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e-Magazine (For the Japanese version of this article)

Series: The Mekong Region and Japan Part 4: Vietnam (2) Challenges in Vietnam’s Industrialization and the Role of Japanese Companies | Dao Duy An, Executive Deputy President COPRONA Inc. [Date of Issue: 31/August/2012 No.0210-0856]

Date of Issue: 31/August/2012

Series: The Mekong Region and Japan Part 4: Vietnam (2)
Challenges in Vietnam’s Industrialization and the Role of Japanese Companies

Dao Duy An
Executive Deputy President

In 2015, a new economic zone will emerge embracing the 10 ASEAN members and China. Can Vietnam succeed if it haphazardly does the same thing as its Asian neighbours? Vietnam needs an industrial strategy that exploits its particular strengths.

1. Vietnam today

If I may first provide a brief introduction to my company, COPRONA Inc. is a venture firm that aims to link Japan with other Asian countries through business. Our ultimate and very ambitious goal is business with Asia as a whole, but as a starting point into Asia, we want to conduct business with Vietnam, focusing on supporting Japanese SMEs in setting up in Vietnam and arranging bilateral business matching and cultural exchange.

I was born in Da Nang, a city in central Vietnam. Since I came to Japan when I was 18 through the study abroad program run by the Dong Du Japanese Language School, the great majority of my time has been spent in Japan, but I often go to Vietnam as part of my job and I’m still in touch with daily Vietnamese life. The table below is based entirely on my personal experience, but I hope it will provide an image of life in Vietnam.

Table: Cost of living in Vietnam The tight money policy adopted by Vietnam since last year has apparently led many companies to collapse, but that wasn’t my impression when I visited Ho Chi Minh and Da Nang last month. Both cities were as vibrant as usual. I didn’t hear any rumours that people had committed suicide due to bankruptcy. This is probably because Vietnam is a country where people can manage to eat even they are unemployed, thanks to its climate and culture. In Ho Chi Minh, I managed to catch up with old high school friends for the first time in a long time for a drink and a bite to eat. The place was totally full, perhaps because it was noon on Sunday, but still I believe it a good sign for the economy. When I got off the plane in Da Nang, my sister’s husband came to pick me up in a Lexus. His new hotel was apparently finished in April and has been constantly booked out since then. He also has another job at a construction company.

2. The challenges of Vietnamese industrialization

Foreign direct investment (FDI) has been increasing since Vietnam began receiving ODA again in the early 1990s. At the beginning it was mostly large companies, which tended to secure large plots of land in industrial parks, build their own factories, employ thousands of people and set them to work on assembly lines. Unfortunately, 20 years later, an industrial manufacturing culture has not penetrated yet in Vietnam. For example, when I asked a friend of mine who works at an electrical machinery-related company what his company makes, he told me that they made electricity meters. However, when I enquired further, it turned out that the parts were all bought in from China and Taiwan and the company just assembled them, and yet he insists that they are manufacturing. Last November when we held a production management seminar for local companies in Ho Chi Minh, I had a chance to visit a number of factories. One company president boasted that his factory had introduced the 5S management methodology, but when I pressed him further, it appeared that he misunderstood and thought that the 5Ss were production management itself.

The Vietnamese government has set the goal of becoming an industrialized nation by 2020, and to address the pressing task of developing supporting industries, it has designated Haiphong City in the north and Ba Ria-Vung Tau province in the south as supporting industry development hubs and is seeking cooperation from the Japanese government for development support projects.

Possibly as a result of it, this year many missions from around Vietnam have been visiting Japan. One of their aims is to attract Japanese companies. They typically suggest that Japanese companies come to Vietnam to take advantage of the cheap labour, abundant land and investment incentives that Vietnam offers, and say that all industries are welcome except for those which pollute. They don’t seem to have realized yet the damage which the labour-intensive model has brought about in Vietnam up to now.

What we first need to do is confirm what industries Vietnam will target in its industrialization. The industries which are most sought after for industrial parks are always cars, electrical and electronic machinery, and high-tech companies, but is that sufficient? Vietnam can’t beat China when it comes to mass-producing goods cheaply, nor does it have the base or strength to tackle leading-edge manufacturing. Vietnam has to do something which only it can do. To that end, Vietnam needs to reaffirm where its appeal lies.

3. Vietnam’s appeal

Firstly, Vietnam is a great food producer, but can’t add value to its foods. It needs to introduce and improve breeding, cultivation, preserving, processing and management technologies and create offshore sales channels, and there are many things that Japanese companies can do in that regard.

Next, Vietnam has a huge number of natural energy sources. It has more average sunshine hours than Japan, and as a monsoon region, it also has great wind power generation potential. Power is currently cheap in Vietnam, so electricity sales lack appeal, but imagine if Vietnam could be constantly producing massive amounts of green energy. One day in the future, Vietnam could become the world’s green charging station.

Another possibility relates to Vietnam’s abundant nature and its popularity with tourists from abroad. The tourist industry is still only showing off Vietnam’s sights, which makes it difficult to secure repeat visitors. Vietnam’s tourist industry has enormous development potential. It just needs a little ingenuity, and there again a lot could be learned from Japanese companies. If the tourism industry advances, supporting industries such as bus companies, hotels, bars and restaurants will also flourish.

I believe Vietnam’s greatest attraction for the Japanese market in particular, however, is its human resources. As a Vietnamese myself, I may seem biased, but most Vietnamese are loyal, compassionate, motivated and pro-Japan. Naturally, there are differences among individuals. Thanks largely to the influence of Buddhist philosophy, Vietnamese people think very like the Japanese. The Vietnamese also have little prejudice toward the Japanese in relation to historical issues. In that sense, Japanese and Vietnamese people would make great business partners.

4. Conclusion

In 2015, a new free trade economic zone will emerge that embraces the 10 ASEAN members and China. Can Vietnam succeed if it simply haphazardly produces the same cars and electrical and electronic machinery as its Asian neighbours? If it loses out in international competition, business opportunities will be lost and Vietnam will suffer enormous economic damage. Vietnam accordingly needs to launch industrial development based on a strategy that enhances its own strengths. The contribution of Japanese firms will be vital to that end, and we can expect a win-win relationship as a result.

COPRONA Inc: https://coprona.com/

(original article : Japanese)

(For the Japanese version of this article)

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