnam, about a 40-minute drive from Ho Chi Minh City. The complex was abuzz with activity, with a large number of young Vietnamese workers and Japanese company executives on inspection tours of factories. The industrial complex, covering an area of about 252 hectares, is home to about 70 companies, including several Japanese firms. [Source: Tomoko Hatakeyama, Yomiuri Shimbun, March 7, 2012 ]

“At one of the factories, operated by Kawachi Kinzoku Seisakusho Co., a precision machining firm based in Hirakata, Osaka Prefecture, the mainly Vietnamese workers, most in their early 20s, were busy at metalworking machines. As the firm's Executive Vice President Kotaro Oka approached them, they were eager to ask him questions in Japanese, using technical terminology.

“In terms of direct capital infusion, Vietnam is attractive in two key respects: its geographical proximity to Japan, and its abundance of competent, cheap labor. The Vietnamese government issued a record-high 208 direct capital investment certificates to Japanese firms in 2011, up 80 percent from 2010, according to the Japan External Trade Organization. The rise was seen largely as a result of the yen's historic appreciation, rising labor costs in China and the floods in Thailand. These factors adversely impacted the investment climate in many parts of Asia, prompting Japanese companies to open new production bases in other countries. The number of small and midsize Japanese factories in Vietnam has also been on the rise, according to JETRO.

“Major trading house Sumitomo Corp. recently built an "apartment factory" with 500 square meters of floor space to be rented to Japanese manufacturers in Thang Long Industrial Park in northern Vietnam. Having earned a good reputation for enabling Japanese firms to branch out into the country at low costs, Sumitomo Corp. has been constructing additional plants to be rented out to small and midsize firms in the industrial complex.

“Major Japanese firms also have their eyes set on Vietnam's potential as their future markets. For instance, Nippon Steel Corp. began operating its factory in southern Vietnam in May 2011 for the production of steel piping that is used in the foundation of large structures such as bridges and harbors. The investment reflects the company's expectation of a rise in demand for infrastructure construction in Vietnam in the future, Nippon Steel said.

“Another major Japanese company, House Foods Corp., set up a branch in Vietnam in January, hoping to market retort-packaged food there starting next year. A House Foods official said: "In many ways, Vietnam resembles Japan during the period of rapid economic growth. We're confident that Vietnamese demand for our products will increase."

However, the country lacks parts manufacturers and other supporting industries required by major firms, forcing them to depend on imports for procuring parts and raw materials. As a result, many Japanese manufacturers that have built their plants in Vietnam say their production costs there are still higher than those in China. In addition, prices and employee wages have begun rapidly rising in Vietnam. A JETRO official cautioned firms seeking to establish manufacturing bases there, saying, "Although Vietnam is a suitable place for Japanese firms to diversify their investment risks, it is still risky for them to locate their major production bases in Vietnam." Under such circumstances, Vietnam's neighboring countries, such as Myanmar, have become increasingly competitive in the race to attract factories.

Vietnamese Industry, China and Japan

The flood of cheap produce such as motorcycles and clothes from China has hurt domestic Vietnamese industries that produce the same products and driven many Vietnamese factories out of business. But as labor cost go up and Chinese-made goods become increasingly expensive, Vietnamese manufacturers an opportunity to win a bigger share in their largest export market.

In 2005, Peter S. Goodman wrote in the Washington Post, “Foreign multinationals with factories in the Pearl and Yangtze river deltas — China's principal manufacturing zones — are increasingly exploring Vietnam and other areas of Southeast Asia as alternatives to expanding in the Middle Kingdom. This is particularly so for Japanese firms, which fear the consequences of diplomatic sparring and street protests over Japan's perceived unwillingness to take responsibility for wartime atrocities.”[Source: Peter S. Goodman, Washington Post, December 6, 2005 ***]

After China, Vietnam the Next World Factory ?

Andy Mukherjee of Bloomberg wrote: “After China, Vietnam is emerging as the world's next factory of choice for labor-intensive goods. One can see that in the changing composition of the country's exports. Rice and coffee — two of Vietnam's biggest agricultural exports — are now becoming less significant to the US$61 billion economy than textiles. Footwear shipments are gaining prominence over seafood. The other fast-growing export industry is furniture. Exports of wood-based products have grown 24 percent from last year to more than US$2 billion. [Source: Andy Mukherjee, Bloomberg, December 8, 2007]

James Koh, a Singapore businessman, makes dining tables and chairs in Vietnam for customers around the world, including Williams-Sonoma Inc.'s Pottery Barn stores in the U.S. Koda Ltd., of which Koh is the managing director, also has factories in Malaysia and China. Yet, it's Vietnam's lower costs that are prompting the company to expand capacity here by 25 percent. "The labor cost in Vietnam is half that of China, while worker productivity is about the same," says Koh.

The biggest draw of the country is clearly its labor. The median age in Vietnam is 25 years. The workforce isn't just young, but also literate and healthy: The proportion of people who are undernourished has been cut in half over the past three decades. The risk for Vietnam is inflation. In the short run, Vietnam must stand ready to sacrifice some economic growth to halt the increase in prices, especially of construction material. If left unchecked, inflation will become a drag on Vietnam's competitiveness even if the central bank doesn't allow the dong's nominal exchange rate to appreciate.

For now, the Vietnamese producer is the bigger opportunity. There is, however, no room for complacency. Cheap labor makes it relatively easy for a country to enter the global supply chain, but it has to work hard to stay in. Especially now, when a seemingly simple task like attaching four legs to a rectangular piece of American poplar wood and shipping it back to the U.S. has become too complex to undertake without overseas capital and expertise.

First, there is a minimum investment in technology without which large orders from retailers are impossible to win. Each of the Taiwanese-built assembly lines that Koda is installing in its new Vietnam factory costs US$300,000. Second, buyers in Europe are demanding more exacting environmental standards from their vendors, such as minimum use of packaging material, Koh says. Americans, meanwhile, are getting fussy about making all shipments terror-proof. Most importantly, no retail store — European or American — wants a sweatshop scandal at any of its suppliers' units. Like most developing countries, Vietnam is dogged by corruption and red tape. It must strive to improve its record now that it's getting the investments it needs for the workers to graduate from motorcycles today to cars in the future.

