What does the continuing global financial crisis mean for Asian electronics manufacturing? To answer that question, Asia Time is going to look at 10 countries along Asia’s electronics supply chain, and see how the crisis is affecting business there. This week: Vietnam.
When Vietnam joined the World Trade Organization in 2007, it looked like the future of Asian manufacturing.
Lured by fast-dropping taxes and rock-bottom wages — Vietnam workers make an average of $107 per month, or three times less than a Chinese worker, according to a study by the Japan External Trade Organization — electronics firms including Samsung, Toshiba, LG, and Canon were soon making deals with Vietnamese partners. And it was not just low-wage assembly work. Soon, Toshiba announced intentions to open a software design center, and Sony began manufacturing televisions for the Vietnamese domestic market. Japanese companies in particular loved Vietnam, with only China, India, and Thailand more popular for Japanese foreign investment through most of the decade of the 2000s, according to a report in Asia Times.
Four years later, though, the enthusiasm hasn’t lasted, and, amidst the current economic turmoil, Vietnam finds itself falling out of the mainstream of the electronics supply chain. What happened?
Part of the problem has been bad luck. Vietnam was still adjusting to joining the WTO, which mandated lowering longtime trade barriers, just as the global financial crisis hit in 2008.
So changes that were supposed to make it easier for the electronics supply chain to pass through Vietnam instead yanked the chain back. Sony’s TV factory became an albatross, for example, after import taxes fell to WTO-mandated levels. With it now cheaper to import finished TVs to Vietnam, for sale in the domestic market, it was no longer necessary for Sony to import components and do the manufacturing inside the country’s borders. Two hundred lost jobs resulted, which isn’t a huge number in the overall scheme of things, but was a worrying bellwether. Instead of being part of Sony’s electronics supply chain, Vietnam had suddenly become just another of its retail customers.
The bitter cocktail of sudden globalization coming at the moment of the crisis wasn’t the only explanation for Vietnam’s current shaky position in the chain. Money was still pouring in; as late as last year, Intel had opened a $1 billion chip manufacturing and testing center outside Ho Chi Minh city, the largest such facility in the chip giant’s network.
But Vietnam’s government has overplayed its hand, letting the currency overheat, and victories like the Intel plant opening have become rare. Inflation reached nearly 30 percent in 2008 and, while falling, is still at unsustainable levels. Last year the three major bond agencies lowered the country’s rating, on fears that if Hanoi is unable to stabilize its currency, it will not be able to pay its debts.
For manufacturers, the continuing volatility seems to have undermined Vietnam’s wage advantage over regional rivals like Indonesia and Thailand. Corruption and inefficiency are also concerns, where competitors like Indonesia have taken recent steps to address those same problems.
So today, Vietnam remains an outsider looking in on much of the action. Considered optimistically, most of its problems are self-inflicted, and it’s still a country with skilled workers, comparatively low wages, and a recent history of interest from the giants of the electronics world. To take advantage of those qualities, though, Vietnam still needs to convince the rest of the chain that it isn’t a weak link.