China Plus One = Vietnam and ASEAN

Transcription

1 China Plus One = Vietnam and ASEAN Asia - Pacific Business Outlook Mon-Tue, Mar 28-29, 2011 Herb Cochran Executive Director AmCham Vietnam China + One. Many Fortune 100 companies are coming to Vietnam, saying, We have 6 factories in China and 2 in India. We don t need more factories there, but we need more in Asia, so we re looking and ASEAN, and Vietnam is our first stop. Or We have 10,000 employees and $1 billion/year revenue in China, but nothing in Vietnam. So we need to take a look. Don Nay, Senior Commercial Officer at the U.S. Embassy in Hanoi, has already presented the detailed overview Vietnam Country Outlook, so I ll just spend about 15 ~ 20 minutes talking about some interesting highlights, conversation-starters, about Vietnam s economy and business opportunities and challenges. Then we can have Q&A, together with my business partners, Peter Sognefest, CEO of Southeast Asia Manufacturing Operations Consultancy. (SEAMOC), and Bill Gadd, CEO of Vietnam B2B Direct, which provides supply chain management solutions specializing in Vietnam sourcing, manufacturing, importing and exporting. 1

2 Vietnam-U.S. Trade, (US$ billions) $20 $18 VN-US Trade after BTA, WTO $16 $14 $12 $10 $8 VN Imports VN Exports Total Trade VN Apparel Exports $6 $4 $2 $ Strong growth in VN exports to USA following the BTA entry into effect in Dec 2001 and WTO accession in Nov/2006 and Jan (light blue bar = VN exports to USA) Apparel and other consumer goods are the main VN exports 42% of VN Exports to USA are apparel. (Red line) 2/3 are consumer goods: apparel, footwear, furniture 55% of VN apparel exports go to US, about 18% to EU, 11% to Japan, so the U.S. market is almost 2x as large as the EU and Japan markets combined. Employing millions of young Vietnamese in partner factories from Korea, Taiwan, Hong Kong, Singapore. Not many U.S. owned factories yet. A key Vietnam reason for the BTA and WTO was access to the U.S. market for apparel Structural deficit along the lines of US-Japan, US-China, US-ASEAN with imports from the U.S. far below the exports to the U.S.= major trade deficit. (see maroon bar = U.S. exports to Vietnam) Need to improve market access under BTA and WTO commitments. 2

3 (Note: China here is PRC only, and does NOT include Hong Kong SAR, and does not include Taiwan in this chart) ASEAN is a larger market for U.S. exports than Japan ($70 bn - $60 bn), about 2x ($70 bn vs $39 bn) as large as Korea, and 3x as large as India ($70 bn vs $19 bn) But the ASEAN market has not kept pace with China, which has grown strongly since China became a member of WTO in Regional economic integration through the ASEAN Blueprint 2015 should give greater export opportunities in the large ASEAN single market (500 million population, etc.) In addition, U.S. firms China Plus One, strategy to include ASEAN should have a positive impact. Note: exports to Japan have not changed substantially over the past 15 years, since

4 (Note: the China Economic Area includes China, Hong Kong, and Taiwan) If we add exports to Hong Kong and Taiwan to China, for the China Economic Area, then it is almost twice as large as exports to ASEAN. ($144 vs $70 billion). 4

5 U.S. (related) FDI in Vietnam! (FMCG) Coca-Cola, Pepsico, P&G, 3M, Kimberly-Clark! (Partner Factories) Apparel, Footwear, Furniture! ( Third Wave ) Modern Manufacturing (Intel, Digital Logic, ) 20+ Fortune 1,000 firms visited Jan-Jun 2010 There have been three waves of U.S. - related Foreign Direct Investment interest in Vietnam. The First Wave was in the period , and represented mainly by Fast Moving Consumer Goods companies establishing their brands in Vietnam. The Second Wave came with the Bilateral Trade Agreement (BTA) between Vietnam and the U.S., signed in July 2000 and entered in effect in December 2001, which saw U.S. import duties on VN products reduced from an average of 45% to 3%. Many partner factories from Korea, Taiwan, Hong Kong, etc. were set up in Vietnam so provide consumer products to major U.S. retailers such as Nike, J.C.Penny, Target, The Limited Brands, etc. The Third Wave of modern manufacturing of high-technology products for global markets started as Vietnam became a member of the World Trade Organization (WTO) in Nov 2006/Jan Intel was the first major investment in modern manufacturing. Many Fortune 1,000 companies have visited in recent years to consider establishing a production facility in Vietnam. 5

