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Dodging vietnam's economic woes

PUBLISHED : Saturday, 19 November, 2011, 12:00am
UPDATED : Saturday, 19 November, 2011, 12:00am

Lee Wang-chung, general director of a Taiwanese family-owned motor vehicle parts plant in Vietnam, has weathered one thing after another since the fast-growing economy started to crack in 2007.

The animated, coffee-chugging 41-year-old former salesman started the factory in 2003. That was well after the communist country opened to foreign investment in 1986 and became a cheap manufacturing alternative to China. The flood of foreign investment helped spur Vietnam's economy to grow by about 7 per cent a year in the 1990s.

There are about 5,000 foreign-owned companies operating in Vietnam now. Most of them are from Taiwan. Like Lee's company, Elma Vietnam Industrial, near Ho Chi Minh City, most of the foreign investors sought to take advantage of cheap labour and low land prices. His 20,000-square-metre factory employs more than 300 workers.

Since 2007, though, macroeconomic problems have become so severe that some foreign investors are shelving their expansion plans, and others are even considering pulling out of Vietnam. Direct investment pledges fell to US$20 billion this year from US$66.5 billion in 2010.

Inflation sometimes tops 20 per cent a month and wildcat strikes headline a list of labour problems. Labour groups logged 336 strikes in the first four months of the year even as minimum wages have climbed over the year to the equivalent of up to HK$575 a month.

The Vietnamese government blames fallout from the 2008-09 global financial crisis for its economic troubles, while analysts point to corruption, property bubbles and weak economic management.

Lee talked about his experience in steering his company around Vietnam's obstacles, and what lessons that holds for other foreign investors thinking of setting up shop there.

Taking the obstacles one by one, how do you cope with inflation?

Inflation is nasty. The government can't get it under control. Recently oil prices have gone down, but material prices haven't dropped with them, so what's going on there? We buy petrochemical products in Vietnam, like some basic cutting materials, but consumption of those is lower in Vietnam, making unit prices higher. Our strategy is to export more, getting US dollars for exchange into dong [the local currency].

Salaries might go up 5 per cent, for example, and the dong drops 5 per cent. With US dollars we can get more.

What about the threat of a weaker dong?

We faced the problem three years ago. Our exports then were 30 per cent [of sales] and domestic 70. Then we increased exports and those have gone up to 70 per cent. We can use US dollars to exchange for dong and make our purchases. It's not a big issue now, but every year the currency falls again.

How did you get so many orders outside Vietnam?

Our main customers are Japanese. They prefer to co-operate with good suppliers, so we just play our role well, and then we can have a steady relationship.

What about labour problems?

In April we had a strike. The strike had no relation to salaries since we ultimately did not give anyone a raise, just an extra work uniform a year.

There were a few people who spread the word because they were in a bad mood one day. The machinists also refused to work extra hours that day. I went down personally to handle things. Then we held a series of meetings with the police and the unions. The most recent strike before that was five years ago.

Is there a secret to finding qualified workers?

The biggest problem in Vietnam is lack of talent, so we've started to develop automation. From last year we brought in a lot of robots to replace people or to cover multiple tasks. The other thing is to train people to take on multiple functions.

That overcomes the lack of talent. But training takes time because people's job stability and job loyalty are at low levels. So, automation is the simplest way. Before, we had one person in charge of a machine, now it's two people for six.

In the past two years we've spent US$5 million on automation. Of a total US$12 million investment in Vietnam, we've spent 65 per cent on machinery and equipment. More is planned over the next five to 10 years.

How can you afford so much automation?

Our orders have gone up so we need it. If you have orders but don't automate, it doesn't pay. Every year we invest in new and modern equipment. We're not adding a lot of workers.

Why isn't there more worker loyalty?

When we first started, we found some elite workers and trained them in Taiwan. But within one or two years they had all left. As soon as someone else pays just a tiny bit more, or if they lose some feeling about the job, they quit.

What kind of hours do you work?

About 14 hours a day.

Is the company growing?

Elma's revenues nearly doubled from US$2.9 million in 2009 to US$5.03 million last year. We forecast US$6.5 million for this year.

But are you turning a profit?

Our profit will be 5 per cent for 2010 after 3 per cent in 2009 [when earnings were hit by the exchange rate].

Do you have any advice for other foreign investors eyeing Vietnam?

If you asked me now, 'should I go to Vietnam?' I would say 'no'. It looks cheap, but prices are going up fast and there's not much domestic market development.

400,000

The number of barrels of oil per day output in Vietnam, Southeast Asia's third-largest oil producer

- Last year's nominal gross domestic product was US$103.12 billion

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