Doing business with Vietnam - partner and competitor
HO CHI MINH CITY - It's time for Thailand to pay serious attention to Vietnam as an emerging fierce competitor as well as a possible great business partner.
Many multinational corporations are thinking of investing in Vietnam. Also, some of those that already have plants in Thailand are weighing whether to move to Vietnam.
The country has evolved into a rising star during the past few years after its government adopted a policy to turn the country from an agricultural to an industrial power by 2020.
Implementation has progressed along two major lines - building up its infrastructure, particularly transportation networks and economic zones, and offering investment incentives.
Its attempts have succeeded so far. It now has 6,390 approved investment projects from international investors with cumulative registered capital of US$53.9 billion (Bt2.0 trillion) and $28 billion in actual investments made.
Of the projects, 70 per cent are from Asia, 16.7 per cent from Europe and the rest from the US and other regions. Multinational investors include the Charoen Pokphand Group from Thailand and Toyota from Japan. Intel from the US will invest $600 million next year in a semiconductor fabricating plant.
Thailand ranks 11 th among 74 foreign investors, with 132 projects capitalised at a total of $1.47 million. Most are involved in the manufacturing of animal food, processed products, plastics, chemicals and packaging. Others are rice mills and oil refineries.
The flurry of investment has helped the country's GDP grow faster than many more modernised, countries including Thailand in certain years. This year, its economy is expected to expand by 8 per cent while Thailand's GDP might pick up only by 4 per cent.
Thailand is actually one of Vietnam's role models. It keeps sending representatives to study Thailand's economic development, Sompong Sanguanbun, consul-general at the Thai consulate in Ho Chi Minh City, said last week.
Vietnam has 50 economic zones nationwide, with many industrial parks, including those for general manufacturers and some specially designed for IT manufacturers, such as Phu My industrial park. Some of the 50 economic zones are run by international investors, with Amata (Vietnam) Co Ltd from Thailand and a company from Singapore as the two main operators.
To attract investors to its economic zones, the government has prepared various incentives, including a waiver of business income tax for a specific period or a maximum tax rate of 20 per cent as against 28 per cent for firms outside the zones.
Also, tenants in the zones can enjoy very cheap land leases. For example, MocBai Trade and Industrial Zone - located in the MocBai Border Economic Zone on the Cambodian border - offers rent-free land for 11 years from the date of signing the contract. After that, rental rates are just 30 per cent of the standard rents in that area. The average rent is $0.50 (Bt19) per square metre per year and the leases can go as long as 70 years.
Financial assistance from abroad is another major factor in the country's rapid development. It receives over Bt200 billion and pays back about Bt40 billion a year, Sompong said. Lending countries like Vietnam because it's a good debtor and open to suggestions, he said, adding that Vietnam keeps adapting without being overwhelmed by previous mistakes.
The government has also mounted campaigns to wipe out corruption and all kinds of social dangers including theft and murder.
As a socialist country, all these measures can be executed quickly, Sompong said.
Also, the government has changed its working system by allowing all governors to make independent decisions about their provinces instead of asking for approval from the central government every time. The government communicates its plans to all governors to stimulate them so that they keep coming up with new ideas.
The country doesn't have labour unions and other groups of people who many times protest against certain plans.
Apart from the government's efforts, Vietnam has many natural advantages over Thailand. Of its 84 million people, 60 per cent are aged below 30, so they still have many years left to work. Labour costs are half those in Thailand, with wages equivalent to Bt80-Bt85 per day. Vietnamese workers are well known for being diligent and quick to learn. Property is easy to find and cheap.
"Vietnam will become Thailand's major competitor within five to 10 years. What we should do to always stay ahead of Vietnam is to upgrade ourselves from being a labour-intensive to a capital-intensive country by focusing on industries that give added value," said Amata Corp's senior vice president for marketing Viboon Kromadit. Caretaker Industry Minister Suriya Jungrungreangkit agreed.
Suriya said investing in Vietnam would, in the long run, enhance Thai companies' and their brands' ability to promote themselves in Asean and the rest of Asia. "Vietnam is very close to Thailand. We should think of Vietnam as one of Thailand's domestic markets," he said.
Viboon from Amata said should review tax privileges given in Thailand, where taxes average 30 per cent higher than in Vietnam.
"Vietnam's progress is actually a good thing for Thailand," Consul-General Sompong said. "They will have very strong purchasing power and become Thailand's significant business partner, which will eventually bring business growth to Thailand."
By Nitida Asawanipont - The Nation (.th) - August 14, 2006.
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