6 Intel Chose Vietnam Intel s original commitment to build a $315 billion Assembly and Test Facility in SHTP in Feb 06 was increased to $1 billion in Nov Ksf (46,000 sqm) Assembly & Test Facility, clean room as large as 5 1/2 football fields, largest in Intel, 2x as large as next largest, 4,000+ Local Employees when fully operational. Supports Intel s World Wide Markets: 1mm computers a day being shipped worldwide. Intel processors in 85% of those. Export Value at full production = $5-6B USD / Year. Why did Intel choose Vietnam? -- Education -- Infrastructure -- Business-like attitude of National and Local Govt -- Want a facility in ASEAN ( China + One ) Adjusting global production facilities in the global economic crisis. Closing facilities in Malaysia, Philippines. Nike closed one factory in VN, two or three in China. Read More about Intel in Vietnam: 6

7 SHTP Saigon Hi-Tech Park Saigon High - Tech Park is the location of Intel s A&T Facility Many international firms have invested here. Read more Presentation by Saigon Hi-Tech Park, Dec 16, 2010 SHTP: U.S. High-Technology Companies Success Stories 7

8 Opportunities for U.S. Business! National Greenfield Vietnam needs what U.S. companies offer > 6% GDP growth over the past 5 years ~ 85 million people, large potential market Young and energetic work force! Clear Reform & Integration Strategy New Strategies (UNCTAD, OECD, Michael Porter)! Vietnamese Diaspora Most accept current reality Strong Cultural Links with U.S.! Pragmatic Attitude re: Trade & Investment! Stable political climate UNCTAD Investment Policy Review of Vietnam Key point: The proposed new policy would shift from promoting laborintensive, export-oriented manufacturing FDI to promoting international investment in infrastructure (electric power, transportation & distributinon, telecoms, etc.) and in services, to provide higher valueadded to Vietnam s economy, including higher-income jobs. OECD Policy Framework for Investment (Vietnam) Key point: The Policy Framework for Investment (PFI) is a tool, providing a checklist of important policy issues for consideration by any government interested in creating an environment that is attractive to all investors and in enhancing the development benefits of investment to society, especially the poor. Vietnam Competitiveness Report, 2010, by Michael Porter, et. Al. Key point: Vietnam s growth since the mid-1980s has been driven by transition and structural change. However, the economic logic behind this growth model has limited potential. The highest level of prosperity possible is defined by the level of productivity unskilled workers can reach in manufacturing. Vietnam needs to move beyond this current low-cost labor model toward productivity and competitiveness as the core of growth. 8

9 Challenges for U.S. Business! Pace of Change ( 3 x 3 )! Vietnam s Protectionism Market access is more than FX exchange rates! State-Owned Enterprises (SOEs)! Infrastructure Power, water, roads, ports, airports, broadband! Regulatory Burden (esp. import/export) E-Customs needed! Supply Chain Localization Cost, Quality, Technology Advanceement! Human Capital Need to modernize education from theory based to applied/practical applications Using 2010 survey data from 7,300 businesses in Vietnam that describe firm perceptions of their local business environments and hard data, the 6th year iteration, the Vietnam Provincial Competitiveness Index (PCI) 2010 continues to assess and benchmark the performance and capacity of all 63 provincial and city governments within Vietnam to develop business-friendly regulatory environments for private sector development. Of specific relevance to foreign businesses this year is the PCI 2010 report s special feature on the first time survey results from 1,155 foreign invested enterprises from 47 different countries located throughout Vietnam, including: Performance profiles; Drivers of firm investment location decisions; Perception and perspective of the Vietnamese business environment. Equip yourself with the most up-to-date information on the current foreign investment profile and governance and competiveness of all 63 provinces in Vietnam. Click here to view Executive Summary, Powerpoint Presentation on Key Points, and/or download the complete report: 9

10 Market Access - Retail Example! Limit to one foreign-owned retail establishment! Definition of retail! Economic Needs Test For 2nd and additional Normally banned by WTO! Vague ENT decision factors existing establishments stability of market geographic scope Read more Concerns re WTO Commitments: Trading Rights and Distribution Rights Letter to Minister of Industry and Trade re Trading Rights (Decree 23 and Circular 9) Letter fr Minister of Industry & Trade re Trading Rights (Decree 23 and Circular 9) 10

11 WTO Phase-ins: Trading & Distribution! Distribution % JV % Wholesale Agency Retail, but Economic Needs Test forever! Warehousing 2007: 51% JV 2014: 100%! Freight Agency 2007: 51% JV 2014: 100%! Advertising 2007: 51% JV Never: 100%! But The following are excluded: cigarettes, cigars, books, newspapers and magazines, video recordings, precious metals and stones, pharmaceutical products and drugs, processed oil and crude oil, rice, and sugar. Read more: Doing Business in Vietnam 11