China-Based Factories Head to Vietnam

In 2005, Peter S. Goodman wrote in the Washington Post, “Before he left his native China two years ago, Li Shaoxing was losing money at his plastic-bag factory in the center of the country. Though his homeland had become synonymous with plentiful cheap labor and limitless manufacturing spoils, he was grappling with rising wages, energy shortages and flat prices for his goods. So, much as capitalists have always done, Li went looking for an easier place to profit. He ventured south of the border, putting up a factory here in a new industrial park in northern Vietnam, where wages are roughly one-third cheaper than at home and where workplace safety and environmental standards are in scant evidence. "The competition in China is intense, and the investment in Vietnam made sense," Li said, sitting in his air-conditioned, glass-fronted office, as 500 workers toiled in an adjacent factory bay amid the clatter of machinery and the smell of melting plastic. "In this area, workers have a hard time finding jobs. They are happy for any work, and they are willing to eat a lot of bitterness."[Source: Peter S. Goodman, Washington Post, December 6, 2005 ***]

“China's modern-day capitalists are increasingly focused on wringing profit from Southeast Asia. They are tapping new markets for sales and farming out work to people willing to labor for less than at home and in even tougher conditions. In a global economy driven by the pursuit of lower costs and fatter profit — a drive that has led so many multinationals to low-wage China — Southeast Asia is emerging as China's own version of China. "It's a bit like the United States and Mexico," said Deng Weiwen, general manager of TCL (Vietnam) Corp., the local arm of the giant Chinese television maker, which established a factory outside Ho Chi Minh City in 1999. "China and Vietnam complement each other." ***

“In Vietnam, Chinese entrepreneurs have found a country — much like their own — in the midst of a wrenching transition from communism toward an economy governed by market forces. Chinese investors are already accustomed to doing business in a place where personal relationships and access to power often trump the law. "We have no problem understanding that bribes have to be paid to get things done," said Zou Qinghai, a textile entrepreneur who heads the chamber of commerce for the Chinese province of Zhejiang in Hanoi. "Vietnam's way of developing is simply a copy of China's." ***

“Among Chinese companies in Vietnam, many have focused on locking up natural resources and energy. Chinese manufacturers are now expanding into Vietnam, in part to lock up shares of the Southeast Asian market ahead of the creation of a planned free-trade agreement with China. Some investment is propelled by stricter enforcement of environmental standards in some areas of China. According to entrepreneurs in China who spoke on condition of anonymity for fear of angering government officials, leaders in coastal areas have been encouraging pollution-intensive industries such as plastics, steel and electronics to consider relocating to Southeast Asia. ***

While few would describe China as a beacon of labor safety or high wages, Chinese investors acknowledged in interviews that Vietnam beckons as an even cheaper, less regulated place to run a factory. "Here, the workers can really accept hardship," said Qing Song, deputy general manager at Lifan Vietnam, a motorcycle factory opened outside Hanoi by a Chinese company. "Whatever requirements you set out for them in a day, they meet." At the factory on a recent afternoon, men uncoiled sheaths of aluminum without protective gloves, while others operated heavy machinery without goggles or earplugs. The work went on beneath corrugated aluminum ceilings in poorly ventilated structures. Men in flip-flops used a donkey cart to move bricks to a construction site.

Chinese Set Up Industries in Vietnam

Peter S. Goodman wrote in the Washington Post, For Li Shaoxing, “Vietnam has offered refuge from the brutal competition of Chinese business. Born and raised in Wenzhou, he launched his plastic-bag factory in Henan province in 1992 as a joint venture with a local cement maker. They supplied animal feed and fertilizer companies with plastic sacks. In the first years, wages in impoverished Henan ran as little as $12 per month. But as China has boomed and factories proliferated, wages climbed, reaching about $72 at the Henan factory. At the same time, China's appetite for energy has exceeded its generation capacity, forcing factories such as Li's to shut down during key hours.” A flood of cheap bank credit has nurtured many competing factories, keeping prices down and eroding profits. Today, Li's Henan factory sells bags for roughly the same price as five years ago even while the costs of plastic and energy have increased by nearly one-fifth. "Now," said Li, "we can't make any money." [Source: Peter S. Goodman, Washington Post, December 6, 2005 ***]

“In November 2002, Li took a vacation to Hanoi. As he walked tree-lined streets navigated by bicycle rickshaws, past fading French colonial villas and peddlers selling bowls of noodles, he might have been in his own country a decade earlier. At home, there was too much competition. Here was a frontier of opportunity. "I just had this feeling that I had to go out of the country and invest," he said. "It just seemed interesting and exciting." The following month, he returned to Hanoi — this time to look for a new factory site. Over the next several weeks, he and a translator rode all over northern Vietnam, meeting with the local governments that controlled land. He examined local market conditions, determining that — unlike at home — he could compete. "I used a means of deception," Li said, smiling. "I would visit other bag factories and pretend to be a customer and then ask for their prices," he said. ***

“By January 2003, Li had settled on a new industrial park an hour's drive north of Hanoi. It was an undeveloped area of rice paddies, but it sat on the Friendship Highway connecting Vietnam to southern China, making it easy for Li to bring in Chinese technicians to construct and operate the factory. He settled on a 50-year lease with the local government, which seemed pleased when he told them he would have jobs for 500 workers. The local minimum wage was $30 a month. Still, Li needed approval from the Chinese government, which regulates capital leaving the country. By March 2003, less than six months after his first visit, he had the formal blessing to transfer $1.5 million to Vietnam to launch the factory. By May, construction had begun. "I knew if I was going to act, I had to act fast," Li said. "I couldn't be considering the pros and cons." ***

“These days, Li dons a blue suit as he crisscrosses Vietnam in search of customers, mostly state-owned animal feed factories. It is a new country, but so much is familiar — the contractor who used shoddy materials in building the factory, the "special fees" and "expediting charges" that he hands customs agents at the port. "We Wenzhou people are used to that," he said. "In fact, it works for us. It's really convenient. A lot of things work quicker." Li brings in materials from China to keep costs low. He lives in a factory dormitory room shared with another Chinese manager. He speaks no Vietnamese. He plays poker with the other Chinese managers and sometimes watches Chinese television via satellite. Mostly, he works. "I'm not here to feel comfortable," he said. "I'm here to make money." ***

Food Processing Industry in Vietnam

Vietnam has a large food processing industry. Factories in Vietnam produce frozen fish fillets for the American market and frozen eggplant slices for the Japanese market. According to “Vietnam‘s food processing industry has expanded rapidly over the last few years, together with the growth of the retail sector. Post believes the overall food processing industry has enjoyed an average growth rate of over 10 percent per year. With more transparent regulations and less burdensome paperwork, the Government of Vietnam has successfully attracted not only foreign investors but also local investors into Vietnam‘s food processing industry. Vietnam has also tried to protect local food manufacturers by imposing high import tariffs (from 20 percent to 40 percent) on selected food imports that compete with locally produced products (confectionery, snack foods, juices, ice cream etc.). [Source: ]

Dairy products (UHT milk, milk powder, ice cream, yoghurt etc.), canned foods (meat, seafood, fruits and vegetable), bakery products, snack foods (potato chips, dried fruits, and wheat-based snacks), juices, confectionery (biscuits, cookies, candy, chocolate etc.) and hot sauces are all produced locally with acceptable quality. Consumer-oriented food products "produced" in Vietnam still rely on imported food ingredients and additives. Most large local manufacturers have good manufacturing practice certificates or the equivalent.

