Viet Nam has become a viable alternative to China for establishing manufacturing and distribution centres, primarily for export.

Alex Bryant, President of the East West Associates, made the comment in an article, entitled “Viet Nam: The Asian alternative to China,” which was published on the “IndustryWeek.com” website on June 6.

Alex attributed Viet Nam’s significant rise in direct foreign investment and its favourable business incentives, a well-educated workforce and concerns over China's rising costs as key drivers in a shift from Chinese-based manufacturing bases to Viet Nam-based operations.

In comparison to many of its Asian neighbours, Viet Nam has a relatively inexpensive labour force. For factory operators, the average salary is 200 USD per month while key managers and senior engineers are paid 1,500 USD per month, Alex said. Viet Nam has a 48-hour workweek and the government-mandated social programmes are approximately 25 percent of salary costs. In comparison, China has a 40-hour workweek and social costs are 50-60 percent of the operator's salary.

Alex said that the Vietnamese workforce is well educated and hungry. The average age of an operator is 24 and a growing percentage of the workforce has a comfort zone with English as a second language.

In his opinion, the Vietnamese government has implemented an aggressive programme of corporate income tax incentives. This programme involves up to four years of tax holidays following (and including) the first year of 'carried forward' profitability. Thereafter, the tax rate is one and a half that of the nominal tax rate for a period of up to seven years, with a total application period of up to 15 years. The nominal tax rate can be 10 percent, 15 percent, or 20 percent - depending on the industry sector, investment classification and location. The standard tax rate is 28 percent.

The paper quoted Charlie Blocker, managing director of the Gannon Pacific Group, as saying that “the Vietnamese government's tax incentives are among the best in Asia and companies recognise the financial impact these incentives will have to their bottom line revenue.”

Regarding infrastructure development, the paper said that Viet Nam's infrastructure is developing rapidly to meet this new influx of foreign direct investment. While still behind China, the Vietnamese government is committed to developing infrastructural balance, especially electricity and water supply, seaport services and telecom. Bilateral lenders and grants continue to be plentiful.

The paper said that the infrastructure development will give Viet Nam a huge competitive advantage and allow them to further support investors supply chain initiatives and exports to ASEAN, China and North America.

In addition to meeting intellectual property (IP) and legal requirements for WTO admission, the Vietnamese government has taken steps to protect IP and enacted laws providing specific protection for investors. The judicial system of laws affecting foreign investment has continued to see improvement, creating a more transparent and open legal framework for investment activities.

The paper also noted that Viet Nam has developed a relatively large number of Business Parks. The lease rates for land are generally less expensive than China, averaging 20-25 USD per square metre for a 50-year lease. Lease rates in existing, more established parks are more expensive and are approximately 40 USD per square metre.

Ba Ria-Vung Tau, Binh Duong, Dong Nai and Ho Chi Minh City were the most attractive to investors with 213 projects and total registered capital of nearly 2.58 billion USD - approximately 60 percent of total FDI in industrial zones and export processing zones.

The author concluded by saying that Viet Nam offers investors great economic potential and is a leading alternative for companies wanting to diversify their Asian investments. With an inexpensive labour force, exceptional tax incentives and a growing infrastructure, Viet Nam will continue to offer increased investment opportunities for US companies.

Source:  VNAgency