Vietnam becoming a magnet for technology firms, but problems persist
Apple may invest $1 billion in Vietnam to build a research and development center, most likely to be located in Hanoi, to serve the entire Asian region.
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The move closely follows the incorporation of Apple Vietnam LLC last October.
With a capital of VND15 billion, or more than US$667,000, Apple Vietnam LLC is licensed to export, import and distribute Apple products and services.
Apple’s investment plan comes in the context that other electronics giants like Samsung, LG, Microsoft, Intel, Canon, Panasonic, and Toshiba, helped by new free trade pacts and cheaper wages than China, are expanding their investment in Vietnam.
Last month, LG Display Group, the screen-making subsidiary of South Korea's LG Electronics, started work on a US$1.5-billion factory in the northern city of Hai Phong.
The factory is slated to begin operations next year, producing digital displays using the company’s latest organic light-emitting diode, or OLED, technology.
The 40-hectare plant in Trang Due Industrial Park is expected to provide around 6,000 jobs.
In March last year LG Electronics opened a $1.5-billion factory to produce digital devices and electronics such as TVs, cell phones and washing machines in Hai Phong.
“Getting investment from multinational companies like Apple, Samsung, and LG means that capital inflows have shifted from low value-added industries to higher ones. This is what we have wished for for many years,” Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, said.
Until lately Vietnam has mainly seen foreign direct investment in labor-intensive industries like garment and footwear.
The government has in recent years prioritized FDI in technology, which would create greater value for the country.
It has approved a $300-million research and development project in Hanoi by Samsung Electronics Vietnam, the country's single biggest investor.
Samsung secured approval late last year to increase its investment in another electronics facility to $2 billion. Its operations around the country include assembly of smartphones and televisions.
Tech behemoths like Microsoft and Intel have also already made the move to Vietnam from China, where labor costs have shot up.
This shows that Vietnam is a good destination for foreign high-technology companies, Mai said.
Exports of technology products, mostly by foreign investors, are also increasing. Shipments of electronic products, computers and their components saw a year-on-year rise of 5.4% to US$6.34 billion in the first five months of this year, while those of cell phones and parts rose 20.6 percent to US$14.4 billion, according to the General Statistics Office.
Barriers
Vietnam faces fierce competition from other ASEAN members like Indonesia, Thailand and Malaysia in attracting FDI in technology, creating pressure on the government to encourage investors.
Mai said: “Over the past decade our policies to attract FDI have not changed much. In fact, we still place priority on labor-intensive projects. Our incentives for hi-tech projects have not met investors’ demands.”
Investors in the technology sector have different requirements compared to those in such fields as textiles and garments and footwear.
Most hi-tech investors are from developed economies like the US, EU, and members of the Organization for Economic Cooperation and Development, who have stringent requirements with regard to legal transparency and the guarantee of intellectual property rights, he said.
Weak supporting industries are also a barrier to foreign investors in the high-tech sector. Yutaka Watanabe, general director of Towa Industrial Vietnam, a Japanese producer of precision machines parts used in vehicles, recently said that manufacturers have been facing many troubles looking for materials in Vietnam.
The company, which started operating in Vietnam in 1995, has to import most of what it needs from Thailand.
This causes costs to surge by 18%, but Watanabe said local suppliers in Vietnam cannot meet the high technical demands of the precision industry.
Vietnamese suppliers need more money and the government should provide funding to help them upgrade production capability, he said, adding that Japan has helped its own businesses that way.
Yasuzumi Hirotaka, a representative of Japan’s trade promotion agency JETRO in Ho Chi Minh City, said Japanese firms in Vietnam only have local content of 14-odd percent, which means more than 85 percent of the materials and parts they need have to be imported.
Neighboring countries like Thailand and Indonesia have seen local content surpass 20 percent.
Vietnam would be able to pull in more foreign investment if the government offers better support to supporting industries, Hirotaka said.
Mai said supporting industries, despite being a major concern for foreign investors, have not developed for many years.
He said Vietnam's has been stuck in mostly assembling work for more than 30 years.
He said the problem has been that the government does not have specific policies to support them.
Another barrier to FDI in Vietnam is red tape. Many foreign firms have complained about the vague and complicated laws that require them to spend a lot of time working directly with officials.
They also want tax and customs regulations to be simplified.
Foreign investors have ploughed an estimated US$7.25 billion in the first half of this year, up 15.1 percent from a year ago, according to the Planning and Investment Ministry.
FDI pledges in the period surged 105.4 percent from a year ago to US$11.3 billion, with most of them going into manufacturing, processing and property, the ministry said.