12 Domestic Economic Changes It s important to realize that things have really changed in the last ten years, and especially in the last two or three years. Here is a before and after picture of some living conditions in HCM City, after 10 years. 12

13 Domestic Economic Changes Two images of famous old buildings, the old French Customs house on the upper left, the first western style building in HCMC, Ho Chi Minh left Vietnam from here in 1911, not returning until 1939, On the lower left the Majestic Hotel, built in On the right is the Bitexco Financial Tower, which opened in Oct At 262 meters, it will be Vietnam s tallest tower. Designed by New York architect Carlos Zapata Studio and carried forward by AREP of Paris, the design consists of 68 floors of office space, 6 basement floors of parking and a 5-floor retail podium. 100,000 square meters of commercial space will be created in the building. Project management by Turner International, from NYC Read More: 13

14 Southern Key Economic Region Ho Chi Minh City is Vietnam s economic and business hub, -- 2/3 of international flight arrivals and departures, percent of container shipments, percent of consumption of steel products, and together with neighboring provinces in Southern Key Economic Zone, account for nearly percent of Vietnam s Gross Domestic Product. -- 2/3 of the beverage can production (3.2 bil in Southern Vietnam vs 1.5 bil for Northern Vietnam) The city center is 60 km (37 miles) from the Eastern Sea (South China Sea), with a population of about 5.6 million, or 6.7 million including the suburban and rural areas. The greater metropolitan area, is 9 million people. By 2020, the population of the Southern Key Economic Region (SKER) is projected to reach 20 million. Read more: There are similar Central Key Economic Regions and Northern Key Economic Region. Read more: 14

15 Southern Key Economic Region HCMC Development to the Year 2020 Read More: 15

16 Southern Key Economic Region Infrastructure in the Southern Key Economic Region 16

17 Southern Key Economic Region New deep water points in Cai Mep. Read more: Cai Mep Deepwater Ports: Nov 23, Oct 27, Aug 20,

18 An Interstate Highway System for the Greater Mekong Subregion (GMS). The Asian Development Bank (ADB) is supporting the development of infrastructure in the Greater Mekong Subregion, including transport infrastructure such as the East-West Corridor and the North-South Corridor, as well as telecommunications infrastructure. In Vietnam, the ADB assistance strategy to Vietnam for the period includes a plan to provide US$ 3 billion in Apr 4, And $10 billion Sep 28, 2010 ADB Projects & Priorities in Vietnam and the GMS (GMS Rail Project) 18

19 EWEC: Road Section in Lao PDR (before upgrading) EWEC: Road Section in Lao PDR (after upgrading) An Interstate Highway System for the Greater Mekong Subregion (GMS). The Asian Development Bank (ADB) is supporting the development of infrastructure in the Greater Mekong Subregion, including transport infrastructure such as the East-West Corridor and the North-South Corridor, as well as telecommunications infrastructure. In Vietnam, the ADB assistance strategy to Vietnam for the period includes a plan to provide US$ 3 billion in Apr 4, And $10 billion Sep 28, 2010 ADB Projects & Priorities in Vietnam and the GMS (GMS Rail Project) 19

20 GMS Connectivity Road Transport Network 1992 An Interstate Highway System for the Greater Mekong Subregion (GMS). The Asian Development Bank (ADB) is supporting the development of infrastructure in the Greater Mekong Subregion, including transport infrastructure such as the East-West Corridor and the North-South Corridor, as well as telecommunications infrastructure. In Vietnam, the ADB assistance strategy to Vietnam for the period includes a plan to provide US$ 3 billion in Apr 4, And $10 billion Sep 28, 2010 ADB Projects & Priorities in Vietnam and the GMS (GMS Rail Project) 20

21 GMS Connectivity Road Transport Network 2006 An Interstate Highway System for the Greater Mekong Subregion (GMS). The Asian Development Bank (ADB) is supporting the development of infrastructure in the Greater Mekong Subregion, including transport infrastructure such as the East-West Corridor and the North-South Corridor, as well as telecommunications infrastructure. In Vietnam, the ADB assistance strategy to Vietnam for the period includes a plan to provide US$ 3 billion in Apr 4, And $10 billion Sep 28, 2010 ADB Projects & Priorities in Vietnam and the GMS (GMS Rail Project) 21

