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Thailand and Vietnam:  Picking the Right Industrial Park

by Christopher Runckel, President of Runckel & Associates, Inc.


I travel to Asia often, most years 10-12 times with either company executives to look at sites for investment and less often with the U.S. President or other senior VIPs, where I serve to facilitate their travel.  As I first came to Asia in the late 60s and early 70s, I have seen a lot of change over my lifetime throughout the region.  Despite this, I still look forward to each trip and what it may teach me as I have come to understand that the more you learn, the more you realize how little you really know.  Nowhere is that truer than in Asia, where even if you speak the language, understand a great deal of the culture and history and have a wide network of contacts, you often still find there are new facets of a country or a place you hadn’t seen, appreciated or fully understood.

On this trip I visited Thailand and Vietnam with a major U.S. electronics company with a very large China operation – over 9,000 employees - who was looking at the possibility of replicating a similar sized facility somewhere else in Asia.  There was no question of jobs moving overseas but more how to expand again overseas to meet continually growing demand, most of it outside the U.S., for the company’s products.  Thailand has largely recovered from the Asian Financial Crisis and you rarely see reminders of it, although it is all too well remembered by business people and government officials throughout the region.  Today the talk is more about new Japanese investment.  Japan has for sometime been the largest investor in Thailand and Japanese companies are located throughout the Kingdom.  This has proven a boon for all major companies as the majority of Thai companies are now familiar with supplying Japanese companies and as a result the quality standards they employ, the focus on on-time delivery and on relationship building all benefit Western and other nations’ producers in addition to Japanese companies.

On this trip, we visited, or for me re-visited, three major Thai industrial parks (IPs).  These are Nava Nakorn, located just beyond the airport on the outskirts of Bangkok; Rojana Ayutthya, about a 30-minute drive further out; and two of Amata Corporation’s industrial parks located south of Bangkok in Chonburi and Rayong provinces (Zone II and III for BOI promotion incentives).

source: NECTEC

(map above) We visited Navanakorn IP and Rojana IP in Ayutthaya area.  Amata IPs are in Chonburi and Rayong. Rojana also has another IP in Rayong

(map above) Cluster of industrial estates in Ayutthaya area

Generally, Thailand’s industrial parks are well-designed, located close to transportation and are well managed.  Among these, the above three are considered among the best.  What differs between these parks is their relative proximity to Bangkok and the effect this can have on government incentives, which are administered through the Board of Investment (BOI).  The closer your park is located to Bangkok, the less generous your incentives will be for locating in Thailand.  This is government policy and was adopted to spread development throughout the country and helps to limit migration to the city with all of the social costs it entails for a developing country.

Where Thailand’s industrial parks differ from those in China and Vietnam is really in the quality of infrastructure (both inside and outside the park).  Thai parks are stronger than parks in neighboring countries in this and also in the fact that, if you are a BOI approved company, you can own land instead of leasing it as in China, India and Vietnam.  This may not seem that big a difference but in reality it is quite substantial, as land has always appreciated consistently in Thailand whereas leaseholds, wherever you own them, are always depreciating assets.  Also, if you are willing to locate a little farther from Bangkok proper but still with relatively quick access to airports and seaports, location in BOI zone three brings one of the best incentive packages in the region with much more flexibility than in other countries.

Some factories in Nava Nakorn IP: (left) FDK(Thailand) Co., Ltd.

 (right) Masashi Auto Parts Co., Ltd.

Of the three parks, Nava Nakorn  (www.navanakorn.com) is the closest to Bangkok.  Incentives there are not as generous and generally land prices are higher than other parks located further out of the city.  Generally, Nava Nakorn appeals to companies that are suppliers of companies already located in Nava Nakorn or companies that place a lot of premium on proximity to Bangkok.  Unlike many of the surrounding parks that are largely filled, Nava Nakorn still has a substantial amount of space available.  Park management is very responsive and infrastructure – roads, electricity and water - are all first rate.

