What does this emerging market mean to the major players around
the world, and how do companies ensure against global risks?
With foreign investments reaching $16 billion in 2007—up 30 percent over 2006—Vietnam is certainly one of the hottest markets for electronics and supply manufacturers. Some of the biggest names are investing there, including Intel, Foxconn, Matsushita, Panasonic and Toshiba. Consider it a smaller version of China: an underutilized Asian market, opening its doors after years of isolation, offering a huge supply of workers eager for education and training in the technical field.
An open field
The Vietnamese government began opening its economy in 2001 when it signed a Bilateral Trade Agreement with the United States, in preparation for entering the World Trade Organization in 2007. David Bergman, IPC vice president of international relations, explains the incentive for companies to invest in Vietnam. “[W]hen you have a closed economy that has stagnated for a while and all of a sudden the doors are open, there’s a lot of opportunity where it’s now essentially virgin territory for companies to come and invest,” he says. Bergman recently visited Ho Chi Minh City to work with a training center interested in IPC certification programs. In the process, he saw some of the activity there firsthand.
“The impression that I got is that for the EMS industry, we were there early. The companies were all still ramping up,” he says. “It’s early right now, but I expect things to stay hot for the near future.” Aside from the potential of the relatively untapped market, he cited Vietnam’s proximity to China as a reason people consider it. “People are looking to just spread the risk around from China,” he says. “They don’t want to keep all their eggs in one basket there, and so they’re looking for new potential opportunities in Asia. And Vietnam looks like a good one.”
Nick Pearne, director of BPA Consulting, a U.K.-based company specializing in technological and commercial issues impacting electronics fabrication, agrees. “[It’s] a lower-cost alternative to China,” he wrote in an email. “Many of the larger [companies] are including Vietnam to control risk while providing access to the same markets as do Chinese facilities.”
Tricky business
As with any new market, however, moving operations to Vietnam does carry some risk. Companies have been concerned primarily with infrastructure, workforce training, and import and export controls. But they have also found ways to mitigate those risks.
For example, Intel plans to build its own power substation that connects to the national network to power its new $1 billion facility in Ho Chi Minh City. In turn, other companies cluster around major facilities like this in a “campus” where they share resources. “Intel, for example, is only too pleased to share the resources to ensure that all facilities are available,” Pearne says. “This approach is proving particularly successful in Vietnam. EMS and supply companies will ‘tag along,’ setting up either manufacturing, or at least warehousing, within the protection of the campus.” Many of these industrial parks are joint efforts of Vietnam and other governments, such as China and Singapore.
Companies have also addressed their concerns about workforce skills by investing in training at a local level. In the past, because few electronics companies existed in Vietnam, workers weren’t interested in pursuing technical fields. But now, companies like Intel and Foxconn are ramping up training efforts to bring up-to-speed the large number of workers needed. Intel’s facility will employ 4,000 people, and Foxconn, as part of its plans to invest up to $5 billion in Vietnam over the next three to five years, could hire up to 300,000 local workers. In order to hire so many people, Intel is working with Vietnamese universities to develop appropriate curricula and is looking to open its own engineering college.
On his visit, Bergman observed a technical training center—a joint effort between Vietnam and Singapore—where high school students learn electronics and mechanical engineering skills, along with IPC standards. Perhaps given the value employers have put on training and development, he says, “the employees seem to be very loyal, very hardworking, and the employers seem to be very happy with the nature of the employees that they had.”
There hasn’t been an issue with employee poaching—i.e. companies enticing workers to leave another to work for them—because as of now, there are enough workers to go around. “As more and more companies go in, there will be less people to go around. That may become a little bit more of a challenge,” Bergman says.
Given Vietnam’s history, the U.S. State Department still places restrictions on what can be manufactured there. Exporting components, or related technical data are classified as “defense articles,” require a license from the State Department. While this might seem obvious, Gary Stanley, an export control attorney with Global Legal Services, says, “the ignorance on the part of many PCB manufacturers that I encounter about these rules is amazing ... Many of these companies I encounter here in the States, when I say, ‘Are you registered with the State Department?’ their response is, ‘What for?’”
A bright future
In May 2007, the Vietnamese Ministry of Planning and Investment reported that foreign investors were contemplating 38 major projects worth $35 billion. While Bergman was hesitant to compare it to China simply because of its size, he says Vietnam is still an attractive market for development.
“China’s enormous. Vietnam is small. But it still seems to have a lot of room for additional manufacturing, and I think that will continue over the next several years,” he says.
