Distinctive influence

Bac Ninh province had little industry of note when Canon began building its first factory in Que Vo district more than 12 years ago. Its infrastructure was inadequate, support industries virtually unheard of, and workplace skills among the local workforce sadly lacking. The province, however, has seen a host of impressive changes thanks to investment from foreign-invested enterprises (FIEs) like Canon. 

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From Bac Ninh 

First licensed in Vietnam in 2001, Canon Vietnam staked out a presence with the establishment of three factories at industrial zones such as Thang Long in Hanoi and Que Vo and Tien Son in Bac Ninh. Seventeen years on, it has created added value and contributed to speeding up the province’s economic restructuring. 

Canon Vietnam’s export revenue represents a substantial proportion of the province’s total. From an agricultural province, Bac Ninh has become an economic province, earning the second-highest export value in the country and accounting for 14.9 per cent of Vietnam’s total last year. The presence of the Japanese laser printer manufacturer launched moves to attract other major investors, such as Samsung, Nokia, PepsiCo, and ABB.

The arrival of Canon and other FIEs hastened the process of the province becoming a high-tech production center. “Since Canon, Foxconn and Samsung invested in Bac Ninh, with industrial sectors - electricity, electronics, and telecommunications - being built here,” said Mr. Nguyen Tu Quynh, Chairman of the Provincial People’s Committee. “Major projects from multinational corporations have created an active profile and developed the province’s brand.” 

The contribution to the province by the foreign direct investment (FDI) sector has steadily increased over the years. The sector’s industrial production value in 1997 accounted for just 0.05 per cent of the total, which had increased 100-fold by 2016.

FIEs have also contributed to creating jobs and raising incomes. “Through training courses and on-the-job practice, the qualifications of workers at our factories have improved,” Mr. Keisuke Taniguchi, General Manager of the General Director Office at Canon Vietnam, told VET. “The wages of workers at Canon have increased, exceeding those at other FIEs for many years.” Some 22,000 workers are now employed at Canon’s three factories. The number of Canon suppliers has also increased rapidly over the years, not only facilitating the development of these suppliers but also increasing localization rates.

With the prospect of becoming a high-tech production center, Bac Ninh has cemented its position not only in Vietnam but also in the region and the world. “The success of FIEs has played a key role in the province’s socioeconomic growth,” Mr. Quynh said happily.

To Vinh Phuc

Mr. Le Duy Thanh, Deputy Chairman of the Vinh Phuc Provincial People’s Committee, is also in good spirits. Ploughs and fields represented the province’s image when Toyota Motor Vietnam (TMV) kicked-off its investment 22 years ago. When re-established in 1997, the province stood in 57th position out of the then 61 cities and provinces in the country in terms of socioeconomic development, contributing VND80 billion ($3.5 million) to the State budget with average per capita income at VND2 million ($88). 

After a series of major investors arrived, such as Toyota, Honda, and Piaggio, everything changed. In 2016, provincial budget revenue stood at VND33 trillion ($1.45 billion), an increase of more than 300-fold compared to 1997, while average per capita income was VND70 million ($3,080); higher than the national average.  

TMV has proven to be a great success. Its first factory, opened in 1996, produced just two vehicles a day, while daily production now stands at 185 vehicles, or 48,000 a year. Sales in 2017 were 59,355 vehicles (excluding the Lexus), bringing total sales in its 22 years of operations to 472,066. It also expanded its localization rate on certain items last year, bringing the total to over 300 components. Its supplier network has reached 33 enterprises, five of which are Vietnamese. 

The company has made major efforts to increase its localization rate by calling for investment and support to improve the capacity of local suppliers, according to Mr. Pham Anh Tuan, Head of the Strategic Planning Department at TMV. Components manufactured by TMV not only serve the automobile industry in the country but are also exported to 13 countries around the world, bringing in export revenue of over $465 million to date.

During its 22 years, TMV has made key contributions to the country’s automobile industry and support industries and especially to socioeconomic development in the province, according to Ms. Hoang Thi Thuy Lan, Secretary of the Provincial Party Committee and Head of the Vinh Phuc Investment Promotion and Business Development Steering Committee. 

Not only has it created stable jobs for thousands of local workers and contributed substantial sums to the State budget, she added, it has also actively carried out many community activities. 

From a purely agricultural province, Vinh Phuc is now the center of automobile and motorbike production in Vietnam. 

Once poor, its people now earn among the highest incomes in the country, with living standards and infrastructure improving as result. “This is all due to FIEs,” Mr. Thanh said.

