Vietnam Begins to Lure Business Away from China

While certainly only a proverbial drop in the bucket, this story on Bloomberg caught my eye as the first tranche of jobs moving away from China and into Vietnam is something to monitor.   This is a trend we've mentioned over the past few years [Dec 29, 2009: NYT - Vietnam is Refining its Role on the Global Stage] and certainly China has plenty of cheaper labor in its inner western regions to work through versus the "expensive" eastern coastal.  But certainly as the Chinese worker starts making unruly demands [Feb 28, 2008: China Raising Minimum Wage] our global corporations will need fresh meat to exploit.... err, provide opportunities to, in the global race to the bottom for labor.

To review, GDP of Vietnam is about half of Singapore at $90B - or in Ameircan terms akin to one third of one round of a Citigroup (C) bailout.  But that $90B is spread over 86M people in Vietnam versus only 5M in Singapore.  Agriculture accounts for more than half of GDP; the US accounts for 20% of Vietnam's exports (Japan next at about 12.5%).   Indonesia, a country we've highlighted quite often the past year, is about 5x the GDP of Vietnam - with a far superior stock market of late.

That said, Vietnam should be an interesting country to keep an eye on over the next 3-10 years, especially if China grows increasingly hostile to foreign corporations [Mar 22, 2010: China Rules Hurt US Corporations] [Mar 17, 2010: WSJ - Business Sours on China] ... and the Vietnamese worker is content with making almost nothing.  (fingers crossed!)

Via Bloomberg:

• The communist nation drew 13.5 percent of the Association of Southeast Asian Nations’ foreign direct investment pool in 2008, up from 4.4 percent two years earlier, according to the 10-member group.  And its allure may be rising, judging from a December survey by the American Chamber of Commerce in Shanghai. Vietnam is a preferred destination for businesses looking to relocate from China, Asia’s biggest investment recipient, the report said.
• “A lot of companies from a strategic standpoint are looking at how to set up a production facility within Asean,” said James Lockett, a Hanoi-based lawyer with Baker & McKenzie LLP and a board member of the American Chamber of Commerce in Vietnam. “In a lot of product areas, Vietnam looks very, very attractive for people who are doing that.”
• Vietnam’s economy expanded 5.2 percent last year, the most in Asean, which has signed free-trade accords with China, Japan, South Korea, Australia and New Zealand.
• Santa Clara, California-based Intel, the world’s biggest chipmaker, is scheduled to open a $1 billion testing facility in Ho Chi Minh City this year that will employ about 4,000 people. (thankfully the United States does not need such low brow work, instead we have census workers)
• Intel chose Vietnam because of its proximity to customers, reliable power and water supply and skilled workers, said Nick Jacobs, Intel’s regional spokesman. (nothing to do with cost of labor, I'm sure)
• “Vietnam is a country which is very committed to education, and that gives us confidence we will continue to attract the talent we need for long-term success,” he said. (well on that front, I have to say advantage Vietnam over US...)
• Suwon, South Korea-based Samsung Electronics Co., the world’s second-biggest maker of mobile phones, opened a $1 billion factory in Vietnam six months ago.
• Redmond, Washington- based Microsoft Corp. outsources digital animation and modeling for its computer games to Vietnam.
• While Vietnam’s one-party state and its jailing of more than a dozen democracy activists since October have drawn criticism from groups like Human Rights Watch, some regard it as a model of stability. (I won't even touch the irony of that statement...)  They contrast it with Thailand, where demonstrators have shut airports and blocked streets in sometimes violent political protests. (darn that democracy - just so inconvenient for our global corporate citizens!)
• The number of foreign companies in China with plans to relocate plants inland or outside the country because of rising costs doubled last year, according to a survey of 202 foreign manufacturers by the American chamber. The poll found 8 percent of respondents reported plans to relocate or expand outside of China compared with 28 percent considering moves to lower-cost areas in southwest or central China.

These type of stories - while on the surface appear completely unrelated to the employment situation in America - are VERY important to understand as people wonder where all those jobs not anchored by what are effectively ponzi schemes of unsustainable costs (healthcare & government) have gone.  Eventually even China will face the same issues high cost Western countries are facing today as the world flattens and capital "flies" wherever it finds people to do it for less.  Just another small example of why the global middle class is going to converge...slowly but surely.  [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?]

Now if only some of these African nations could have the same political "stability" as Vietnam, they could begin to undercut the wages of the Vietnamese.  Let's cross our fingers and hope the day comes where 28 cent a day labor is available to our global corporations.  According to the *always accurate* Wikipedia, the annual mininmum wage in Vietnam is $1054, whereas Zambia is $1043.  Cmon Zambia; that's $87 a month - egregious! You can do better than that, you're only $11 below Vietnam! $750 or less a year, and Intel might bless you with a few thousand jobs too.

Malawi's down there at $519 a year salary ($43 a month if you're counting at home)....mmm, now we're talking.

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