U.S. food ingredients with the best prospects include dairy products (milk powder, whey and lactose for bakeries, dairy and confectionary manufacturing), seafood (for further processing and re-exports), meat (pork and chicken meat for meat processing), turkey MDM (for sausages), lysine (for meat processing), dehydrated potato powder (for snack foods), dried fruits and nuts (for bakeries), concentrated juices (for juice manufacturing), sweetening and flavorings. reported: “With increasing urbanization and growing demand for quality food, the food processing industry is growing at rapid pace throughout the world. Vietnam is becoming a hub for food products processing as the industry has been growing at an annual rate of 20-30 percent. Changing consumption habits are making the processed food a big piece of cake for everyone in the country. Vietnamese now use more processed or preliminarily treated food to make meals, which is seen as a big opportunity for food processors. [Source: \\]

We have found that the food processing industry in Vietnam is highly fragmented but it will consolidate, with further opening of the market, and will provide more growth opportunities to foreign companies. The availability of processed and packaged foods will improve as modern food-retailing businesses expand their operations to meet rising demand from more affluent consumers. In order to exploit the opportunities, many processed food producers have already started focusing on making processed food for domestic sales instead of making food for export as previously. Meanwhile, distributors are now racing to conquer the market. \\

Our findings also reveal that despite the fast growing domestic demand, the processed food industry in the country is still largely export-oriented and primarily dominated by seafood and agriculture food products. Seafood export is mainly dominated by shrimps but overseas demand for Tuna and Tra fish has also soared significantly in recent years. In future, we expect that Tuna and Tra fish together will account for majority of the seafood exports. In the agriculture segment, rice and coffee constitute the majority of exports. \\

Unilever’s Effort to Break Into Vietnam’s Fermented Fish Sauce Market

In 2002, Margot Cohen wrote in the Far Eastern Economic Review, "Unilever sniffs money to be made in marketing traditional Vietnamese fish sauce. But first it must allay fears that it will monopolize a national treasure. After building its reputation on fragrant shampoos, facial creams and detergents, Unilever is turning to a more pungent product. Main ingredients: decomposed anchovies and lots of salt. That might not appeal to everyone, but for culinary fans of the Vietnamese fish sauce known as nuoc mam the taste is unbeatable. [Source: Margot Cohen, Far Eastern Economic Review, September 26, 2002 ***]

"To triumph over other brands, the Anglo-Dutch giant didn't just reach for any old fish sauce. It extended its mighty hand to the southern island of Phu Quoc where generations of small producers have fermented Vietnam's most famous nuoc mam. In February, Unilever struck a deal with some of these traditional artisans to bottle and label their special sauce under its Knorr brand. After opening a new bottling factory on the island in late October, Unilever will launch TV ads that urge consumers to "Experience the Legend." ***

"But like most legends, Phu Quoc fish sauce has engendered its own share of battles. While Unilever has teamed up with some local producers and negotiated carefully with government officials, some proud veterans of the trade fear that this foreign firm will end up monopolizing what they view as a national treasure — or alter their traditional product to suit Western tastes. Such fears have prompted some feisty opposition in the local press and angry letters to Hanoi officials. Yet Unilever and its local supporters maintain that the venture will enhance islanders' prosperity, with the firm using its proven skills in marketing and distribution to make Phu Quoc fish sauce more popular than ever. ***

"The very novelty of the Unilever venture helps to explain some of the friction. It's a test of whether a foreign firm can successfully market another nation's product that is already certified with an appellation of origin — the status assigned to a product that comes from a specific geographical area and is manufactured in a unique way. (Think France's champagne wines and Italy's Parma ham.) In June last year, the Phu Quoc producers obtained this coveted status from the French issuing authority, the Institut National des Appellations d'Origine, and local authorities. In theory, this could help ward off counterfeiters. The Phu Quoc producers use anchovies exclusively fished in the waters surrounding the island, then soak the fish for more than a year in a particular kind of wooden barrel. They keep careful watch over the color, the flavor and the protein content of their sauce. The concoction is then transported in jerrycans to be bottled on the mainland. Over the years, however, island producers have grown alarmed at the numerous bottles popping up with fishy labels and even more dubious contents. Mindful of the island's fame, shady manufacturers from other Vietnamese regions and other countries have been flogging other varieties of fish sauce under the Phu Quoc name. ***

"In practice, however, Hanoi has found it tough to crack down on fakes. That's one reason why Unilever has stepped in, through its subsidiary Bestfoods. Having quashed counterfeit goods in other markets through its commercial clout and legal minions, the Unilever team brims with confidence. "The people of Phu Quoc want to make sure that the consumer can trust whatever they are buying. We believe we can help deliver that promise to the consumer," says Mick Van Ettinger, general manager for Bestfoods in Vietnam. ***

"Building trust among the island's 80 fish-sauce producers was the first step. The Unilever team began scoping out the territory more than two years ago, meeting repeatedly with the island's grizzled tastemakers and trying to overcome local suspicions that meddlesome outsiders were bent on stealing secrets. Finally, they struck a deal with a newly-formed company called Quoc Duong, comprising 17 local producers. Under the agreement, Unilever pledged an advance payment of 12.7 billion dong ($833,000) to Quoc Duong for investment in a bottling plant built on the island and run according to international hygiene standards. "If we bottle our product in Phu Quoc, we can guarantee the quality as well as the flavor." explains Nguyen Thi Tinh, who is Quoc Duong's director and chairwoman of the Phu Quoc fish-sauce producers' association. Quoc Duong will supply the ingredients to the plant and supervise bottling. Meanwhile, Unilever — armed with the country's largest advertising budget and an elaborate distribution network penetrating remote villages through motorcycle and houseboat delivery — will handle advertising, marketing and distribution. Unilever Vietnam posted revenues of $250 million last year from its portfolio of detergent, cosmetic and food items. ***

"Labelling required another round of negotiation with government officials. Vietnam's National Office of Industrial Property made it clear that it would not approve any label that featured the name Phu Quoc on the same line as Knorr, the brand backed by Bestfoods. "You cannot treat the brand as if the brand is the appellation of origin," explains French embassy commercial counsellor Christian Saillard, who has been coaching local fish-sauce producers since 1999. "If you say that, it means that if you want Phu Quoc Nuoc Mam, it has to be Knorr. And that is not allowed." ***

