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Investing in a New Factory in Vietnam:

Danang and Quang Nam Province

 Looking Beyond Ho Chi Minh City and Hanoi in Vietnam

 

(Picture left) Danang Port and (right) Mr. Christopher Runckel, President of Runckel & Associates at the Port

Increasingly Vietnam is appearing on more and more company’s radar screens as a potential investment site as many companies both look for opportunities in Asia and also re-look at their China investments and supply sources.  The reason Vietnam is receiving increasing notice by companies is that Vietnam is a location that offers reasonable costs for most items with the exception of land; low wage costs; high productivity and training capabilities of workers and increasingly strong levels of infrastructure.  The reason for the second factor in relation to the company’s other investments in China is that increasingly companies are coming to see that too much of their supply chain is coming out of China and that for management of risk considerations, spreading their supply sources more generally makes a lot of sense.  Such considerations are driving big U.S. and international companies in the furniture, toy, metal fabrication, shoes and other industries to move portions of their operations or portions of their supply chain to Vietnam. 

 

(left) a factory in Danang and (right) a factory in Quang Nam

Site Selection

In terms of looking at sites for locating a new factory in Vietnam, the first location that comes up on most company’s lists is the area around Ho Chi Minh City (formerly Saigon).  Here, the joint venture industrial parks of Amata in Dong Nai province and Vietnam Singapore Industrial Park (VSIP) in Binh Duong provincec were largely considered the only international standard parks and the site for investment in the area around Ho Chi Minh City.  This view is however dated at this point and there are increasingly totally Vietnamese run parks such as the Becamex owned My Phuoc Industrial Park (MPIP) in Binh Duong Province, some of the Sonadezi managed parks in Dong Nai province and the Ministry of Construction’s Nhon Trach II and III IZs that are getting increasing notice and investment.  These parks and the My Phuoc Industrial Park (MPIP) is a good example often give high levels of infrastructure, more reasonably priced land, better availability of labor and lower operating costs with little or no decrease in customer service or long term support than the joint venture parks.   This competition is causing the joint venture parks to lower their land rent in their second and third stage expansions and demonstrate the efficiencies that competition brings to any market.

To this point, most investors have been satisfied to funnel their investments into predominantly the Ho Chi Minh City area and the surrounding Binh Duong and Dong Nai provinces and as a consequence the economic output of the South has increased rapidly.  So much industrial development in only one area is not good for the country as a whole, however, and increasing other cities like Hanoi and Haiphong in the North and the surrounding provinces to Hanoi have also increased their investment promotion.  Many of these sites are potentially worth consideration as often the supply of labor in Vietnam is most prevalent in the North and Center.  Further, costs are lower there and workers are often even more motivated and hard working than the Southerners who are often considered to interesting in enjoying life by the Central and Northern Vietnamese.  Therefore for those prepared to look beyond the infrastructure that is often more dated in the North and to a lesser extent the Central region, the North can be an excellent location for a factory or other facility.

 

(picture left) Map of Vietnam showing location of Danang in relations to Hanoi and Ho Chi Minh City

Danang and Neighboring Quang Nam Province in Central Vietnam

Despite my experience in Hanoi and Ho Chi Minh City and comfort in working in both locations, I recently have noted that the market in Vietnam is continuing to evolve and that new locations are becoming increasingly of interest.  One area that I like a lot and that I believe has considerable potential is Danang, which is located on the coast in Central Vietnam. 

(left) Danang beach and (right) Furama Hotel in Danang

Danang, a city of just over 800,000 people is Vietnam’s third largest city.  A modern airport, a relic of the American period, which will soon have a new modern air terminal, and a well-endowed port facility that supports most of the central Vietnam region, providently serves the city.  The city has excellent tourist potential and the China Beach is now served by an excellent hotel in the five star Furama resort plus additional beachside development at Sandy Beach (Non Nuoc), My Khe, Nam O and others.  The city has invested heavily in better planning and infrastructure and wide streets, pleasant riverside areas and an extremely clean and orderly city welcome tourists and business investors alike.  Nearby are the World Heritage sites at the old Imperial Capital at Hue, Hoi An, an ancient regional harbor and commercial hub that retains much of its ancient structures and the ancient Cham ruins at My Son.  Three World Heritage sites in such a compact area is highly unusual and this is just three sites of a host of national parks, beaches, ecotourism and other scenic areas that are still largely free of hordes of tourists and over commercialization.   

