VIETNAM:LAST YEAR, the sportswear company Nike made more trainers in Vietnam than in China, ending 10 years of manufacturing dominance by its giant neighbour. Vietnam has long been overshadowed by its ancient rival, but as prices rise in China and the big producers begin to look further afield, Vietnam is gaining ground as a production centre.
And it’s not just the shoes.
In June last year, Intel opened a €750 million assembly and testing plant here, which is the California-based company’s largest – and probably most sophisticated – assembly and test facility. The plant produces mobile chipsets used in laptops and mobile devices, and also has the ability to make microprocessors in the future.
Vietnam is suffering from inflation, but China’s price woes cancel out this issue, and Vietnam is increasingly becoming the “plus one” in everyone’s “China Plus One” strategy when looking for cheap but reliable manufacturing in the region.
“Our company helps start-ups make better decisions when starting out. Here in Vietnam, you have access to such a range of skills, at short notice,” says James Galvin, managing director of the software company Glandore Systems, which is headquartered in Cork but has most of its operations developing software, including apps for iPads, iPhones and Android, now located in the city officially known as Ho Chi Minh City.
Vietnam is an economic success story. Its average annual growth in gross domestic product (GDP) has been 7 per cent over the past 20 years and, of its 88 million people, 30 million are internet users and 50 million have mobile phones. The country is seen as the top investment destination outside of the Bric nations of Brazil, Russia, India and China, and its population is still young, with 66 per cent of the people aged under 30.
While Vietnam produces more than 40,000 information technology graduates a year, only the top 10 per cent will get work. This surplus of qualified candidates is crucial for Glandore, which positions itself as an incubator, so that any companies with a big idea can find the resources and move that idea forward.
“We focus on the stage from the concept to the beta launch. The key is reducing the risks with launching a business and the flexibility that allows you to adapt. It gives you a greater speed to market,” says Galvin.
And that means finding the right staff is crucial.
“Most skill sets you can get here fairly easily. Once you start looking for ‘rock star’ candidates in Ireland, they are picked up quickly. What’s attractive for us in Vietnam is that there is no Facebook or Google scooping up talent,” says Galvin as he shows us through the company’s state-of-the-art software development facility in a well-organised Quang Trung software park in District 12 of Saigon.
Glancore started out its life in Vietnam with “five guys in an internet cafe”; now they are in a facility which is home to 100 companies and counting. The company’s biggest costs are still salaries for its European and US employees, but the savings it makes on payroll in Vietnam allows the company to expand.
One floor in the headquarters is filled with developers working on the various Glandore products, including software that protects jobseekers’ identities when looking for positions, an app for the Cork Opera House, children’s games or Java software for the Irish government. Half of sales are in North America.
“The office in Ireland is probably less important than ever,” says Galvin.
Hong Tran, vice president of TMA Solutions, Vietnam’s leading software company – with more than 1,000 engineers and a client list that includes Ericsson, Nortel, IBM and Oracle – says that while Vietnam is not the biggest IT site in the world, it’s the fastest.
“We work at very low cost, we enjoy tax benefits and the government invests a lot in resources,” he says, pointing to one of the key reasons why Vietnam has attracted more than €30 billion in foreign direct investment in the past decade.
“We invest a lot in training. Other countries used to find their engineers in China, but they had lots of problems. Prices were increasing fast. Also they would train people and they would leave. That’s why they came here. Many already operated here, but now they want to expand,”says Tran.
Software development in Vietnam is generally 40 per cent cheaper than in China, he reckons.
Manufacturing is still the main reason foreign companies go to Vietnam, and it is the reason that brands such as Gap have come to Korean-owned Shinsung NB Blue in Thuan An District, Binh Duong province, just outside Saigon. About one-third of Vietnam’s garment manufacturing is in Saigon, and 60 per cent of the industry is owned by Korean companies, with another 25 per cent owned by Taiwanese companies.
Corporate social responsibility (CSR) is taken very seriously by foreign firms working in Vietnam. The revelation of Nike’s involvement in child labour in Vietnam in the late 1990s had disastrous consequences for the company, and forced a complete rethink of how it works in emerging markets.
The Irish government contributes to the Better Work Vietnam Programme, which is a joint effort of the International Labour Organisation (ILO) and the International Financial Corporation, a unit of the World Bank.
The Irish Aid input is about €200,000 between now and 2014, and the programme aims to improve conditions for workers in developing countries such as Vietnam. Gap also takes part in Better Work.
“Our target is that working people are the main beneficiaries of the programme. The workers come from rural areas and often their awareness is very low. We try to raise awareness,” says Nguyen Duc Thien, enterprise adviser at Better Work Vietnam.
The factory is clean, well-lit and has 1,300 employees, who earn about €120 a month once benefits are factored in. They also have food and board covered.
“Garment inspection is weekly and the compliance audit is monthly. We have meetings where workers can raise their concerns and ask questions. Product safety compliance is very important to the buyer,” says Catherine Heradura Frias, who is NB Blue’s compliance officer.
Jung Hee Kim, vice general director of NB Blue, says the Better Work programme makes it easier to deal with clients such as the US garment chain Target, which has strict rules on CSR. “It means they can believe the government regulations are being followed,” she says.
There are other issues, including high turnover in employees, even though they pay the best and have the best conditions in the area. For example, after the lunar new year holiday, Tet, 20 per cent of employees don’t return to work.
Thuon Loc Thi (22) followed her friends to work in the company and has been employed at NB Blue for over a year. “It’s good, it’s okay, I like it. This is the first place I’ve worked but it’s pretty good,” she says, folding a striped white and lilac T-shirt.
Hua Quoc Bao is a trade union official at NB Blue. Although trade unions are allowed only within the context of the Communist Party, they can still lobby for workers’ rights.
“The Better Work programme has allowed us to have more trust and a better relationship with the employers. The trend is how to work with the management to improve skills,” he says.
