A closer look at Vietnam
Among the Asean countries in which Thais put their money, Vietnam seems to be offering the best value
This is the second of a two-part series on why Vietnam has emerged so rapidly as an important investment destination and how Thailand and its investors should adjust to the new environment.
Thai investors seeking to invest abroad are usually looking at countries within the 10-member Asean as they have more common grounds than differences.
Their proximity and the familiar way of dealing with people, governments and related agencies have helped keep Thai investors glued to their Asean neighbours.
Furthermore, the lower transport and logistics costs and potential gains from the Asean Free Trade Area (Afta) play a key role in their considerations. Under the Afta, goods and services are taxed between zero and 5% and the tariffs are set to be fully liberalised over the next two years.
Apart from Asean, there is also a huge interest in countries such as China, mainly due to the abundance of labour, the large domestic market and the low cost of production. But the market has become very competitive in nature.
Facts about Asean There are some points of consideration when investing in Asean:
- We would not invest in countries such as Malaysia and Singapore because the labour costs are higher than in Thailand.
- Laos has a population of 6.5 million, while Ho Chi Minh City alone has more than 8.5 million people.
- Burma is a closed country with no political or currency stability.
- Cambodia has a small population but the people are not as hard-working or inquisitive as the Vietnamese.
- The Philippines is too far. Its political situation is not very stable. It also is prone to a lot of natural disasters.
- Indonesia, among all the Asean countries, is the only country in which Thai entrepreneurs could invest. Its population is about 250 million. It has a low labour cost, but also has a lot of crime and ethnic conflicts, especially with the Chinese community.
The country also has lots of religious problems and terrorist threats, and the government's stability is also not very good. But if you cater to the domestic market, or need to use local content, then this is where you should pour the money in.
Indonesia is also abundant in its natural resources such as seafood, mineral ores and coal.
China vs Vietnam When it comes to China and Vietnam, the following comparison could be helpful for those wondering which offers the better value and greater return.
From the information available to me in my dealings with customers, especially investors from Taiwan, here are some of the key differences between the two countries:
- Labour costs: The costs of labour are about the same but China's cost structure is on the upward trend, while in Vietnam, the cost rises only once every few years. For example, over the past 10 years, wages rose only once in April this year from $35-45 a month to the current level of $45 to $55.
- Incentives: As for privileges offered for raw materials imported for production, Vietnam gives a tax break of nine months while China collects 17% when goods are imported and returns 9% when the products are exported.
The remaining 8% is returned in the future, but in reality the funds are asked to be donated to local organisations that are underprivileged and it is difficult to say no; therefore, doing business in China ends up being more expensive.
- Currency value: The Vietnamese dong has had a tendency to depreciate and over the past four years it has weakened by 1% annually. The yuan, on the other hand, has been appreciating against the US dollar and Beijing is under intense pressure from the United States and European countries to float its currency.
- Dumping problems: China faces various anti-dumping measures from countries such as the United States and the European Union but Vietnam sees its products welcomed, especially by European countries.
This has caused a lot of companies in China, such as furniture and candle producers, to close shop and move to Vietnam.
- Tax rates: The tax rates in both countries also make a difference. As a member of the 10-member Asean, Vietnam has the advantages that China does not have. Import and export taxes are therefore lower and transport and logistics are more convenient and cheaper as it is closet to Thailand.
- Policies: The policies of the central and provincial governments are in line with each other in Vietnam, but in China this is not always the case. In one case, the court in Beijing allowed Thai businessmen to invest in Shenzhen but the local administration in the province blocked the move, citing local laws.
- Preferred businesses: Vietnam welcomes large corporations, as well as small and medium-sized investors, whereas in China the red carpet is laid out primarily for large multinationals with deep pockets and good connections.
Apart from these advantages, Vietnam has lots of natural resources such as seafood, ores, crude oil and natural gas. It also exports farm products in large volumes such as rice (second-largest in the world), coffee (second after Brazil), cashew nuts (second to India), pepper (world's largest), frozen food (sixth largest in the world), and tea leaves (seventh largest).
These strengths, coupled with the highly efficient workforce in Vietnam, have help attract some of the labour-intensive industries out of the various countries in this region.
Another area that could be of interest to Thai investors is the tourism industry, an inherent strength of the Thai people, as tourism continues to show tremendous growth in Vietnam.
Vietnam has more than 3,260 kilometres of beachfront and has beautiful beaches such as Na Trang, Phan Thiet, as well as the world heritage site Halong Bay.
Other areas that Thai investors could look to tap into are the automobile industry.
Although right now car sales in Vietnam are not very high, they are increasing every year and the area that is really booming is the motorcycle market.
Currently, there are 20 million motorcycles in Vietnam and the number is increasing by two million a year. Thai entrepreneurs can look to tap this growing market by supplying parts and accessories, exporting or building clusters of factories.
By Wittaya Supatanakul - The Bangkok Post - September 22, 2007.
Wittaya Supatanakul is Bangkok Bank Plc's adviser on Vietnam. He was the general manager for Bangkok Bank's Ho Chi Minh City branch before becoming the adviser on the bank's Vietnam strategy.
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