   

From Left: Highway to Danang, Danang bridge and Danang airport

Danang in addition to its great tourist potential is also the Eastern end of the East-West Economic Corridor that joins Myanmar, Thailand, Laos and Vietnam.  The East-West Economic Corridor is a series of roads and other infrastructure investments that will open up the neighboring areas to increased investment and trade flows.  The largest portion of this project which has been funded with money from the World Bank, Asia Development Bank, the Japanese government and other lenders is nearing completion with the final link being the Japanese funded bridge across the Mekong linking Savannakhet in Laos with Mukdahan in Thailand.  This link is largely in place at the current time and should go into full operation by late 2006.

 

(Left) Government building in Danang and (right) Government official of Danang explained current and future plan for the city areas to potential investors

Beyond the above link Danang is also blessed with a seaport at Tien Sa and a river port at Songhan.  Tien Sa port can accommodate all vessels up to 35,000 DWT, container ships up to 25,000 DWT, RORO ships and passenger ships.  The Song Han River Port can accommodate all ships up to 5,000 DWT and has a throughput of over 1 million tons per year.   Direct weekly service from Danang to Taiwan exists at present.  Other services is through Ho Chi Minh City and Haiphong and from there on to Hong Kong, Singapore and other Asian transshipment centers.  Shipment for exports is still not as low cost or convenient as the Port’s close location to the city might indicate but as export shipments increase and the East West Economic Corridor becomes an increasing reality shipping capacity and lines of service should be added.  When this does occur, the trucking of containers to Ho Chi Minh City or shipment by sea with later shipment on to international locations will become less and less common and exports should further boom as the current shipping situation is not optimum for the city or for investors.

The Airport operated by a separate authority has a very long runway and accommodates multiple daily flights on Vietnam Airlines and also Pacific Airlines from Hanoi and Ho Chi Minh City as well as international flights to Bangkok, Siem Reap, Singapore and Siem Reap.  Local service is also available to Nha Trang and neighboring cities in the Central Highlands. 

(left) A factory in Hoa Khanh Industrial Zone and (middle and right) Auto factory in Quang Nam

Danang has five industrial parks in the city – these are Hoa Khanh Industrial Zone, the Expanded phases of Hoa Khanh Industrial Zone, Lien Chieu Industrial zone (still largely awaiting further infrastructure investment), Hoa Cam Industrial Zone and Massda Industrial Park, a well-run park managed by a Malaysian-Vietnamese joint venture located in the city center.  Neighboring Quang Nam province, which abuts Danang has industrial parks at Dien Nam-Dien Ngoc and at Dai Hiep IZ plus more distant parks in Chu Lai, An Hoa and elsewhere.  The Dien Nam – Dien Ngoc Industrial Zone, which is run by a private Vietnamese investment group, is surprising well laid out and has already attracted significant new factories and should be considered by all those visiting this area.  The industrial parks in Quang Nam and Danang have in the past focused on industry’s attracted to the area as a support and production base for Central Vietnam but are increasingly also coming to take additional advantage of the East-West Economic Corridor and most recently export industries seeking closer access to the Central areas’ more abundant labor supplies, cheaper costs and local governments that are less bureaucratic and more supportive of industry. 

Danang does still have areas of concern that should be taken into account by investors and so I would as always encourage study and due diligence in choosing any location for a new factory.  Despite this, I was very much taken with the beauty of this city, the friendly and direct style of central people, the diligent work ethic of workers, the willingness to train for new skills and the welcome and friendly style of local government officials, hotel employees, service providers and all walks of life.  Danang can represent good value for an investor and certainly deserves a look. 


About the Author:  

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.


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