(left) China World Best Group of Shanghai moved its factory to Rojana IP in Thailand (right) Pre-built factory by TICON inside Rojana IP

The Rojana Ayutthya Industrial Park  (www.rojana.com) is about a 30-minute drive farther out from Bangkok near the former ancient capital of Thailand, Ayutthya.  It is located in BOI zone two.  This is a very well developed estate, which hosts a large number of manufacturers and is a favorite of Japanese companies.  The park is the location of the Honda Auto assembly plant for Thailand and hosts a number of very large facilities.  Rojana also runs the neighboring electricity production facility and residents in the park can contract either with Rojana or with the national electric authority for their electrical requirements.

(right) Impressive golf course inside Amata Nakorn IP - This is the site of the annual Royal Trophy Golf Tournament between Europe and Asia.

(left) Amata Industrial Parks in Chonburi and Rayong offer easy access to Laem Chabang Port in Eastern Seaboard,  Thailand largest port and also one of the biggest in SE Asia.  

Amata Corporation (www.amata.com) is a Thai public corporation that runs two very large industrial parks south of Bangkok.  The advantages of these parks are that they are well developed with very strong infrastructure and that that they are located nearer to the new airport and to the nation’s main container port at Laemchabang.  One of Amata’s industrial parks, Amata Nakorn, is located in Chonburi (57 kilometers from Bangkok and about 20 kilometers from the new airport).  It is in BOI zone two and the other, Amata City, is located in zone three but so near the zone border that the office is actually located in zone two.  Of the various industrial parks, Amata is extremely well run and should be a must visit on any investor’s schedule looking to find a new site for a factory.

Throughout Asia, one of the factors that always get looked at is cost of labor.  Thailand is not the cheapest labor country in Asia.  Cambodia’s minimum wage is $45 per month; Laos is similar, with Beijing at $63, Shanghai at $70 and Thailand at $70.  But real salary costs as opposed to minimums in China in the coastal western regions are continuing to rise, as is the Chinese currency, the RMB or Yuan.  Already at the start of 2006, Chinese labor in the Shanghai, Guangzhou and coastal regions was already more expensive than in Thailand.  When benefits are factored in, Shanghai and Beijing generally have higher labor costs than Vietnam, which has the lowest labor rates in the region, followed by Cambodia and Thailand.   In general, wages for assembly workers in Shanghai average about RMB 1,000 (nearly $130).  When benefits are added, the effective rate of wages is often close to $200 per month per worker in Western China’s coastal areas.   Vietnamese labor rates are at about two-thirds of this level and about 10-15% cheaper than Thai wages.

Vietnam’s relative advantage in lower wage costs should not be assumed to be the case in other categories of expenses, however.  Vietnam and India definitely will involve higher costs in terms of shipping, with a 40 foot container costing $400-$500 more than from Thailand or China.  Thailand is also cheaper for office rental, housing for expatriates and marginally cheaper for electricity and water.  Additionally, Thai workers have less labor strife than those in Vietnam and infrastructure, transportation, electricity and water are generally more stable and better managed.  The rule of law, intellectual property (IP) protection, and better quality of life for expatriate managers are all factors that continue to draw companies to Thailand versus other countries in the region.

(map above) Cluster of industrial estates in HCMC area

Following our visit in Thailand, we flew to Ho Chi Minh City and spent two full days visiting industrial parks before flying to Hanoi for two more days of visits to Vietnam’s northern industrial parks. 

Ho Chi Minh City (formerly Saigon) is the heart of Vietnam’s industrial development.  The city and its surrounding provinces regularly attract nearly two thirds of the overseas FDI going to Vietnam.  The city has changed considerably in the last few years with new buildings in evidence as one looks at the skyline, but not all the changes have been positive.  Ho Chi Minh City has some of the worst traffic in the region.  Additionally, housing rentals for foreigners, office rentals and telecomm costs are much higher than Thailand and among the highest in the region.

With this said, there are a number of companies that have decided to locate in Vietnam and Vietnam has attracted considerable new investment in textiles, garments, shoes and wooden furniture.  Other major exports are seafood, cashews, rice, crude oil, coal and various tropical fruits.

