VZCZCXRO4075
PP RUEHHM
DE RUEHHM #0573/01 2160942
ZNR UUUUU ZZH
P 040942Z AUG 09
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC PRIORITY 5983
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 3884
RUEHHM/AMCONSUL HO CHI MINH CITY PRIORITY 6219

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000573 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EFIN VM
SUBJECT: SAIGON HIGH TECH PARK ENTICES US INVESTMENT 
 
¶1. (SBU) Summary: Saigon High Tech Park (SHTP) has emerged as a 
significant new hub for high tech investment in Vietnam. 
Preferential tax treatment, direct governmental access, and VAT 
and import duty exemptions are just a few of the benefits that 
have lured many U.S. investors, laying the foundation for other 
companies to follow.  While SHPT is quite popular, it is far 
from the only choice open to high tech investors and new 
regulations and worsening traffic are chipping away at SHPT's 
competitiveness. End Summary. 
 
 
 
¶2. (U) As of July 6, 2009, Saigon High Tech Park (SHTP) is home 
to 38 companies representing a total capital of over $1.71 
billion dollars and 8,500 local and foreign employees. U.S. 
companies have invested over $1.2 billion dollars, including 
Intel's computer microprocessor and chipset production factory, 
Jabil's print circuit board factory, and Pulse's micro acoustic 
instrument and silicon microphone factory. Other investors, such 
as Oregon-based Datalogic Scanning's new factory, are clearly 
U.S.-related although not U.S. owned.  (Datalogic Scanning is 
now owned by Datalogic of Italy.)  A state owned and operated 
organization, SHTP is in the process of completing Phase I of 
its 300-hectare development plan, with 613 more hectares 
scheduled to be developed during Phase II. 
 
 
 
SHTP's Magnet Effect 
 
-------------------- 
 
¶3. (U) The 2006 establishment of the Intel Facility was a major 
milestone for the park, not only because of Intel's $1 billion 
in direct investment, but also because of the credibility the 
high-tech giant has provided and the huge potential market for 
suppliers to co-locate with Intel. Now that Intel and other 
major US companies are well-established, SHTP's leadership hopes 
smaller firms will quickly follow, lured by the benefits of 
shared resources, increased collaboration and greater access to 
customers/suppliers that close proximity to larger firms will 
allow. 
 
 
 
¶4. (SBU) Firms have flocked to SHTP in part because of Vietnam's 
relative competitive edge over China in certain areas. The 
General Manager of the recently opened Datalogic facility noted 
they chose Vietnam over China because of issues with China's 
less favorable tax policy, continuing labor problems (including 
high turnover) and high risk of intellectual property right 
infringement. 
 
 
 
High Tech Law Creates Challenges 
 
-------------------------------- 
 
¶5. (SBU) As of July 2009, new investors to SHTP are obligated to 
abide by the new high tech law requiring technology companies to 
allocate 1% of total revenue for research and development (R&D) 
in the first three years and over 1% from the fourth year 
onward. Additionally, hi-tech products must make up 60% of total 
annual revenue in the first three years and at least 70% from 
the fourth year onward, and companies must ensure 5% of the 
staff are university graduates. The law does offer land and tax 
incentives for hi-tech enterprises meeting the 
requirements--such as an exemption from the corporate income tax 
(CIT) for four years and a 50% reduction for another nine years. 
 While these rules are, in theory, easily met by most high 
technology firms, there can be a significant gap between theory 
and paperwork.  What, precisely, counts as R&D at a production 
facility?  Do improvements in production line efficiency count 
even if they are based upon employee input rather than 
"scientific research"?  Also, can the cost of the molded plastic 
case -- or even the cardboard packaging -- of a high technology 
product be counted toward the minimum revenues derived from high 
tech products?  So far, the answers are not entirely clear. 
SHTP representatives told EconOff that although lawmakers are in 
the process of developing the implementation guidelines for the 
high tech law, SHTP fears a decline in potential investors once 
the regulations go into effect. It will be worth monitoring how 
this new law affects investment in the long run. 
 
 
 
¶6. (SBU) Because of the new law, SHTP has been forced to improve 
its incentive package.  Large investors (defined by SHTP as $500 
million or more) are now eligible to receive a tax package under 
 
HO CHI MIN 00000573  002 OF 002 
 
 
which they will pay zero tax for the first four years, five 
percent through year nine, and 10 percent for the next thirty 
years.  Previously, tax incentives were the same for the first 
nine years but then ended entirely after year 11.   In addition 
to the tax rate adjustment, SHTP will also continue to offer 
competitive land pricing, VAT and import duty exemptions on 
machinery, equipment and construction materials and "one stop" 
servicing in terms of providing everything from construction of 
facilities to hiring after contracts are signed. 
 
 
 
Challenges for the Future 
 
------------------------- 
 
¶7. (SBU) In addition to the challenges presented by the new high 
tech law, potential investors are worried that SHTP's power and 
waste disposal facilities will not be serviced adequately by 
HCMC's poor infrastructure, and that Vietnam's labor force does 
not have the high tech skills needed to support further market 
growth. In response to infrastructural concerns, SHTP published 
a brochure outlining the infrastructure capabilities of the 
park. It cannot, however, change reality on the ground.  Over 
this past summer, a consortium of firms operating at SHTP have 
been engaged in a so-far futile attempt to convince HCMC leaders 
to take urgent action to address key infrastructure issues, 
including the rapidly worsening traffic between the city center 
and SHTP.  SHTP is located on the city's eastern edge, so firms 
locating there face longer trips to the city center than do 
firms locating in competing industrial parks located nearer to 
the center of the city.  HCMC's oldest export processing zone, 
Tan Tao, is in the process of converting 20 percent of its land 
area into a new high technology park and has already attracted 
numerous investors, including U.S. firms such as Alpine 
BioMedical. 
 
 
 
¶8. (SBU) Concerning the lack of skilled labor, SHTP has begun 
collaborating with local universities and vocational schools to 
better prepare students. SHTP also developed a specialized 
training facility where companies can work with SHTP to 
customize programs that guarantee their employees will have the 
skills needed to perform.  A second training center is now in 
the works, and SHTP has also submitted suggestions to city 
governmental officials in Ho Chi Minh and local academic 
institutions for ways to improve their high tech curriculum in 
order to ensure a well-prepared work force for future high tech 
jobs. While helpful, these steps cannot address overall, 
systemic weakness in the Vietnamese educational system.  While 
companies appear quite hopeful that the situation will be 
resolved in the long term, in the short term they are resorting 
to hiring more expatriate staff than originally planned. 
 
 
 
¶9. (SBU) COMMENT: While high technology development in Vietnam 
or even just in the southern region is clearly not dependent 
upon the success of SHTP, experience around the world -- 
including in the USA -- has repeatedly shown the importance of 
having a significant concentration of high technology firms in 
order to generate the positive externalities that help the whole 
industry grow.  While SHTP has played a useful role in providing 
a central hub for investment and investors are generally 
positive about their decision to locate there, factors outside 
of the control of park management are increasingly clouding 
SHTP's future prospects.  Vietnam is not facing a crisis -- yet 
-- but the same challenges facing SHTP could negatively impact 
what currently appears to be a very bright future for Vietnam's 
high technology sector.  END COMMENT. 
FAIRFAX