"So Unilever will emblazon its label with the name Phu Quoc Fish Sauce, printing the Knorr brand in modest letters below. "Knorr is so small you probably need binoculars to see it on the label," says Unilever Vietnam chairman Michel Dallemagne. Still, the idea of linking a foreign brand to a beloved local product continues to disturb some Phu Quoc veterans. The same passion that drove them to obtain the appellation of origin is now compelling them to remain wary of the partnership. "We have built the name of our product for many years," says Dang Van Thoi, owner of Hung Thanh fish sauce. "They cannot come and stick the name of Phu Quoc to Knorr. I am very sad about this. Because they have dollars, they think they can do whatever they want." ***

"To soften such criticism, Unilever has thrown in a few sweeteners. The company plans to help islanders build a museum dedicated to Phu Quoc and its fish sauce. It also plans to bring in environmental scientists to study the life cycle of anchovies, to help ensure sustainable development of fish-sauce production. And it has sought to allay fears that it would alter Phu Quoc fish sauce to suit Western tastes. Dallemagne says that domestic shoppers are the primary target, though the large overseas Vietnamese communities in the United States, France and Australia could eventually provide a base for a lucrative export market. "We will not change anything about this product," insists Van Ettinger. ***

"Although Unilever has promised not to purchase all of the island's available fish sauce, the new bottling factory can process 20 million litres annually. Producers remain free to sell to their usual wholesalers, at a market price equivalent to what Unilever will pay. But the real question is whether the Knorr bottles will eventually corner the market with a special sticker indicating that the European Commission recognizes the sauce was processed under controlled conditions. ***

"None of the producers has reached this stage yet. First, they must prove to European authorities that they have set up a strict control system that monitors the amount and the origin of the anchovies, documents processing techniques and ingredients, oversees bottling and includes regular auditing. For most of these mom-and- pop producers, who are used to operating independently, and somewhat haphazardly, the task is enormous. Most observers agree that it will be easier to set up a control system on the island, rather than the mainland. And so far, Quoc Duong is the only company with a bottling factory on Phu Quoc, thanks to Unilever. The special stickers would allow Unilever to charge a higher premium for its Knorr fish sauce, and pass on some of the additional earnings to its suppliers in Quoc Duong — and also help in fighting counterfeits. Despite the difficulties, Unilever remains optimistic. "Out of 50 launches and re-launches in this country, we have only failed once or twice," says Dallemagne. With the nuoc mam heading for shelves in November, market analysts will be watching to see whether sales measure up to the legend. ***

Problems for Proctor & Gamble in Vietnam in the 1990s

Reporting from Ho Chi Minh City, Faith Keenan wrote in the Far Eastern Economic Review, "Imagine mold in your shampoo. Or a feather. These mishaps — known as "quality incidents" in corporatespeak — are a nightmare for consumer-products companies. If an entire batch of shampoo becomes contaminated by bacteria, it could mean disaster for a brand name and the waste of millions of dollars spent to develop it. No wonder, then, that American multinational Procter & Gamble tore down the new warehouses that its Vietnamese partner, Phuong Dong Soap & Detergent, contributed to their soap-products venture when it was formed in 1994. "They weren't the right size and not properly sealed; dirt and birds would get in," says Alan Hed, managing director of Procter & Gamble Vietnam. "You don't want feathers in your shampoo." [Source: Faith Keenan, Far Eastern Economic Review, December 18, 1997 /|]

"Writing off the buildings and erecting new, airtight ones with epoxy floors to guard against bacteria meant unexpected costs for the joint venture. But the demolition wasn't the only thing that may have unsettled the Vietnamese partner, a local soap company with links to the Ministry of Industry's Vietnam National Chemical Corp., or Vinachem. Spending on advertising, promotions and expatriate employees exceeded the estimates of a feasibility study, and the venture, which sells mostly to the Vietnamese market, failed to make money within the three years the partners had predicted. /|\

"The project's Vietnamese partners question why spending has gone far beyond what was estimated in P&G's feasibility study. The American firm replies that a feasibility study is just that — a best guess — and that business circumstances often will cause a firm to stray from its plans. The problem is that Vietnamese law is ambiguous as to whether a company must strictly honour the terms of such a study, according to lawyers uninvolved in the project. "Traditionally, companies are not held to specifics," says a foreign attorney in Ho Chi Minh City. "But major items, like capital amounts and staffing, shouldn't vary significantly without informing the Ministry of Planning and Investment." /|\

"In the case of the soap venture, there were numerous areas in which reality diverged far from expectations. P&G originally said it intended to have five expatriates on staff, but as the project progressed, it ended up employing 5-20. One executive outside the company estimates the cost for each person at about $250,000, including benefits like education and home leave. Multiply that by 15 people over three years and that comes out to more than $11 million, or 39 percent of the venture's losses. (Hed declined to comment on expat salaries.) /|\

"The joint venture had also spent more than $7 million on advertising by September this year, research group Nielsen SRG Vietnam estimates. The early study called for it to spend 5 percent of its sales on ads, but the amount is actually 31 percent due to lower-than-expected sales. Neither side will comment on how far sales have fallen below projections. Local press reports have accused the venture of spending lavishly on consulting work ($1 million) and conferences and travel ($1.2 million). And Hed describes other areas where understanding is lacking: Machines with a book value of $50,000, he says, have actually ended up costing $200,000 because of the training and maintenance required to keep them running. " /|\

Perhaps the biggest question surrounding P&G's Vietnam venture is how a company with so much experience in emerging markets could have been so wrong about the prospects. P&G based its original sales estimates on the assumption that Vietnam's per-capita consumption of shampoo and soap products would be similar to that in the rest of the region. It's not. Vietnamese consumption of laundry detergent, for example,is just 20 percent of that in the Philippines.

Vietnamese Cottage Industries

"Vietnamese activities" included as mushroom cultivating, incense making, silk manufacturing, sugar refinery, silkworm breeding, and rice-cracker and rice-wine producing, small-scale food processing, charcoal making, and handicraft (furniture, lacquerware, pottery, silk, baskets). Many people own sewing machines. Women in Cam Ranh Bay produce salt in evaporated salt pans.

Many villages are famous for producing a particular craft such a lacquerware boxes, mother-of-pearl inlaid furniture, broom or conical hats. In recent years some of these crafts have industrialized and have grown large enough to produce products for the export market.

Mushrooms are cultivated in dark thatched wooden houses. The mushrooms are grown on hundreds of sausage-like objects hung from a bamboo trellises. The objects are filled with mushroom spores, sawdust and powder. The mushroom are watered three times a day and they mature after about a month. It is not unusual for a family to make $2,000—a huge amount of money in Vietnam—growing mushrooms.