During our visit to the Ho Chi Minh area, we met with U.S. Department of Commerce Senior Commercial Officer Robert Bannerman.  Although his focus is more on increasing U.S. exports to Vietnam than encouraging U.S. companies to locate in Vietnam, Mr. Bannerman noted that most foreign companies seemed pleased with the quality of the work produced by their Vietnamese workers, generally rating the quality of work higher than in their similar China operations.  Tony Salzman, who owns the Caterpillar dealership for Vietnam (www.v-trac.com) and has been a long time investor in Vietnam, concurred with this assessment, noting that Vietnamese workers have a very good reputation with foreign managers for the quality of their work and their work ethic.  He went on to note that generally, most of the workers in Vietnam’s factories tend to be from the Center and North and that although there has been no shortage to date, it was easier in certain provinces and certain IPs to find workers than in others.

One of factories in Saigon High Tech Park Factory under construction at SHTP

In Ho Chi Minh City, we first visited the Saigon High Tech Park (www.shtpvn.org).  This park, which was in the planning stages several years ago, is already attracting new high tech companies to Vietnam.  Intel recently reserved a site in the facility, although many reports note that this reservation was not a promise to invest but more of a contingency taken out in consort with similar reservations for future development space in other countries in the region.  Later, we toured the actual park, which still is in the development stage and has at this point only a few factories.  The park remains in a road building and infrastructure construction phase with the installation of electric lines, road construction and much of the land clearing still to occur.  Despite the early stage of development, management does appear well organized, well educated and dedicated and I have no doubt that this park will be a quality location in the future.

Dr. Huynh Ngoc Phien (far right) heads Amata’s Management in Vietnam

One of factories in Amata Vietnam

Amata Vietnam (www.amata.com) also has a very well developed and quite successful industrial park in Vietnam located in Dong Ngai province very close to the city of Bien Hoa on land that was part of the U.S. Army Headquarters Long Binh base during the Vietnam War.  Dr. Huynh Ngoc Phien heads Amata’s efforts in Vietnam that include Dong Ngai, the Bien Hoa site, a site in Central Vietnam that is just commencing operations as a new industrial park plus a number of discussed projects which have yet to be announced.  Amata’s facility is known in Vietnam as being one of the top locations for placing a factory and traveling throughout the industrial park, you immediately see why.  Roads and infrastructure are built to quality levels much higher than similar parks in Vietnam and the close proximity of Bien Hoa City means ease in locating trained workers and ensures proper housing and other support.  Soil conditions are better than in other parks that require extensive piling work.  Further, well cared for grounds and reliable utilities are a hallmark of the facility.  Another future benefit of the Amata site is that it is much closer to the new deep water port that is soon to open and also is closer to the site of the new airport, the opening date of which is still unclear.

(right) Inside the VSIP

(left) Executive of Vietnam Singapore Industrial Park show potential clients model of the park and explain different phase of its development.  Seen in far right is Ms. Ruby Nguyen, Senior Vietnam Associate - HCMC of Runckel & Associates.  

One of the premier parks in Vietnam, though also one of the most expensive, is the Vietnam Singapore Industrial Park (www.vsip.com.vn).  This is without a doubt a very well managed and well-designed park and I would rate it as one of the Ho Chi Minh area’s best.  Again, prices for land and utilities are more expensive than other areas and the initial portion of the park are now nearly full, but the second stage is already well along in terms of infrastructure and this park is definitely one that I would suggest a prospective investor view and consider.

View of road inside My Phuoc Industrial Park run by Becamex One of factories in My Phuoc Industrial Park

Another lesser known but I believe quite well managed and well run industrial park is the My Phuoc Industrial Park run by Becamex.  This park is located 42 kilometers northwest of Ho Chi Minh City, 35 km from the so-called New Port and 42 km from Tan San Nhat International Airport.  Becamex (a state-owned conglomerate) manages the park and is part owner (and majority owner on the Vietnam Singapore Industrial Park).  General advantages of this industrial park are lower land rent, quality infrastructure, hard and solid ground conditions making for cheaper construction costs and a rent exemption of five years for investors investing 80% of their production.


