Interview: Saigon Hi-Tech Park and Vietnam Infrastructure

In this exclusive and in-depth interview, VentureOutsource.com speaks with Saigon Hi-Tech Park (SHTP) president Nguyen Dinh Mai about the Park and Vietnam's infrastructure and developing electronics industry. Mr. Mai Nguyen talks about some of the challenges facing Vietnam and SHTP and shares thoughtful insight into what's being done to further develop Vietnam's infrastructure, increase foreign direct investment (FDI), encourage multinational corporations (MNC) to set up business operations with SHTP, electronics industry trends, and more. Transcripts from that discussion follow. VO: Vietnam continues to attract technology company business and investment. Meanwhile, the country predominately relies on hydroelectric power for electricity which can be vulnerable to weather conditions. The electronics industry has a high electricity consumption rate and some shortages in electricity have occurred in Vietnam in recent years. What can you share with executives interested in setting up businesses in Vietnam but may feel reluctant to do so because their companies may not have the resources required to invest in and create their own uninterrupted supply of energy or power, on-site? Mr. Mai Nguyen: I can address this question from two different levels of perspective: the national level and the Saigon Hi-Tech Park (SHTP) level. National level We acknowledge Vietnam has been experiencing power shortages. This is due to the rapid development of multiple industries internal Vietnam in addition to rising electronics manufacturing foreign direct investment (FDI) - both which require a lot of power and thus also impact the country's competitiveness. To address the problem, the government has laid out a strategy to liberalize Vietnam's power sector and diversify power sources to make the country less reliant upon hydroelectric power. Vietnam is gradually opening up so that by 2020, multiple entities - in addition to Electricity of Vietnam Group (EVN) - will have joined the market to help generate power and either resells their power to EVN for trading and retailing or sell it directly to end-users. (See, also: Steps to develop and promote Indian EMS, and Economic challenges and drivers when creating regional electronics industry) This strategy, once fully implemented, will create a competitive retail power trade market in which customers, be they individuals or businesses, select power suppliers at their discretion based on supplier pricing; power quality, and reliability. Such an energy market will help guarantee power is generated and supplied from multiple suppliers at competitive costs to help meet growing economical demand.  

Nguyen Dinh Mai President Saigon Hi-Tech Park (SHTP)

  In the meantime, although power generated by these additional entities is not yet allowed to be sold directly to end-users, the power can be resold to EVN (which ultimately increases Vietnam's total available power supply) thus partially addressing the energy shortage. As for power ‘source' diversification to help Vietnam become less dependent on hydroelectric power, the following alternatives or, developments, are being considered or are already underway:

• Build more thermal power plants and locate these power plants close to Vietnam's ‘material zones' rich in natural resources. This effort includes coal-driven power plants (predominantly in Northern Vietnam where coal is abundant) and combined cycle gas turbine (CCGT) power plants (along the coastal and Southern areas rich in oil and gas). The government is also drafting a feasibility study to develop Vietnam's first nuclear power plant (2,000 megawatts or MW) expected to become operational after 2015.
• Purchase power from China, Laos, and Cambodia. EVN is constructing several power plants in Laos. The current power capacity result being routed to Vietnam currently is roughly 2,000 MW.
• Create additional power using recycled materials and alternative energy sources such as solar and wind power. These energy source types can be used predominantly in remote and highland areas where the national grid has yet to reach.
• Continue to build more hydroelectric power plants at all technically feasible locations with design emphasis placed on mini-plants. Taking the above into consideration, Vietnam's total hydroelectric capacity should be around 15,000 MW by 2020.