Buddhist nuns-in-training make around 10,000 incense sticks a day working at easel-like desks at a building near a temple pagoda. Carol Lufty wrote in the New York Times, "The women, all in their 20s and exceedingly friendly...wrap a sawdust-and -tapioca flour mixture around pink sticks and roll them in yellow powder. These are then dried along the roadside before they are sold to the public."

Silk, see Crafts

Garment and Textile Industry in Vietnam

In 2004 garment and textile exports were valued at $4.5 billion— second only to oil and gas— and about $2.7 billion worth of these products went to the United States. Clothing and textiles as a share of the country’s exports in 2002: 18.5 percent, 17th in the world. Value of clothing and textiles exports in 2002: $3.1 billion, 24th in the world. [Source: WTO and OECD]

Vietnam is one of the few countries that can compete with China in the textile market after the dropping of the WTO global textile quota system in January 2005. Until Vietnam became a WTO member in 2007, it had to operate under a special quota agreement with the United States that limited exports. The restrictions effectively made Vietnam less competitive. A separate global textile quota system that had helped level the playing field among apparel-producing countries expired in December 2004. for WTO members. After the quotas expired Vietnam has had to contend not only with China, but also with other developing countries, such as Indonesia, Bangladesh and the Philippines.

In 2007, David J. Lynch wrote in USA Today, “Vietnam's biggest success has been in the garment industry, which draws sizable orders from U.S. importers looking to avoid complete dependence on low-cost Chinese factories. From January to September 2007, Vietnam exported to the USA $3.27 billion in textile and apparel products. That represented a 27 percent increase over the same period in 2006 and ranked Vietnam behind only China and Mexico as a supplier of Americans' clothing. With temporary limits on Chinese apparel exports to the USA, Vietnam was expected to post even greater increases. But special U.S. monitoring of the country's garments exports, a measure designed to win congressional approval of Vietnam's WTO application, is having a chilling effect on Vietnam's apparel exports. Some retailers have shied from placing new orders here out of concern that the monitoring could evolve into formal tariffs. [Source: David J. Lynch, USA Today, December 4, 2007 /=/]

“At the Garco 10 factory in Hanoi, workers toiling at sewing machines and presses produce 12 million shirts, pants and suits each year. About 45 percent of that is exported to the USA to be sold as Van Heusen (PVH), Perry Ellis (PERY) and Tommy Hilfiger products in J.C. Penney (JCP), Kmart (SHLD) and Gap (GPS) stores. Factory boss Nguyen Thi Thanh Huyen, a veteran of 24 years in the apparel trade, frets over pressure from low-cost Chinese rivals and steadily rising costs. Wages are up — workers now make $120 to $150 monthly — plus oil, steel and other inputs are pricier. The falling U.S. dollar also is pinching her profits, as the factory's goods are priced in the American currency. The company, boasting $90 million in annual sales, is a good example of the market-oriented changes remaking Vietnam's economy. Once entirely state-owned, Garco 10 is now a joint stock company with ownership split between a 51 percent state share and 49 percent held by workers. Nguyen says the garment maker is registered for an eventual listing on the stock exchange named for former president Ho Chi Minh. /=/

“Managers still treasure the memory of the day in January 1959 when Ho visited. But the cozy operating style of a state-owned enterprise is long gone. Managers have had to learn new ways of operating, balancing costs and profits with an eye toward the iron logic of a global marketplace. Says Nguyen: "Now, the rules have changed. … (But) we can compete with any company, any country, in the world." /=/

Vietnam is trying to build a cotton industry, but that is years away, officials said. For now, it takes an average of 15 days to import material or to have clients ship it. [Source: Ellen Nakashima, Washington Post, March 9, 2005]

Impact of WTO Membership on the Textile Industry in Vietnam

Joining the WTO freed Vietnam from textile quotas enacted worldwide as part of the Multifiber Arrangement (MFA) of 1974. The MFA placed restrictions on the import by industrialized countries of textiles from developing countries. For China and other WTO members, however, textile quotas under the MFA expired at the end of 2004, as agreed in the Uruguay Round of trade negotiations in 1994. Partially as a result, Vietnam’s textile exports stagnated in 2005.

Alan Sipress wrote in the Washington Post, “Executives in Vietnam's textile and apparel industry are especially upbeat about the WTO prospect because membership would eliminate quotas on the amounts they can ship to the United States. Vietnam has been one of the few countries that faced these restrictions after the WTO eliminated a worldwide quota system a year ago. Trade officials in Hanoi estimate that Vietnam now accounts for only 3.2 percent of U.S. imports of garments and textiles. WTO membership could also come at some cost to this industry because the government is undertaking to cut subsidies, including preferential loans for investment and certain trade promotion activities. Binh said her company is large enough to succeed without this support, adding that she is more worried about finding enough imported cloth to meet the projected growth in production.” [Source: Alan Sipress, Washington Post, July 15, 2006 ==]

“Hanoi Textile and Garment, known as Hanosimex, has recently installed new machinery in its spinning and knitting factories and begun retraining its sales staff. It is predicting sharp increases in exports. Already, slightly more than half of what the company produces is shipped abroad, with nearly two-thirds of the exports bound for the United States. Nguyen Thanh Binh joined Hanosimex 24 years ago, rising to become its managing director. Along the way, this state-owned company — with its campus of two-story, ochre-facade factories tucked in the back streets of the Vietnamese capital — expanded into an enterprise of 6,000 workers with an annual turnover of $80 million. Now, she and her fellow managers must relearn their business. ==

“The company has traditionally had little direct contact with buyers in the United States, Japan and Europe, even as exports came to dominate production. Instead, the firm was required by the government to turn to lumbering state-owned trading companies to sell its goods, she explained. This system is to be junked. "After we join WTO, we will be working very closely with our buyers," Binh said. "This will be very difficult for state-owned companies. Our staff has not been allowed to do this. We don't have the skill or the knowledge." ==

“The company plans to school its managers and international relations staff on how to become savvy salespeople. Several have already been dispatched to Japan or Hong Kong for training, she said. Anticipating better access to foreign markets, the company has invested this year in new equipment, including machinery to increase yarn production and manufacture more and higher-quality clothes. Textiles and garments are already Vietnam's second-largest export, after crude oil, and could expand substantially along with other industries that rely on cheap labor, such as footwear and electronics, analysts say. ==

Competition From China in the Textile Industry

Ellen Nakashima wrote in the Washington Post, “Vietnam cannot hope to compete directly with China in mass production of standard clothing, but it is trying to develop higher-end markets for garments that require more handwork or technical expertise, industry officials and buyers said. Chinese factories can churn out huge quantities of garments in a relatively short period. This efficiency has forced down prices for each garment by 20 to 30 percent, he said. The average price per garment at his firm is $3, he said. With orders falling by 50,000 pieces for the first quarter of this year, he said, that means about $150,000 lost to China. [Source: Ellen Nakashima, Washington Post, March 9, 2005 */]

