Brits ride the Vietnam tiger
The road to the future of Vietnam runs out through the crowded suburbs of Ho Chi Minh City, past fishponds and farms, along a rutted track that turns into a tarmacked drive to the modern factories rising, cathedral-like, above the fields.
In a sense they are temples to Vietnam’s new creed: globalisation. From these burgeoning industrial estates, products are pouring out to the world’s markets. Young workers are flocking in from the countryside. Foreign firms are coming to buy, to invest and eventually to sell to a market of 80m people.
The strength and speed of Vietnam’s emergence as a competitor to China can be illustrated by two furniture factories producing keenly priced products for every niche in the market. One is a huge, multi-storey complex, where reproduction antique tables, destined to sell in Harrods for thousands of pounds, await dispatch alongside countless items of top-quality home furnishings.
It is operated by Theodore Alexander, a privately held firm founded by Paul Maitland Smith, a British businessman active in Asia for decades. Maitland Smith moved his manufacturing operations to Vietnam after discovering the aptitude of its people for intricate craftsmanship and realising that its Communist government was genuinely committed to encouraging investment. “As a foreign investor, you’re welcome here,” he said. “They do everything they can to make it easy. That’s different from some other countries in Asia.”
The other factor is that labour costs in Vietnam are about half those in the developed coastal industrial zones of China, which explains one extraordinary aspect of Theodore Alexander’s production line: everything is painstakingly made by hand. Young women crane over the delicate inlay work for cabinets and tables. Young men turn lathes, polish legs and fit pieces together. There is a sophisticated design department, where foreign and Vietnamese staff sit in front of computers.
“They’re very quick learners,” said Antony Maitland Smith, Paul’s nephew, president of the company. “It’s a highly skilled workforce and there’s a tradition of fine hand-eye skills in this country. The only problem is industry is growing so rapidly that the labour pool is shrinking.”
Theodore Alexander is fanatical about workplace standards: the only slogans on its factory walls exhort staff always to wear their safety gloves, masks, hard hats and protective clothing. The message is hammered home in the company’s house magazine. Vietnam’s labour ministry, part of a state socialist bureaucracy, keeps a vigilant eye on foreign firms to ensure labour rights and manufacturing practices conform to the law.
The other face of Vietnam’s new industries is on display at the ultra-modern, highly automated Khai Vy furniture factory down the road, not far from the wharves where ships tie up on the Saigon River. Khai Vy turns out interior and garden furniture for a dizzying range of customers from Carrefour and Metro to discount stores in dozens of countries. Sales manager Dao Ke Nho said the firm aimed to hit £30m in sales by 2010.
Exports of wooden furniture soared by 24% last year, earning Vietnam more than £1 billion in export revenues. Furniture sales to Britain alone accounted for more than £98m. Vietnam’s main exports to the UK are footwear (£382m last year) and clothing (£141m). The figures show that Vietnam is moving away from reliance on commodities like seafood, rice and coffee. And as it becomes an alternative global workshop, Vietnam’s export machine is beginning to compete directly with China.
Vietnam is now growing at 8% a year, according to International Monetary Fund estimates. So far as most young Vietnamese are concerned, the only perils of growth are the 4m motorcycles on the streets of Ho Chi Minh City. Vietnam’s rising working class are now filling the furniture factory car parks with this latest must-have transport. A zippy model from Honda can cost £450, but many are cheaper. (The annual income per capita in Ho Chi Minh City is about £360).
The police have just launched a belated drive to enforce the wearing of crash helmets in a bid to cut the appalling toll of road accident deaths, as young men and women seize the freedom of their own means of transport.
Like the factories of southern China two decades ago, these industrial estates are the passport to an exciting social life in the city for the young workforce and spell liberation from the drudgery of agricultural work.
Theodore Alexander’s house magazine records the marriages, sports days, prize-givings and charitable donations among its young, aspirational employees.
The median age of Vietnam’s population is just 25. To most of them, the war that united their nation and divided the United States is just a history topic in school.
Vietnam’s pre-Communist values have played their part in all this. A Confucian reverence for education, a heritage of intricate artistic skills and a deeply ingrained work ethic all contributed to the formation of a competitive labour force. However, the authoritarian one-party state is also a factor. Investors say it has the ability to take decisions and enforce policy changes. The vested commercial interests that bedevil foreign investors in Thailand, the Philippines and Indonesia are absent.
The Communist party has also overseen almost universal education and improved healthcare. Its commitment since the 1980s to doi moi - economic reform - has raised millions of Vietnamese out of poverty.
It retains a firm hand in the labour sector, setting minimum wages and enforcing factory standards. But the regime’s principal contribution, as Paul Maitland Smith pointed out, was to take a fundamental policy decision to reform and open up the economy.
Vietnam gained admission to the World Trade Organisation last year, which triggered a huge surge in foreign investment commitments of more than £6 billion. The value of UK investments in Vietnam is more than £1.25 billion, according to British Embassy statistics. While British exports rose 17% in 2006 to more than £95m, the trade deficit is more than eight to one in Vietnam’s favour. However, Britain reaps invisible earnings from banking and financial services.
Standard Chartered Bank, HSBC and Prudential all established an early presence, anticipating a growing market in a culture renowned for financial prudence and savings. The large natural-resources sector – Vietnam has rich offshore energy deposits in the South China Sea – has attracted BP, Shell and Castrol. Last autumn, the Vietnamese maritime authorities held a seminar for British port developers, hoping to attract investment to improve deep-water ports and increase container-cargo capacity.
Companies including Glaxo Smith Kline, Tate & Lyle, BAT, Unilever and ICI are already making investments with an eye on Vietnam’s developing local-consumer markets and its expanding manufacturing base.
There are risks. An overheated property market and a stock exchange with too few shares to absorb the available cash under management in Vietnam investment funds are early-warning signs.
Most businessmen think Vietnam needs to invest heavily in improving its antiquated infrastructure to compete with Chinese efficiency. However, as the port-development seminar showed, this is being addressed.
For Vietnam’s moneyed few, often descendants of the Chinese dynasties that dominated commerce in French colonial times, the luxury brands – Cartier, Louis Vuitton and Gucci – have already set up shop.
As for the striving many, the time will not be far off when they, too, will want to buy garden furniture, and, who knows, maybe even a handmade reproduction dining table.
By Michael Sheridan - The Sunday Times - January 27, 2007.