  Saigon Hi-Tech Park level SHTP faces similar challenges since our power is currently supplied by EVN. However, the Park is afforded priority status in such that SHTP is provided two independent power sources. This helps ensure chances of continuous power because if one source is down, the other source can still supply power to Park tenants. Priority status also means the Park is the last to be interrupted (and the first to be restored) in the event of power black-outs due to scheduled maintenance or force majeur. At the same time, SHTP has collaborated with Sumitomo Corporation to complete a feasibility study to develop the Park's own power plant. This power plant will run on natural gas and is intended to join the grid by the end of 2009. Although growing quickly, Vietnam is still a developing country and as such still experiences many related deficiencies such as power shortages. Since improving Vietnam's system for power will take some time (against limited State resources), the government is promoting our nation's industrial park model in a manner whereby specific resources are dedicated to smaller zones. This improves each zone's ability to meet international standards while also meeting requirements of foreign companies.   VO: Economically, Vietnam has one of the smallest GDPs of developed nations in the region but one of the fastest growing GDP rates. Industrial growth had been at 10% for the past decade. Meanwhile, Vietnam has a steady but high inflation rate and consumer prices have increased over 7% each year. Corruption is also a high profile issue. Add to this, the judiciary system can be viewed as relaxed. What is being done for executives considering building businesses in Vietnam so they can feel rest assured their workforces will be economically motivated and corporate business differences brought before the courts, such as intellectual property (IP) disputes, will be dealt with judiciously? Mr. Mai Nguyen: Inflation is an indispensable part of any country experiencing a rapid growth rate. Vietnam is no exception and has gone through a very challenging 2005 in which the country's inflation rate exceeded what was anticipated. Vietnam's government has taken several measures in 2006 and still, through 2007, to hammer out the problem. Among these measures include a tightened monetary policy and establishment of a quasi governmental watchdog group to closely monitor Vietnam's consumer price index. Attention is also being focused on pricing for several crucial commodities such as medicine, gasoline, and food so that corrective measures can be executed immediately should prices of these products rise significantly -- following worldwide trends. One example of this includes several reductions in gasoline import duties when world petrol prices had skyrocketed. This provided Vietnamese gasoline importers opportunity to pass their savings to local economies to help stabilize the market. Within the next three years, when Vietnam fully executes its World Trade Organization (WTO) commitments, all market sectors will be open. This will allow imported products to compete head-to-head with Vietnam domestic products and Vietnamese consumers will find they will be afforded more competitive prices. Equal attention and resources are also being dedicated to intellectual property (IP) protection. Multiple procurement agreements have already been signed between Vietnam government agencies and Microsoft, as well as with other international software vendors, to promote distribution and usage of ‘legitimate' software in the market. At the same time, local authorities are collaborating with software vendor representatives to crack down on sales of pirated software copies. When disputes do emerge, businesses can raise the issues with local arbitrators, or international arbitrators, to make sure cases are tried fairly. Since Vietnam is in strict compliance with regulation set forth by the WTO, in which IP protection is a very key item, businesses can also elevate disputes to the WTO if they find disputes are not being dealt with properly at local levels. Personally, I believe intellectual property protection issues and infringements in Vietnam are not as thorny and acute as those in other countries across Asia. Vietnamese people prefer brand names plus quality whenever they can afford either or both. This helps explain why Vietnam's consumers would rather purchase a used Honda scooter over a brand-new copy from China. Thus, I have confidence as Vietnam's income per capita continues to improve (as a result of reforms) and as corporations continue to work with local authorities to offer localized and legitimate product at competitive prices, problems with intellectual property protection and infringements will resolve themselves.   VO: From a supply chain infrastructure perspective, Vietnam's transportation network continues to evolve. While air and sea ports have improved in recent years, cost for shipping from Vietnam still remains higher vs. shipping from Shanghai. Additionally, less than 45% of Vietnam's roads are covered in asphalt. What are your thoughts on what is happening in the country currently and, how are these changes going to help improve the competitiveness of companies with global operations supply chain requirements? Mr. Mai Nguyen: Using official development assistance (ODA) and export revenue, Vietnam's government continues to spend billions of U.S. dollars on its infrastructure with emphasis on power and energy; roads and bridges, and deep water ports. Over the last two years, Vietnam has invested approximately ten percent of its gross domestic product (GDP) into the country's infrastructure. Many bridges connecting the southern region of the country with the central and northern areas have been built recently to help ensure good flow of transportation and commerce from North to South. Additionally, another North-South highway is currently being developed that will run parallel to an existing one. Vietnam is also seeking assistance from Japan to help finance construction of a new high-speed railway for passenger transportation whereby our currently existing railway will then be used exclusively for transportation of goods. A new airport terminal in Hochiminh City (South Vietnam) able to accommodate 15 million passengers will also be operational September 2007 while planning for an additional airport terminal, to be located in central Vietnam, is already underway. These changes will help improve the transportation of goods via air, sea, and railway. As for shipping costs, these are not something that can be lowered overnight. Although the government has already streamlined related administration and customs processes to remove redundant fees, our total shipping costs are still higher than those in the Asia region. The long-term solution is to liberalize the logistics industry so that companies with economies of scale can enter the market and offer cost-competitive pricing options.   VO: Production of electronics goods in Vietnam is growing rapidly yet most of the country's imported electronics components are sourced from China; Japan, Taiwan, and South Korea - with tariffs on these imports up to 30%. This will change as the country's electronics industry supply base continues to develop. In what ways does the South Asia Free Trade Agreement (SAFTA) help make the decision more compelling for executives looking at Vietnam? Mr. Mai Nguyen: The Association of Southeast Asian Nations (ASEAN), along with China; Japan, and Republic of Korea (ROK, or South Korea) each signed three Framework Agreements to support comprehensive economic partnerships. Titled ASEAN+3 FTA, the shared rule of behavior mechanism's mission is to minimize barriers and deepen economic relations between ASEAN and China, Japan, and ROK; lower total cost of business, increase intra-regional trade and investment, improve economic efficiencies, and create a larger market with greater opportunities and larger economies of scale for the businesses of ASEAN; China, Japan, and ROK. Import tariffs among member countries will also be lowered to less than 15% while intra-regional investments will be increased -- as countries offer special treatment to one another. As a member of ASEAN, Vietnam is fully entitled to the benefits brought about by these agreements. Technology MNCs investing in Vietnam will be able to import parts and components (against lower import duties) from China; Japan, and ROK and, at the same time, be able to export their finished products to agreement member countries without being saddled by numerous barriers. Although, when looked at independently, these mechanisms might not put Vietnam in a better position than other neighboring countries when competing for FDI, the benefits thereof combined with Vietnam's other competitive advantages, such as low cost and quality labor and political stability, will definitely help make Vietnam more compelling to foreign executives considering the country as an alternate host for their business investments. VO: What trends do you see taking shape in the electronics product manufacturing industry over the next five years and, how do you see Vietnam playing into the demands created by some of these changes? Mr. Mai Nguyen: The electronics manufacturing industry is going through a series of evolutionary changes, including greater integration of electronic functions into products and continued movement of outsourcing and electronics product manufacturing to Asia (including China, Thailand, the Philippines, and Vietnam). The convergence and integration of functionality will be the primary driving force (or trend) in the electronics manufacturing industry for years to come. The market itself, as well as emerging technologies supporting the market, will be driven by changes in wireless, digital, and consumer electronics. One recent example of this is the introduction of Apple's iPhone. It began as a digital music player, then the iPod transformed into a combination media box; portable hard drive, and wireless smart phone. Trends such as this will continue to drive industry growth to meet global customers' demand for a ‘magic box' that is small and portable (ease of use), multi-functional (functions) and Internet-connected (accessibility). The second trend reflects the goal of every corporation: produce more at lower cost. So far, the most successful beneficiaries include China for manufacturing, India and the Philippines for software outsourcing and, Singapore for design and R&D activities. Vietnam entered this market in early 2000, and it seems most investors selecting Vietnam have come to find what it was they could have also found in China and India. On the above note, first, Vietnam has a very young, large, educated and hardworking workforce that can be ideal for manufacturing activities. Second, Vietnam's education system, with strong focus on natural sciences (mathematics), creates a good foundation for outsourcing - beginning with IT activities such as code writing and application development. More importantly, Vietnam is still a low cost manufacturing destination for labor while our local workers adapt quickly to working environments. Third, social and economic conditions in Vietnam are more or less similar to those found in China and India. Such similarities and advantages help to place Vietnam in a favorable position for consideration to be the next global destination for electronics investment. This is further supported by recent technology investments in Vietnam by Intel and electronics contract manufacturing and design companies Jabil Circuit and Foxconn. To fully leverage this opportunity, the Vietnamese government rated the electronics sector very high in relation to contributing toward our nation's overall development strategy. On May 30th of this year, Prime Minister Nguyen Tan Dung approved the Master Plan for Vietnam Electronics Industry Development through 2010 in which the electronics industry will strive for a target range of US$4 billion to $6 billion in production value; export revenues of US$3 billion to $5 billion, and jobs created for 300,000 people. Looking out further on the horizon to 2020, electronics will be a major export product for Vietnam with the number of jobs having been created employing 500,000 people in industry, including an engineering-capable workforce steadfastly built-up over time. Meanwhile, concurrently at the local level, more industrial zones and high-tech parks are already being developed to add to our existing network. Educationally speaking, curriculums are being amended to provide more industry-focused courses to help raise the intellectual bar for our workforce so our workers are better prepared to provide more value-add activities and services.   VO: The Saigon Hi-Tech Park is an economic hub in South Vietnam that covers more than 900 hectares (1 hectare = a unit of area equal to 10,000 meters) and is set up as a technology-based economic zone. What is the Park doing to help attract global electronics contract manufacturing companies into the region and what, in particular, are some of the ways the Park can help these companies to become more competitive - from both a technological and a supply chain perspective? Mr. Mai Nguyen: Since SHTP's inception (early 2003)...to help attract global electronics contract manufacturing companies into the region, SHTP has prepared what we call, the five (5) readinesses:

1. Readiness of land, utilities Power; water supply, waste water treatment, telecommunication and related infrastructure items.
2. Readiness of information Information about Vietnam's investment environment; licensing, admissions criteria, zoning regulations and construction specifications, the supplier base, and accommodations. SHTP also collaborates with local and regional investment promotion agencies such as the American Chamber of Commerce (AmCham), the European Chamber of Commerce (EuroCham), the Korea Trade-Investment Promotion Agency (KOTRA), the Japan External Trade Organization (JETRO), and with overseas Vietnamese networks such as Vietnamese Silicon Valley Network, to help ensure information reaches interested parties.
3. Readiness of incentives The Park is authorized to offer incentive packages that include tax incentives (corporate income tax, VAT, import and export duty) and competitive land rental arrangements and fees to make sure Park tenants have the lowest start up and production costs available in Vietnam.
4. Readiness of one-stop shop and simple licensing procedure The Park is authorized to provide application guidance; review and issue of business licenses, construction permits, and other related post-licensing services to help fast-track tenants toward becoming operational. SHTP also helps guide higher value capital and related technology investment projects through their review and approval process when central government approval is required.
5. Readiness of workforce SHTP is in close proximity to many educational institutions and has good relationships with local universities thus allowing tenants to gain access to a qualified workforce