"We are worried about the future of our textile and garment industry," said Le Quoc An, chairman of the Vietnam Textile and Apparel Association and the Vietnam National Textile and Garment Corp., a group of state-owned companies. China has squeezed production times with its enormous capacity and domestic cotton industry. Using fabric made at home, Chinese factories can produce garments in a quarter of the time it takes their Vietnamese counterparts. "One of our factories in China can produce 100,000 pants in one week," said a U.S. buyer who spoke on condition of anonymity because of corporate policy. "It would take a Vietnamese factory four weeks." At Vigatexco, for instance, one of the industry's larger factories, officials have laid off 300 of 1,500 employees so far this year because orders have dwindled by about 30 percent, said Nguyen Dinh Han, assistant general manager. Many of the orders are now going to China. */

Motorcycle Industry in Vietnam

Vietnam is the world's fourth-largest motorcycle market. Traditionally Honda has been No. 1 motorcycle and motorbike company in Vietnam followed by Suzuki and Yamaha. In receny years Chinese-made bikes have been flooding the market. These bikes sell for about half the price of Japanese models. In 2002, Vietnam ordered 2.2 million motor bikes from Chinese manufacturers names like Lifan. Jiansh, Loncon. Mostly made in Chongqing Many are imitations of popular Honda models. Honda responded to the pressure form Chinese manufacturers by marketing a $700 bike less than half the price of its other models.

Honda invested $100 million in Vietnam in the late 1990s and early 200s. It opened up a motorcycle factory there in 1997 that employed 2,000 people. In the early 2000s it temporarily had to stop production due to the high number of motorbike accidents in Vietnam. Around that same Honda began manufacturing motorbikes in Vietnam for export to countries such as the Philippines.

In 2011, Reuters reported: Honda Motor Co said it would build a third motorcycle factory in Vietnam for $120 million to keep pace with rapid growth in demand in Vietnam. The factory, to be located in Ha Nam province about 40 kilometers south of Hanoi, will have an annual production capacity of 500,000 vehicles, employing about 1,800 workers. It will build automatic transmission motorcycles starting in the second half of 2012, Honda said in a statement. Like the other two factories, the site will be operated by local joint venture Honda Vietnam Co, owned 70 percent by Honda and 30 percent by Vietnam Engine Agricultural Machinery Corp. The third factory would raise Honda's Vietnam motorcycle output capacity to 2.5 million vehicles a year. [Source: Reuters, July 25, 2011]

In 2008, Kyodo reported: “Yamaha Motor Co. said it has started producing motorcycles at a new factory in Vietnam to meet growing demand there. Yamaha Motor Vietnam Co., a subsidiary of the Japanese motorcycle maker, has started to assemble motorcycles with engine displacements of 110 to 135 cc upon completion of the first of its three production lines at the second factory, Yamaha said. The Japanese company said it will invest a total about 4.4 billion yen for the construction of the new factory in Hanoi, with an eye to boosting annual production in Vietnam by 50 percent to 700,000 units by 2010 when the other two lines are expected to go onstream. The existing factory, also in Hanoi, will transfer motorcycle assembling to the new plant in stages and will focus on making components, the company said. Sales of motorcycles have been growing in recent years on the back of stable economic growth in Vietnam. Yamaha expects to sell 620,000 motorcycles in 2008, up 25 percent from a year earlier. [Source: Kyodo, October 14, 2008]

Yamaha had over 200 outlets in Vietnam in the early 2000s. It shipped over 150,000 motorbikes to Vietnam in 2003, compared to 60,000 in 2002.

See Transportation

Automobile Industry in Vietnam

Vietnam's car market is very small but developing fast, with sales in the first five months of 2007, up 85 percent from the year before. Vietnam’s car industry is still immature because traditionally Vietnam imported virtually all of its vehicles from communist Eastern Europe. However, Japanese carmakers, such as Toyota, Honda and Mitsubishi, began to move into the country in the mid-1990s, producing cars in partnership with Vietnamese businesses. [Source: Christine Buckley, The Times, November 29, 2007 =]

foreign automakers have long complained about taxes in Vietnam. The Hanoi government since 2003 maintained high taxes, especially on import parts, in an effort to boost its domestic carmakers. A Mercedes Benz sedan retails for $420,000 in Vietnam (the list price plus 200 percent import duty). Despite this, there are surprisingly large number of them around. Ford is the only American automaker that has built a factory in Vietnam. It built a $102 million production plant outside Hanoi that produces 14,000 cars and light trucks a year. The company had to wait 16 months for permission to sell cars. Toyota builds the Camry sedan in seven countries, including Vietnam and China.

In August 2011, Bloomberg reported: “Mazda Motor will assemble its Mazda2 subcompact car in Vietnam from October 2011 as the company aims to expand in emerging markets. The Hiroshima-based automaker plans to produce about 2,000 units of the vehicle a year at a plant owned by Vina Mazda Automobile Manufacturing, its local distributor. Mazda began selling its Japan-made Mazda2, Mazda3, Mazda6, and its Thailand-made Mazda BT-50 model, in Vietnam in March 2011. With the new cars that will be locally made and imported vehicles, Mazda aims to sell about 1,200 units in Vietnam this fiscal year. [Source: Bloomberg, August 31, 2011]

In April 2010, Nissan reported: Nissan Vietnam Co. Ltd. (NVL) today announced the launch of the Nissan Grand Livina MPV, which will lead the Nissan brand expansion here in Vietnam. The first locally assembled Nissan vehicle offered in the country, the stylish MPV that seats seven will be sold at one newly opened Nissan flagship dealer in Ho Chi Minh City and one in Hanoi. Prior to today's launch, Nissan had been selling available import models in Vietnam on a small scale. Now Nissan will be positioned to become a significant part of the automotive market in Vietnam. Nissan has targeted global market share of 5.5 percent within three years. The model lineup for the Vietnamese market will increase to more than eight models, including three locally assembled models and a range of available import models such as Nissan 370Z, Murano, Teana and X-TRAIL. For the first year, NVL expects sales to total 2,000 units.[Source: Nissan, April 5, 2010]

In November 2011, Suzuki reported: “Vietnam Suzuki Corp., the automobile and motorcycle manufacturing and sales subsidiary of Suzuki Motor Corporation in Vietnam, has decided to construct a new automobile plant in Dong Nai Province in southern Vietnam. Vietnam Suzuki Corp. had been producing motorcycles and automobiles in Binh Da in Dong Nai Province since 1996, but the production of motorcycles had moved to the new plant in neighboring Long Binh Techo Park in 2006. In order to meet the Vietnamese automobile market in the near future, Vietnam Suzuki Corp. has decided to move the production of automobiles into a new plant which will be constructed in the site neighboring to the new motorcycle plant in Long Binh Techo Park. The investment for building the new plant is approximately 1 billion yen, and it is scheduled to start its production in 2013. The annual production ability for the first year is 5,000 units, and is planned to be expanded thereafter. [Source: Suzki, November 16, 2011]