And elsewhere

Hanoi, Ho Chi Minh City, Binh Duong, Dong Nai, and Ba Ria Vung Tau join Bac Ninh and Vinh Phuc in being the leading destinations for FDI projects and capital. In the 30 years since the Law of Foreign Investment was introduced, Ho Chi Minh City has attracted $44 billion in foreign capital and its industrial production increases year after year. 

FDI has also contributed to higher export revenue in the southern economic hub, accounting for 16.7 per cent compared to 10.3 per cent in 1995.

Among others, Intel Products Vietnam (IPV) has driven change in the city. In early 2007, it began construction of a 46,000 sq m plant at the Saigon Hi-Tech Park (SHTP), after seeking a suitable location for three years. It then chose the city as the site of the largest testing and assembly facility of Global Intel. 

Nearly a decade later, IPV contributed more than $100 million to the city’s GDP in 2015; much higher than the average of $3.2 million from typical FIEs in the country, according to Ms. Uyen Ho, Director, Global Public Affairs at Intel Malaysia and Vietnam. 

IPV’s export value accounted for 12.4 per cent of the city’s total (excluding mobile phones), according to a socioeconomic impact report prepared by Fulbright University Vietnam (FUV) for 2006-2016. While its workforce accounts for only 5 per cent of the total at SHTP, its export value accounts for 72 per cent of SHTP’s total. 

Workplace productivity is nearly 100 times higher than that at other FIEs at the park. IPV now employs nearly 1,900 people, including highly-skilled technicians and semi-skilled workers, and has significantly boosted training for and improvements to human resources in the city, according to the city’s People’s Committee. 

“The company continues to help the city complete policies for investment attraction in the high-tech field, in order to promote the brand of the city in the context of international integration,” said a representative from the city’s People’s Committee. 

Moreover, “IPV’s investment helped put Vietnam on the global map in the IT and electronics industry,” Ms. Ho said. “This would later attract industry suppliers and service providers, bolstering both economic and social outcomes and spurring growth around the country.” 

Prior to 2006, Vietnam mainly exported rice, seafood, other agricultural products, textiles and garments, and footwear with low technology and a large workforce. Intel inspired other international investors, paving the way for Vietnam to attract high-tech projects from Samsung and LG, with total registered capital of $17 billion and $3 billion, respectively. 

Thanks to this, Binh Duong become the second-largest city or province in terms of registered FDI capital. Industrial production by the FDI sector totaled VND530.4 trillion ($23.3 billion) in 2016, up 2.3-fold compared to 2011. The sector also created 500,000 jobs, accounting for 40 per cent of the total. 

“FDI attraction helped the province become a developing industrial center in the southern key economic zone,” according to a representative from the province’s People’s Committee. 

“In 2016-2020, Binh Duong continues to attract overseas investment in trade and services, high-tech production, agriculture, support industries, and urban development.”

Management quality in the country as a whole has also improved with the arrival of more FDI projects, according to Mr. Dau Anh Tuan, Director General of the Legal Department at the Vietnam Chamber of Commerce and Industry (VCCI). 

Addressing issues

After 30 years of welcoming FDI, Vietnam has become a favored country for foreign investment, according to Mr. Simon C. Bell, Senior Advisor on Policy Investment at the World Bank. 

“The advantages for Vietnam in attracting FDI are not only from preferential policies but also from a series of free-trade agreements and the government’s attention to education,” according to Ms. Eugenia Victorino, an economic expert at ANZ. 

FDI attraction is a significant policy priority for Vietnam, creating jobs and injecting capital into the domestic economy. Moreover, FDI often brings new technologies and innovation. 

These are potentially an important source of productivity growth as they may help domestic industries catch up and stay with cutting-edge international technology. Technology transfer from FIEs, however, remains limited. 

“Support industries being underdeveloped is clear evidence of this,” said Mr. Thang. Connections between FIEs and Vietnamese enterprises are weak, with the latter still absent from production value chains at home and abroad. 

“Overall, technology transfer primarily takes place among domestic firms in Vietnam, suggesting that FDI may not be as effective a way towards technological advancements as believed,” said Professor John Rand from the University of Copenhagen, which assisted with a recent survey by the Central Institute for Economic Management at the Ministry of Planning and Investment (MPI).

FDI has also proven to be imbalanced among cities and provinces. The imbalance in investment source, with a lack of European investors in the Top 10 foreign partners with the highest FDI in Vietnam, also presents a potential risk. Vietnam must therefore identify solutions to balancing its FDI attraction, according to Mr. Phan Huu Thang, former Director of MPI’s Foreign Investment Agency.

VN Economic Times

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