VZCZCXRO9678
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHI #0372/01 0920442
ZNR UUUUU ZZH
R 010442Z APR 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 7516
INFO RUEHHM/AMCONSUL HO CHI MINH 4526
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 HANOI 000372 
 
SIPDIS 
 
STATE FOR EAP/MLS, DRL/AWH AND EEB/CIP 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECPS EINV TINT ECON TSPL KIPR ELAB VM
SUBJECT: FOREIGN ELECTRONIC AND TECHNOLOGY INVESTORS FLOCKING TO 
NORTHERN VIETNAM 
 
REF: HCMC 320 (Labor Pressures On Manufacturers) 
 
HANOI 00000372  001.2 OF 002 
 
 
¶1. (SBU) Summary: Samsung's recently-announced plans to build a $670 
million mobile phone manufacturing plant is the latest in a series 
of major investments in Vietnam by international electronics and 
technology firms.  A number of these new investments are planned for 
Hanoi and surrounding provinces in the north, demonstrating that 
this region is a growing focus for investors.  Vietnam's low labor 
costs, improving business and investment climate and stable economic 
growth are all cited as reasons investors are choosing Vietnam - in 
some cases in lieu of China.  This influx of high-tech investment 
will challenge Vietnam to address problems with poor infrastructure, 
lack of human resources and weak protection of intellectual property 
rights.  End summary. 
 
JUMPING ON THE BANDWAGON 
------------------------ 
 
¶2. (U) An announcement this month that Samsung plans to build a $670 
million mobile phone manufacturing plant in Bac Ninh Province, north 
of Hanoi, is the latest in a series of announcements on significant 
investment in Vietnam by major electronics and technology firms. 
Intel is building a $1 billion chip assembly and testing plant near 
HCMC, and other U.S. firms such as V-CAPS, a USD 300 million joint 
venture chip testing facility, and Emerson Electric, which is 
building electric power supplies, mobile phones and cell towers are 
establishing operations here.  Taiwan's Foxconn Technology plans to 
invest up to $5 billion mostly in the north to build digital 
cameras, PC mainboards, computer components and music players; 
Taiwanese firm Compal Electronics is constructing a $500 million 
laptop factory; Japanese companies including Canon, Sanyo, Sony and 
Panasonic, among others, have also recently expanded manufacturing 
operations here.  Several major firms, including Intel, Matsushita 
Electric (a contractor for Panasonic) and Nidec (computer drive 
manufacturers) also announced plans to open research and development 
centers. 
 
¶3. (U) This wave of foreign technology and electronics investors is 
bringing a number of suppliers and sub-contractors in its wake, and 
is creating opportunities for local and foreign firms.  Compal 
Electronics is reportedly calling on at least ten of its suppliers 
to invest in Vietnam to provide parts locally for its facilities. 
Taiwan's Chi Mei Optoelectronics (CMO), the world's fourth largest 
LCD display producer, was already persuaded by Compal Electronics to 
set up manufacturing facilities here in partnership with local 
computer parts manufacturer Wistron.  CMO also supplies computer 
manufacturers Hon Hai and Acer, who already have plants in Vietnam. 
Additional Taiwanese parts manufacturers including HannStar Board, 
Gold Circuit Electronics, Unimicron Technology and others have 
recently visited Vietnam to expore possible investments here. 
 
MOST NEW ADDRESSES ARE IN THE NORTH 
----------------------------------- 
 
¶4. (U) While HCMC has been, and continues to be, a significant 
destination for high-tech investment (Reftel), a number of these new 
announcements are located in northern Vietnam, demonstrating that 
the north is also a growing focus for investors.  U.S. firms V-CAPS 
and Emerson Electric have identified this region for a number of 
their new investments.  Canon produces printers in Bac Ninh Province 
and Hanoi, and plans to build another multi-million dollar factory 
in Bac Ninh.  Much of Foxconn's $5 billion investment is planned for 
the northern provinces of Bac Ninh and Bac Giang.  In 2007, Taiwan's 
Hon Hai began development of a $1 billion manufacturing complex 
outside Hanoi to produce computers, communications equipment and 
consumer electronics.  CMO is working with Winstron to develop a 740 
acre complex in Hanoi for its own planned facilities, with room for 
up to 20 more manufacturers on site. 
 
¶5. (SBU) The Ministry of Planning and Investment's (MPI) Legal 
Department Deputy Director told EconOff that the Government of 
Vietnam (GVN) has not created any special incentives for these 
companies to invest in the north.  Instead, he attributed this new 
trend to: 1) proximity and close connections with China, where many 
of the components and parts are currently manufactured; 2) improving 
infrastructure in the north; and 3) overstretched infrastructure and 
labor supply in the south, where much of the new investment has been 
located in recent years. 
 
LURING INVESTMENT AWAY FROM CHINA? 
---------------------------------- 
 
¶6. (U) Media reports and interviews with executives from these 
technology firms indicate that companies are choosing Vietnam 
because of its relatively inexpensive labor force, improving 
investment climate, and its consistently high level of economic 
growth over the past decade.  Others have pointed specifically to 
 
HANOI 00000372  002.2 OF 002 
 
 
Vietnam's recent WTO accession as influencing their decision, as it 
is now more efficient and cheaper to import parts and export final 
products. 
 
¶7. (SBU) An official in MPI's Foreign Direct Investment Department 
suggested to EconOff that many of these firms are looking to Vietnam 
to diversify their risks and "hedge the bets" of their Chinese 
investments.  Rising labor costs, the revaluation of the Yuan and 
compliance with China's recently-enacted environmental and labor 
laws are all making investment in China more expensive, and 
therefore less attractive, he continued.  Recent press stories 
underscore his analysis, with reports in Vietnamese papers saying 
that Japan's Olympus Group will soon close a camera factory in China 
and build a $44 million plant in Vietnam.  Similar stories have the 
Netherlands' Philips also exploring the possibility of moving some 
or all of its $8 billion annual order of parts from China to 
Vietnam. 
 
COMMENT 
------- 
 
¶8. (SBU) Annual growth rates of 25 to 40 percent in the electronics 
and IT sectors over the past several years, combined with this wave 
of recent investment, are creating challenges for Vietnam.  Although 
infrastructure in the north is improving, the GVN will need to 
continue to invest significantly in roads, ports and power 
generation capacity to keep up with the growing demand created by 
these new factories.  Vietnam will also need to step up efforts to 
protect and enforce intellectual property rights, a critical factor 
for electronics and technology investors.  Perhaps most acute, 
however, will be the crunch for qualified human resources.  Samsung 
expects to provide 20,000 local jobs at its mobile phone 
manufacturing plant, Foxconn plans to hire up to 50,000 workers and 
Compal estimates it will employ 40,000 Vietnamese at its new 
facilities.  Most will likely be low-skill jobs, but as U.S. 
companies have reported recently, it is increasingly difficult to 
find qualified engineers, technical staff and mid-level managers 
necessary for operations of this size.  To avoid damming this flow 
of new high-tech investment, Vietnam will need to quickly find a way 
to train its citizens in these critical skill sets or cooperate with 
foreign firms and donors to address this shortcoming. 
 
¶9. (U) This cable was coordinated with Consulate General Ho Chi Minh 
City. 
 
MICHALAK