In June 2007, AFP reported: “Daihatsu Motor Co., a unit of the Japanese auto giant Toyota Motor, said today it will withdraw from manufacturing cars in Vietnam, blaming high taxes in the booming economy. Daihatsu, a small car specialist, said it would wind up Vietindo Daihatsu Automotive Corp (Vindaco), a joint venture with local partners in which the Japanese firm holds a 26 percent stake. "Given the size of the compact car market in Vietnam and changes to the consumption tax system there, we decided to withdraw from the country," Daihatsu spokesman Hiroshi Maruyama said. About 110 employees in Vietman will lose their jobs, he said. [Source: AFP, June 18, 2007]

Scrap Steel from American Military Hardware and Bombs

For a while the source of much of Vietnam's high quality steel in Vietnam was melted down American military hardware left over from the Vietnam War. One Vietnamese man set up a business in which he sold hand-grounded scissors made from a grinding machine jury-rigged for about $50 from a howitzer shell.

Military scrap metal was purchased by dealers for about 15 cents a kilogram in the 1990s. At that time $50 metal detectors from Thailand sell well in Vietnam.

In the Khe Sanh area a large number Van Kieu tribesmen have been killed or injured digging up live shells and bombs, along with spent cartridges and rickets, and sell them for scrap.

There are ship breaking operations in Vietnam.

Firefighter are hampered by the theft of fire hydrants that have been taken by scavengers to sell for scrap metal

See Unexploded Bombs

Electronics and Technology Industry in Vietnam

Vietnam has had difficulty attract high-tech companies. Fujitsu built the first "clean room" to build advanced computer circuits in the late 1990s. In 1996, Sony set up a 600-employee factory primarily to position itself in the Vietnamese market.

Higher costs and wages in China in the late 2000s and early 2010s prompted some companies to set up manufacturing in neighboring Asian economies. Samsung and other tech companies such as Intel and Nokia are increasingly moving production to Vietnam. Vietnam's Communist rulers are encouraging them with tax breaks, eager to move away from traditional exports of clothes, shoes and shrimps to higher value products.

Vietnam's tech exports, mostly phones and tablets assembled from parts made in China and elsewhere, increased sharply over the last three years, but the country's trade remains dominated by less sophisticated products.

Samsung, the world’s biggest smartphone maker is making Vietnam a major manufacturing base for its smartphones. The company is building a $2 billion plant in Vietnam that may make 120 million handsets a year by 2015. Construction started in 2013. It has another functioning plant elsewhere in the north.

Vietnam is trying to establish itself as a source of computer programming and animation work for foreign companies. Vietnam has many good programmers. They charge less than programmers in India and China. A programmer in Vietnam costs a foreign company about $20,000 (of which a programmer gets about $6,000 a year) per head, compared to $30,000 per head in Russia and Romania and $40,000 in India. Among the companies that have hired Saigon-based Quantic Software are Nortel Networks, Japan’s NTT Corp and Cisco Systems. Other blue chip companies that have done outsourcing in Vietnam are IBM, Helwett-Packard, Merril-Lynch, Sony and Fuji.

As of 2002, there were 250 domestic and foreign-owned software companies in Vietnam, up from only a handful a few years before that. Some of the major players in IT businesses in Vietnam are Vietnamese-Americans who have returned to Vietnam to start up new companies.

Vietnam IT Leader Makes Strong Debut on Stock Exchange

In 2006, AFP reported: "Vietnam's leading information technology group FPT has made an enthusiastic debut on Ho Chi Minh City's stock exchange, weeks after teaming up with several US software companies, the group said. A total of 60.8 million shares were traded, ending the day at 400,000 dong ($25) each, the company said in a statement. [Source: Agence France Presse, December 13, 2006 ]

The listing gave the company a market value of $1.5 billion, or about 20 percent of the value of the fledgling bourse in the former Saigon. FPT Corporation is the communist nation's market leader in mobile phone distribution, systems integration, software outsourcing and development, telecom, Internet and e-media content and computer assembly. Last year the company, which employs 5,000 people, reported revenue of more than $517 million, having booked an average of 70 percent annual growth over the past five years. "Our next target is listing on a regional stock trading center and to become a global corporation," said chief executive officer Truong Gia Binh. "We know that there will be many difficulties and obstacles."

"FPT listed on the exchange just weeks after the group and Microsoft Corporation signed a three-year strategic alliance agreement. In October, FPT also said it had sold shares worth 36.5 million dollars to US chip giant Intel and private equity firm Texas Pacific Group. "We see FPT's announcement of its IPO as a positive step for the company to reach its goals of growing internationally and expanding into new lines of business," said Arvind Sodhani, president of Intel Capital. Some experts however said FPT was overpriced on a stock exchange that they saw as currently overheating. "The first day does not mean anything," said Kevin Snowball, director of PXP Vietnam Asset management, an investment fund specialized in Vietnam. "The shares are now extremely expensive and chances are they will go down. "It is a good company but not that good... It is not Microsoft."

"The IT market in Vietnam has been growing 20 percent annually and is now worth more than 800 million dollars. Vietnam, with a highly literate population of about 84 million, two-thirds of them aged under 30, is Southeast Asia's fastest growing personal computer market."

Intel in Vietnam

In 2010, Intel opened a huge new plant in Vietnam that doubled Intel's assembly and testing capabilities, and brought Vietnam into the arena of high tech competition. John Boudreau wrote in the San Jose Mercury News, “Intel's new billion-dollar factory, which opened recently and has a clean room the size of five-plus football fields, rises up from former rice paddies like a Wal-Mart on steroids. "On behalf of Intel's 85,000 employees, I would like to say, 'hello Vietnam,' " company Chief Executive Paul Otellini said during an opening ceremony that featured a dragon dance and women in ao dais, traditional Vietnamese gowns. The Santa Clara, Calif., chip giant's arrival in the Southeast Asian country put it "on the map for high-tech investment and helped the country attract significant investments from several leading global technology firms, including Foxconn and Compal," he added.[Source: John Boudreau, San Jose Mercury News, November 8, 2010 *]

