[Vnbiz] Investors wary as Vietnam may lose labor edge

[Phan, Tai]

Investors wary as Vietnam may lose labor edge

The Standards - Stephanie Tong 

Monday, August 13, 2007

Labor-cost advantages that Vietnam offers manufacturers may not be long- term and some Hong Kong investors are being prudent about relocating their plants, an entrepreneur said yesterday.
Hong Kong Young Industrialists Council chairman Paul So Wing-keung said relatively cheap labor will not be a factor in 30-50 years.

"Vietnam, at present, is appealing to most Hong Kong investors, yet we are still thinking if we should move some of our production plants to Vietnam," So said during a four-day visit to Vietnam.

Hong Kong remains a major player in Vietnam. The majority of its investors are apparel companies.

Relocating to Vietnam helps companies shave off between 10 percent and 30 percent of costs. 

According to a report by the Hong Kong Trade Development Council, the minimum wage in Ho Chi Minh city is US$55 (HK$429), slightly lower than US$87 in Dongguan in the mainland.

So said the major reason for investing in Vietnam is easier access to major trading partners such as the United States. 

"Protectionist measures against China's exports not only increase our cost of production, but also prohibits our products from entering foreign markets," So said.

Under the US-Vietnam Agreement signed in 2000, Washington allowed the same access to Vietnamese exporters that it has granted to other most-favored trading partners.

So said the labor-cost advantage will narrow in a few decades.

"In fact, at present, wages in Binh Duong, a province in South Vietnam, is already similar to that in Dongguan. Lower wages are not that attractive at all."

Various industries seek out different advantages, not just a pool of relatively cheap workers, he said. 

"Some of our members have invested in Vietnam because they face intense competition and had to cut costs. 

For example, a Hong Kong shoe manufacturer has been operating his production plant in Vietnam for 15 years," So said.

Last year, Vietnam attracted US$10 billion in foreign investment.

Deputy Prime Minister Nguyen Sinh Hung noted that in the next 10-15 years, Vietnam would evolve from an agricultural economy into an industry- intensive economy. 

"To maintain growth in foreign investment, we will speed up infrastructure construction including the transportation system and communications network. In addition, tax subsidies will also be provided to all investors," Nguyen said.

At present, tax incentives are granted to selected sectors.