State-owned Sonadezi IP

Sonadezi, another State-owned conglomerate and co-owner of the Saigon High Tech Park, also operates industrial parks and may be a park to consider, although from what I saw on this trip, my choice would be between Singapore-Vietnam Industrial Park (SVIP) or Amata, with both of them having their pluses.  SVIP leads if money is not an object but Amata gets the higher pick based on value per price.  My Phuoc comes in a strong third.

One note on Ho Chi Minh City industrial parks: while we were in the South, labor strikes were going on in a number of the industrial parks against several factories but primarily those owned by Korean, Taiwanese or Hong Kong based companies.  The causes of these strikes was almost always low pay and they were finally resolved by a decree from the Prime Minister raising the minimum wage for all Foreign Invested Enterprises (FIEs) and an agreement among the companies to follow through and raise wages (for more information, click here for our related article).

Another note that affects industrial parks throughout Vietnam is that until recently, all Vietnam’s cities and provinces have been able and have competed to attract foreign investment, in many cases quite aggressively.  At the end of 2005, the Finance Ministry lobbied the government strongly to reign in this competition, which was in many respects similar to that seen in China with cities offering discounted land, training program subsidies, etc in order to get companies to locate in their area.  At year’s end, the government went along with this request and set a basic countrywide standard for all industrial parks.  Industrial parks can price services above the levels set but cannot go below them.  Ultimately, I believe this is a bad decision for Vietnam and for its efforts to attract new companies.  I think it will also not help the current misdirection of investment, which is seeing most investment go into the area immediately around Ho Chi Minh City, meaning this area will continue to act as a magnet attracting further migration of population.  I believe a better policy would have been more targeted incentives for investors to consider investment in the North and Center where large numbers of factories have yet to be built.

I spent three years in Hanoi when I worked to open diplomatic relations with Vietnam and helped to negotiate most of the major agreements that have defined the U.S.-Vietnam relationship.  Hanoi is a fascinating city with a romance and a sense of time and culture that I find much less noticeable in the South.  Hanoi has, however, never been the commercial hub that Ho Chi Minh City is.  It is a city of government, which only now is getting a major number of factories sprinkled at parks around the exterior of the city.

One thing I can say about Hanoi is that the traffic is definitely much worse than in the past Interestingly, several years ago the government decreed a moratorium on new registrations of motorcycles (the primary means of transport all over Vietnam) in an attempt to improve and/or control traffic congestion. 

Transportation didn’t necessarily improve as many people registered their motorcycles elsewhere and still used them in the city but there remains a lot of ill will towards the law.  Last year, the National Assembly found that this decree was counter to the Constitution in that it refused the People’s right to property and overturned the law.  The first day after the law was lifted over 2,000 people registered motor vehicles and thereafter many more have followed.  Hanoi and Ho Chi Minh City now daily suffer traffic jams as, like surging schools of fish, motor bikes, scooters and a few remaining bicycles jockey for room in the crowed streets.  Hanoi is building two new bridges across the Red River to help improve traffic and Ho Chi Minh City has several bridges and a tunnel under the river all under construction.  All of this will help, but Vietnam really needs to do more if it is not to stagnate in a stew of air pollution and delays caused by the deteriorating traffic.

In the North we visited four industrial parksthree parks north of the city on the way out to the airport or even beyond: Thang Long (half way to the airport), Noi Bai Industrial Zone (near the airport) and Binh Xuyen Industrial Park (just beyond the airport) and finally the Pho Noi A park run by the Hoa Phat group, which is located outside the city and on the way to Haiphong.