“While China's role as the assembly line for iPhones and PCs remains unchallenged, countries like Vietnam hope to peel away a significant amount of tech business to become global subsidiaries of the world's factory floor. Intel's decision to build the plant in 2006 in a country without a single world-class university and instead of countries like India and China jolted the global tech world. "This is exactly what China doesn't want to lose," said Gene Tyndall, a global supply-chain expert at consultant Tompkins Associates. "They don't care much about low-end stuff. But there is a big push by the central government to keep what they have and get more in high tech." *

“At full capacity, Vietnam's first semiconductor factory, which produces chipsets for mobile devices and laptops, will double Intel's assembly and testing capabilities. The complex has the ability to produce microprocessors in the future. The massive factory, located in Ho Chi Minh City’s more remote District 9, underscores the complex strategic bets Intel makes years ahead of its moves. The process of choosing Vietnam began with secret meetings in Santa Clara between company executives and high-ranking government leaders from Hanoi so as not to trigger protests from anti-communist Vietnamese-American groups in Silicon Valley. Nearly a decade in the making, the 500,000-square-foot factory — twice the size of the company's next-largest plant, in Malaysia — had to be built on top of 8,800 stilts that burrow six stories down through unstable sandy soil to reach bedrock. *

“Intel has also faced a dearth of qualified job candidates. While Vietnamese workers are known to be smart and hardworking, the country's school system focuses more on theory than practical learning. About two years ago, the company tested 2,000 graduating Vietnamese students. Only 90 were able to score at least 60 percent on the standard exam, and half of those failed an English competency review. The company is supporting various education initiatives and has helped to train 87,000 teachers in the country. *

“Increasingly, supply-chain experts say, multinationals will be looking at diverse regions to plant their new plants. Vietnam is one country that is benefiting from this shift. Hewlett-Packard recently started soliciting for software engineers to staff a new outsourcing operation in Ho Chi Minh City, an investment reported to be $18 million. And Vietnam-based software-outsourcing companies say they are experiencing more interest from companies thinking of moving some of their projects away from higher-cost India and China. "I've met with a handful of outsourcers who are in China, India — or both — that are now looking at Vietnam," said Rick Yvanovich, founder and CEO of Ho Chi Minh City-based software company TRG International. *

“Vietnam is cheap and hungry for tech companies like Intel. The country's estimated per capita income of $2,900 is less than half that of China's. Vietnam gave Intel a virtual hotline to top government officials. Rick Howarth, Intel's general manager of the 115-acre site in the new Saigon Hi-Tech Park, has an open invitation to visit the country's top leaders any time he is in the nation's capital of Hanoi. "Vietnam is obviously pro-business and they are doing their best to attract high-tech," Tyndall said. *

Karl John wrote in the Asia Times, “US technology giant Intel's decision to build one of the world's largest chip-making factories in southern Vietnam sent a warning to Thailand and Malaysia, which both rely heavily on electronics exports for economic growth. Likewise, Canon's recent decision to build the world's largest laser- and bubble-jet-printer factories indicates that Vietnam has firmly established itself on the FDI-led, export-oriented manufacturing scene. [Source: Karl John, Asia Times, January 12, 2007]

Vietnam Shipbuilder Fights to Stay Afloat

Matt Steinglass wrote in the Financial Times, “Vinashin, Vietnam’s prized shipbuilder and export group, this week appointed its third boss in two months as the government scurries to avoid a debt default and salvage its vision of state-led development. Vinashin’s troubles, stemming from the confluence of a global industry downturn and the proclivity of Vietnamese state companies to wander into unfamiliar lines of business, are even threatening the career of Nguyen Tan Dung, the prime minister. [Source: Matt Steinglass, Financial Times, August 31, 2010 ^]

“With Vinashin at the fore, Mr Dung has championed a development strategy that envisioned turning big state companies into communist versions of the chaebol, the South Korea conglomerates like Samsung which drove that country’s rise from poverty to the ranks of Asia’s wealthiest. Some $750m from the country’s first sovereign bond issue was channelled to Vinashin."Vinashin was one of the jewels in the crown," Carl Thayer, a Vietnam expert at the Australian Defence Force Academy, wrote recently. The company’s troubles had "added weight to a growing internal party consensus to keep Nguyen Tan Dung in place as prime minister," Prof Thayer said. ^

“Vinashin’s troubles are worrying foreign banks and investors, who hold a $187m (£122m, €147m) bond issue and $600m in outstandig loans. But Nguyen Hong Truong, the deputy transport minister overseeing the company’s restructuring, says banks have been directed to extend credit to Vinashin again. "If banks cannot provide enough credit, the government will issue new bonds" to meet the company’s obligations, he told the Financial Times. “Some observers see a bright side in the unusual openness with which the government has acknowledged Vinashin’s problems. Many say the company was handicapped by Pham Thanh Binh, the founding chief executive whose vow to make Vietnam the world’s fourth-largest shipbuilder turned into expansionist hubris. ^

"Binh was always hanging around like an evil genius, thinking up things that didn’t fit with our plans," said an officer at a foreign shipbuilder that has a joint venture with Vinashin. "We hope that now things can only get better." The government sacked Mr Binh on July 1 after an audit found $4.6bn of debt at Vinashin against assets reported at $4.8bn. He was expelled from the Communist party and arrested for mismanaging state assets. The government sacked Mr Binh’s replacement, citing his failure to resolve problems at a subsidiary unable to complete a floating storage unit for PetroVietnam, the national oil company. This week, the government named the company’s chief business officer as acting chief executive. ^

Vinashin’s rise was only slightly slower than its fall. In 2004, it took in the first of dozens of orders for bulk carriers from Graig Group, a British shipping company. By 2008, it had $6bn of orders on its books, two-thirds of them from overseas. In a few years, shipyards went from building 10,000-tonne freighters to 150,000-tonne floating storage units as the corporate structure sprawled into 28 shipyards and 200 subsidiaries. One subsidiary took on the Tam Dao Belvedere, a resort hotel north of Hanoi. ^

“The 2008 global downturn’s impact on Vinashin was compounded by its dependence on imported components for 70 percent of the value of its ships. As new orders dried up, the company began running out of foreign currency to pay for components to complete existing contracts. By last September, customs officers were refusing entry for components for Vinashin because it had fallen so far behind on paying duties, according to a report by Oxford Analytica. Salary payments were up to $13m in arrears. After the July audit, the government announced it would be breaking up Vinashin. Six big subsidiaries were assigned to PetroVietnam and seven to Vinalines, a state shipping conglomerate. Nguyen Sinh Hung, the deputy prime minister heading a restructuring committee, said payments to foreign debtholders might be postponed. Since then, foreign investors say they have heard little and were not asked to approve waivers on the transfer of Vinashin assets.

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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Vietnamtourism. com, Vietnam National Administration of Tourism, CIA World Factbook, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, Fox News and various websites, books and other publications identified in the text.

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