  To assist existing and prospective business investors in enhancing their corporate competitiveness in terms of supply chain development, the Park is working with tenants to build a database of local suppliers and make this information available to Park tenants. This supply chain is expected to grow over time to then be able to supply tenants their needed parts and components. Realizing high-tech product life cycles are very short and through-put times should be reduced as much as possible, SHTP also offers onsite and electronics customs clearance. The Park has earned the local customs bureau's commitment whereby customs clearance for high-tech project shipments should not exceed four hours. SHTP is also working with Intel Products Vietnam to develop an electronic data interface (EDI) system that helps streamline customs procedures, electronically. Technologically speaking, SHTP is developing R&D facilities, including five specialized laboratories: nanotechnology, precision mechanics, information technology, semi-conductors and bio-technology. In partnership with Japan's Nidec Corporation, Saigon Hi-Tech Park is scheduled to complete construction of two of the five laboratories (precision mechanics, nanotechnology) by the end of 2007. Concurrently, SHTP is again working with Intel Products Vietnam to invite U.S technology universities and training institutions to open branches or set up facilities inside the Park. Finalists will be selected by August 2007 with expectations to be operational by late 2008. These institutions will join hands with the SHTP Training Centre to help us further develop a quality workforce and supply research expertise for Park tenants.   VO: What is the last book you read, why did you choose this particular book, and what did you like most about the book? Mr. Mai Nguyen: I have two books to select. I found "The World is Flat" by Thomas Friedman and "The Innovator's Dilemma" by Clayton M. Christensen both to be my favorite. The opportunity for me to read each book came as a nice surprise. The first book was given to me by a Dell executive as a token of appreciation between the Park and Dell Computers. The latter was given to me by one of my colleagues. Since I enjoy reading, I could not say no to either opportunity. Although there are many nice things I could say about each book, the key thing that impressed me the most is that both books share the same theme regarding opportunities: opportunities are limitless for each person as long as each person has the guts and the means to seek what they want. Vietnam, being a late-comer and a small-player, still has a chance. And, who knows, maybe our nation will find a good nitch and disrupt the global manufacturing destinations already established -- and she will rise above them.   VO: Thank you, Mr. Nguyen Mr. Mai Nguyen: It's my pleasure. Thank you.