Opening a branch overseas ? Consider Vietnam's advantages
If you are thinking about opening a branch of your company in China, you
may want to take the extra leap and go to Vietnam.
And you don't have to be a big, global company to do it.
That's the message of Peter Songafest, former CEO of Xymox
Technologies in Milwaukee and now a consultant for small and medium-size
companies that want to set up in Southeast Asia.
"Americans don't know about Vietnam," which he said will be "the next big
manufacturing hub."
One of the attractions, said Songafest, who established a small factory for
Xymox near Ho Chi Minh City, is that wages are a quarter to a half of what
they are in China. His comparison shows that it's $55 a month in Vietnam
vs. $110 in Shanghai.
Wages, of course, are only one consideration in a location decision.
China might be a more compelling choice, for instance, if the company's aim
is either to tap the fast-growing domestic market there or tap into the
multinationals that already have set up on the mainland.
In Songafest's analysis, it becomes a "no-brainer" decision to choose either
the Shanghai area or South Vietnam.
Joint venture risks
It's not a no-brainer to make the initial, painful decision to move work out of
Wisconsin, but sometimes it's necessary to stay in business. It's also
complex, if you haven't done it before; Asia is a big piece of geography, and
there are any number of ways to set up shop there.
Often, U.S. companies opt for a joint venture on the belief that the Asian
partner will take the lead through the maze of rules, regulations, language
and cultures. In that sense, it's a less risky approach.
Songafest, however, believes that strategy is unnecessary. Joint ventures can
be riskier, he maintains, because the chance of getting your technologies and
customers ripped off is greater than in a 100%-owned company.
Besides, if you go it alone, you get to keep 100% of the profits.
His formula is to start small and to locate in one of the industrial parks in
either China or Vietnam that is owned jointly by the Singaporean
government and Singaporean companies. The advantage is that Singapore
ranks high for transparency and absence of corruption.
Singapore ranks fifth in an international comparison of that characteristic
behind Finland, Denmark, New Zealand and Iceland, while the U.S. ranks
only 16th, China 59th and Vietnam in general way down at 85th.
Bangladesh was last out of 102 countries listed in 2002.
The Singaporeans cut deals with the Chinese governments so that their high
standards apply in their parks. Xymox is in the Vietnam Singapore Industrial
Park. "There's no funny stuff there," Songafest said.
Vietnamese advantages
He is helping an Ohio company set up there, and one of the allures was the
park's self-sufficient, high-quality infrastructure. Much of the hassle is
avoided.
Originally, the relatively small firm had considered the Shanghai area but was
swung over to Vietnam by the wage differential and other advantages:
"The Vietnamese love Americans. That may surprise you. They treat
you well."
Vietnam is fairly central in Southeast Asia, so shipping costs are
reasonable.
The country is one of the safest for American executives.
Because of the long French presence, Vietnam has a more Western
culture than other Asian countries.
The population is 93% literate and has switched to English as the
dominant foreign language from French.
There's an abundant labor pool in a population of 80 million.
Taxes are low: A new company gets a tax holiday for four years, then
pays 5% for the next four and 10% thereafter, assuming a certain
level of imports. China runs around 15% in special zones and 34%
outside of them.
Well-educated managers can be hired for about $600 a month. In
China, second-tier managers run $800 to $1,500 and, because
demand is rising, there's a lot of job hopping.
The domestic market in Vietnam still is small because of the low wages, so a
Vietnam move only makes sense if exporting is the strategy. It makes sense
if you have to be the absolute low-cost provider in a commodity market.
"If you're going to set up over there (in Asia), don't you want to get an
advantage on China?" he asks.
By John Torinus - Milwaukee Journal Sentinel - April 26, 2003.
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