Vietnam Revs Up; Asia's Upstart Is Challenging China in Light Manufacturing and Pulling in Nearly as Much Foreign Investment as India

By Wehrfritz, George | Newsweek International, November 28, 2005 | Go to article overview
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Vietnam Revs Up; Asia's Upstart Is Challenging China in Light Manufacturing and Pulling in Nearly as Much Foreign Investment as India


Wehrfritz, George, Newsweek International


Byline: George Wehrfritz (With Hideko Takayama in Tokyo)

They troll Hanoi's industrial fringe by the thousands, piloting scooters or pedaling bikes in search of help wanted signs outside foreign-invested factories. There are plenty to be found. Posters announcing employment exams festoon signboards; successful applicants can expect to begin work within a week, making anything from inkjet printers to wire harnesses to toilets in one of Vietnam's new factories. Nyugen Van Thand hopes to bag a technician's job with Japanese software maker Yabashi. "It's very competitive, but my interview went well," says the earnest 24-year-old. Of the 60 applicants, five will be selected. The pay: $85 a month.

Roving jobseekers are a big part of Vietnam's success. Its economy, though still in transition from communist central planning, has shone over the past decade, growing on average 8 percent a year. Half its 80 million people have not yet turned 30. Most are poor, relatively well educated and eager to work, even at a minimum wage of just $38 a month. Emulating Beijing's reforms, officials in Hanoi have leveraged their human capital by fostering the development of a booming light-manufacturing industry. They've plotted the country's entry into the World Trade Organization (accession is expected in mid-2006) by opening to investors and liberalizing trade. The result: an estimated $5.4 billion in new foreign direct investment will arrive in Vietnam this year--a tally just shy of India's.

In many ways, Vietnam is a throwback to Asia's export-driven tiger economies, which thrived until China emerged as a world-beating manufacturer in the 1990s. Yet its emergence illustrates how China itself has become vulnerable to cut-rate competitors. Unlike other Asian economies, which sought to align themselves with the juggernaut in their midst, Vietnam has instead become a giant-killer. Much of its growth now comes in industries China still dominates, like textiles, footwear and toys. It competes against China in key Western markets but exports comparatively little to its northern neighbor. And many of its new investors have fled soaring costs and political uncertainty in China's coastal cities. "The feeling of Japan's corporate sector is that Vietnam will be their next FDI target," says Japanese Ambassador to Vietnam Norio Hattori. Hanoi's challenge is to make Vietnam into something more than a sweatshop. The government hopes to shed its poor-country status by 2010, when per capita income is expected to surpass $1,000 (up from $640 today).

One affirmation of Vietnam's prowess is the swarm of Taiwanese investors who have landed. Schooled by their island's own rise to affluence on the back of export-led light manufacturing, they are among the world's most cost-conscious, competitive industrialists, with niche factories that turn quick profits. Today they're flocking into Ho Chi Minh City and Hanoi, much as they advanced on mainland China in the early 1990s to tap its cheap labor. "Chinese work five-day weeks, but Vietnamese work six," says Albert Ting, chairman of CX Technology Corp. "That's a 52-day difference every year."

Longer weeks and lower wages matter immensely to CX Technology, the world's largest manufacturer of magnet yokes used in audio speakers. Its oldest facility, located in Taiwan, is reserved for top-of-the-line products. At its Chinese plant near Shanghai, rising salaries and fears that China's renminbi could appreciate threaten profitability. At its newest and largest factory, located outside Ho Chi Minh City, wage costs are 35 percent lower than in China. "We do plan to invest more in production capacity in both," says Ting, "but more so in Vietnam.

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