22 GMS Connectivity Road Transport Network 2015 An Interstate Highway System for the Greater Mekong Subregion (GMS). This will have a major impact on the transportation/distribution systems and the economic development of the region. The Asian Development Bank (ADB) is supporting the development of infrastructure in the Greater Mekong Subregion, including transport infrastructure such as the East-West Corridor, North-South Corridor as well as telecommunications and other supporting infrastructure. In Vietnam, the ADB assistance strategy to Vietnam for the period included a plan to provide US$ 3 billion in Apr 4, 2007 And $10 billion Sep 28, 2010 ADB Projects & Priorities in Vietnam and the GMS (GMS Rail Project) 22

23 FCPA: VN is high-risk Vietnam is a high-risk environment for possible violations of the U.S. Foreign Corrupt Practices Act. Read more: Foreign Corrupt Practices Act (FCPA) News and Updates Vietnam ranked 116 out of 178 countries, at 2.7 (highly corrupt) in the Transparency International - Corruption Perceptions Index TRACE International, Inc. TRACE is a non-profit membership organization that provides several core services and products, including: due diligence reports on commercial intermediaries; model compliance policies; an online Resource Center with foreign local law summaries, including guidelines on gifts and hospitality; inperson and online anti-bribery training; and research on corporate best practices. TRACE was founded to achieve economies of scale and set a common standard for two shared elements of anti-bribery compliance: due diligence reviews and anti-bribery training for business intermediaries and company employees based around the world. 23

24 SEAMOC Peter Sognefest My partners in this presentation are Peter Sognefest and Bill Gadd. Peter Sognefest is President and CEO of SEAMOC, and provides guidance and management skills that will help assure the success of a factory start-up in Asia. Peter has started and managed ten factories with seven of them offshore start-ups. They were all successful without "spin-off" or "technology rip-off" problems. Each Asian factory became the productivity, quality, yield and cost leader in the parent company's factory portfolio. Peter has provided leadership for start-ups in Vietnam, China, Malaysia, Taiwan, Mexico and Puerto Rico. A partial list of keys to this success is as follows: 1. Site Selection - For each Asian country location, choose an Industrial Park and province that has a track record of honesty. It assures "hassle free" operation from the beginning of the program. 2. Key Asian Management - Seamoc does background checks and selects the management team with the "right" individual personality profiles and skill sets to help assure short-term and long-term success. 3. Training - Seamoc Mentors the Asian and United States manufacturing teams to work together for mutual success while focusing on the details of the start-up plan. 4. Management - Seamoc manages the Vietnam Team until the start-up is successfully completed. 5. Start-up Plans and Feasibility Studies - This service completes a start-up plan with the cash needed to become profitable. It also answers the questions to determine if Vietnam or China make sense for your company Click this link to read more: 24

25 VietnamB2B Bill Gadd My partners in this presentation are Peter Sognefest and Bill Gadd. Bill Gadd is CEO of Vietnam B2B Direct An International Entrepreneur and Business Leader, multi-skilled in business startups, marketing, sales, administration, management and leadership for the past 29 years. He has built 7 successful solely owned corporations and participated as a key player involved in the planning, launch and growth of numerous national and international companies. Vietnam B2B Direct has been in Vietnam for the past 6 years. Our Head Office is conveniently located in downtown Ho Chi Minh City in the Me Linh Point Tower. Our 3 storey Branch Office is located close to the Tan Son Nhat Airport - HCMC. We have additional offices in Ontario, Canada and Missouri, USA with Representatives in Hanoi, Vietnam.Our regular customers particularly value our skilled local Vietnamese English-speaking Management Team trained in both Western and Asian business practices... our performance and results oriented successes... and our timely communication and reporting activities. Vietnam B2B Direct bridges the gaps in communication and Asian business culture achieving better results and business relationships on behalf of our clients.vietnam B2B Direct Management Group consists of local well educated, English-speaking Vietnamese Staff trained in Western Business Standards and highly skilled in Business Sourcing, Supply Chain Management and Trade Solutions.Vietnam B2B Direct maintains its own internal database with detailed information on over Vietnam Companies from previous factory visitations and assessments. Click this link to read more: 25

26 Contact us! Peter Sognefest President & CEO Southeast Asia Manufacturing Operations Consultancy Bill Gadd CEO Vietnam B2B Direct Herb Cochran Executive Director AmCham Vietnam (HCM City) 26

27 China Plus One = Vietnam and ASEAN Asia - Pacific Business Outlook Mon-Tue, Mar 28-29, 2011 Herb Cochran Executive Director AmCham Vietnam Questions? 27