Canon factory inside Thang Long IP

Mr. Runckel infront of Thang Long Industrial Park's office

 

Thang Long Industrial Park (http://www.thanglong-ip.com/) is one of the oldest and most developed industrial parks in the North of Vietnam and it is also one of the most expensive with land renting for $75 sq. m/yr and relatively higher utility costs as well.  The park has become a haven even with these high costs for Japanese companies such as Canon, which has a printer fabrication operation here, as well as for other Japanese companies.  The park is well run and the location can be good for certain companies, although there are now many newer parks that are much more economical and have just as developed an infrastructure.

Logitem factory in Noi Bai Industrial Park ZAMIL Steel factory in Noi Bai Industrial Park

Noi Bai Industrial Park (www.noibaiiz.com) is located very close to Hanoi International Airport.  The park is 35 minutes from Hanoi City Center and 125 km from Hai Phong Port.  Land here rents for $45 sq. m/yr and most of the phase one land is already rented with phase two land just being opened for investment.  Internal infrastructure is excellent and management of the park is highly professional and well motivated.  This can be a good location for a facility more dependent on airfreight or for a facility in which the land requirements are not that great.

Toyota factory at Binh Xuyen Industrial Park One of the factories under construction at Binh Xuyen

Binh Xuyen Industrial Park (www.bxipark.com) is located in Vinh Phuc Province, about 15 minutes beyond the Hanoi International Airport.  It does not have a Hanoi address, but what you get in return is much lower land cost (about $25 sq. m/yr).  Vinh Phuc has ranked among the fastest-growing provinces of Vietnam, with annual GDP growth of over 14 percent.  In the competitive index recently carried out by the Vietnamese Chamber of Commerce and Industry (VCCI) and sponsored by USAID, Vinh Phuc ranked 5th of the 42 provinces rated.  Twenty-five FDI projects have already located in the area, including a large Toyota and a Honda factory, a Vietnam German Steel Factory and a number of other major ventures.  Infrastructure is still being installed in the park but the railway runs close-by and major electrical and water supply capacity is already in place.

The entrance to Hoa Phat Group's Pho Noi A Industrial Park One of the factories in Pho Noi A IP

Farther from Hanoi but closer to the port is the Hoa Phat Group’s Pho Noi A Industrial Park (www.phonoia-com).  This is located in Hung Yen province and, of the industrial parks discussed so far, is the closest to the port.  Infrastructure is largely already in place and the park already hosts a large number of factories, including several from the Hoa Phat Group.  Hoa Phat is a major supplier of steel office and various other forms of furniture and is one of Vietnam’s larger industrial groups.  The park is 390 hectares; of which 42 hectares is included in the first phase and already has infrastructure.  Land rental is close to that in Binh Xuyen Industrial Park and this location is quite acceptable for light manufacture and even heavy manufacture, both for export and for a mix of domestic and international sales.

Dr. Truyen Dang The, Runckel & Associates' Senior Associate in Hanoi (second from left) and his VFD Travel has facilitated transportations, hotels and visa arrangements for many of our firm's clients

Throughout the North, access to labor is generally much easier than in Western China or even the Ho Chi Minh area.  Wages also tend to be less in areas further out like Binh Xuyen and Pho Noi A.  During my visit, a long time Western resident and investor pointed out to me that throughout Vietnam, many of the workers are from the North.  He noted that based on his experience, Northern workers were harder working, more loyal and less likely to engage in industrial action as long as they were properly treated.  He recommended that more companies look beyond the outer trappings of modernity that one sees in the South and place their investments in the North.  He further noted that generally firms that have focused on exports as opposed to serving the Vietnamese internal market have found quicker success and an easier time but that all noticed the hard working nature and basic work ethic that permeates the North.

Although the above is just a small sampling of all the industrial parks in Thailand and Vietnam, it is a fair indication of what is offered.  Runckel & Associates works routinely with investors in China, Vietnam, Thailand, Cambodia and Laos to find new locations for factory and other investments.  We recommend you look widely and compare the various regions in terms of incentives (both government and natural) they have to offer.  Many areas can potentially serve your needs and each will have positives and negatives that need to be weighed and measured in the context of your company’s overall requirements.


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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