While domestic companies are struggling for survival, foreign invested corporations are enlarging manufacturing, especially in Vietnam’s key export sectors. Textiles, leather, plastic, mechanical, etc., seem to be Vietnam’s strength for low cost labour, simple technology, but export increasing mostly comes from foreign invested companies.

Only in term of capital, in October, there were 359 FDI projects registered to capital increasing with the amount of 3.8 billion US dollars, 12.3 percent more than same period 2011.

Massive capital increase, plant expansion.

In recent days, thousands of workers at Sai Gon Precision Company Limited (Linh Trung I industrial zone, Thu Duc, Ho Chi Minh city, 100 percent Japanese capital, operate in the precision engineering field) are rushing with new orders, company leaders are also busy with plant expansion plans after increasing capital 25 million US dollars more.

“Demand for precision, high technology product is high, so this capital increase is for the purpose of having two more mould placer and plastic compression mould producer lines in the area of 2,500 m2″, said Nguyen Minh Tuyen, head of Sai Gon Precision administrative management department. Currently Precision owns three factories and 2000 workers, located at Linh Trung industry. Next August, when a new 25 million US dollar invested factory operates, 250 more people will be hired

Nobland Vietnam Company limited has just decided to increase capital by 17 million US dollar and to hire 11,000m2 in Tan Thoi Hiep industrial zone (district 12) to enlarge their sewing lines. According to Lee Ho Young – head of human resource department, the parent company in Korea has subsidiaries in China, Indonesia, but compared to these countries, Vietnam offers more advantages in manufacturing and investing environment so they decided to expand operations in Vietnam. Now, Nobland Vietnam has 72 sewing lines and 5,500 workers.

Not only Nobland Vietnam, other companies from China, Taiwan is planning rapid expansion. The Formosa textile Company was announced to undertake capital increase by 30 million US dollars on 31 October; and Texhong Vietnam (Nhon Trach, Dong Nai) also has just enlarged producing scale from 30,000 tonnes per year to 150,000 tonnes per year, and increased capital from 80 million US dollar to 150 million US dollars

Among more than 12 billion US dollar export turnover in the first ten months, about 60 percent account for FDI sector, said Dang Thi Phuong Dung, vice president of the Vietnam Textile and Apparel Association (Vitas)

According to Vista, Korean FDI companies take the lead in both capital and number of corporations operating in garment field, of which, mostly are into textiles and avoid “hard parts” like weaving, dyeing or spinning, etc. This smart orientation shows “easy come, easy go” intent but still brings a lot of benefit.

Foreign invested companies tend to enlarge their manufacturing, among which, corporations in footwear, apparel, electronic assembly, etc., tend to expand to another province, said Nguyen Tan Phuoc, vice president of the management board, Hochiminh export processing and industrial zone authority. “They have strategic visions, strong financial capacity, and flexibility in regulating production area for doing business globally, therefore no wonder that they account for a large part of export revenue.”, said Diep Thanh Kiet, vice president of Vietnam leather and footwear association (Lefaso)

Compared to a growth rate of leather and footwear: 12-15 percent per year for the last five years; FDI companies have the rate of 16-18 percent per year, much higher than the rate of 10-12 percent per year of domestic companies in the same field

Price war, secret acquisition

When Korean steel group Posco put into operation a cold-rolled steel plant with a capacity of 1.2 million tonnes per year and capital of 528 million US dollars, located at Phu My industry zone (BA Ria – Vung Tau), they pushed domestic firms which operate in the same field in a price war.

With great capacity, Posco Vietnam now accounts for 50 percent of domestic cold-rolled steel market and creating difficulties for two domestic firms: Phu My steel factory (under Vietnam Steel Corporation – VNSteel) and Thong Nhat flat steel JSC (which VNS is the biggest shareholder with 31.25 percent shares), said Nguyen Tien Nghi – vice president of Vietnam Steel Association

“Using modern technology, optimum material saving, product of FDI firms has a competitive price, so absolutely their market share will continue to rise in the future.” Nghi commented

The Nawaplastic Industry (Saraburi) Co. Ltd – operating in manufacturing and distributing PVC pipe – 100 percent owned by Thai Plastic and Chemical PCL (TPC) does not choose to use price to increase market share. They quietly buy stock in the stock market of two biggest domestic companies in plastic industry: Binh Minh plastic JSC (BMP) and Tien Phong plastic JSC (TNP).

As public announcement, Saraburi owns more than 7 million stocks of BMP (20.5 percent) and about 9.8 million stocks of NTP (9.86 percent), ranking second biggest stockholder in these companies to State capital investment corporation (SCIC). It is well known that Tien phong plastic has 70 percent of plastic market in the North and Binh minh plastic has more than 50 percent in the South. So, if TPC continues to raise its share in these two companies, it will control the construction plastic market in the future.

In an interview with Tuoi Tre newspaper, Le Quang Doanh – Chair of BMP – said that Saraburi hasn’t shown any action of intervening in BMP internal production and management. However, if the share of Saraburi continues to rise, “we have to accept. Since they want acquisition, not cooperative, and we don’t have enough management, control and organisation skill, we have to accept their intervention in company restructuring”, said Doanh.

One notable thing is that 45 percent share of TPC is owned by Thailand Siam Cement Group (SCG). SCG appears in about 30 markets, including Vietnam, with hundred of subsidiaries operating in plastics, chemicals, paper, building materials, transportation – distribution, and financial investment. It can be predicted that SCG’s ambitious are more than construction plastic, it aims for the whole construction chain.

Will chances wait ?

The investment boom of FDI companies in the recent time was nearly unavoidable, especially in Vietnam’s two main export sectors: textile and footwear. FDI companies account for 60-70 percent footwear and clothes product supplied for famous brands, the rest is for domestic firms, said Kiet

Owning long term and strategic visions, technologies with high capacity, organisation skills, production systems with the highest level of specialisation, FDI companies can “choose the nation with most favours in export tax and trade agreement to set up their factories” Kiet analysed

Obviously, domestic firms can see chances, but with limitation, mostly in term of capital, weak competitive ability due to high interest rate, low labour productivity, the development of FDI sector in the future is nearly 100 percent sure.

Domestic firms narrow in scale

Contrary to the enlargement of foreign firms, domestic ones have to narrow in scale, even then they are operating in the same industry. In K export footwear Company (Hochiminh city), manufacturing is much slower a year ago. K was a company with five footwear manufacturing lines and more than 7,000 workers, but last year, the first two lines were removed for lack of order, and on August 2012, another line has gone.

“Our company now has only two working lines and about 2000 labourers. If the economy continues to be bleak, interest continues this trend, we have to close down” said D.V, K director

Until the end of October, there are 100 FDI firms increase invested capital with the amount of 691 million US dollars, 174 percent more than 2011, Department of Planning and Investment of Hochiminh City announced. In Binh Duong only, there are 66 FDI project increase capital with total increased about about 680 million US dollars, FDI companies alone increase their capital by 41 percent compare to same period 2011.

Tuoi Tre - November 13, 2012