Site analysis for automotive production in Vietnam

Transcription

1 Site analysis for automotive production in Vietnam by Frank Schoeninger How does the decision-making process of a global OEM look like? Which facts and figures are crucial for the production location selection? There are different factors on which corporations decide where to build their next production facility. They are basically divided in two categories. The hard facts and the soft facts. Hard facts are economical rational elements who can be rated based on solid criteria s, e.g. purchasing power, future potential, infrastructure, political stability, etc. Soft facts are subjective irrational elements who can t be measured based on solid information, e.g. health care, quality of living, cultural environment and the overall image and reputation of a region. SOPEC made an analysis for Vietnam, which is considered as the future production hub in Southeast Asia. We did a research on all available Industrial Zones in Vietnam and conducted a pre-selection of the top Industrial Zones for the automotive industry. We rated logistic infrastructure as the most important factor (all other relevant figures with a short explanation of the rating can be found at the end of this article). We selected Long Than Industrial Zone in the South, Chu Lai in the Central and Dinh Vu Industrial Zone in Hai Phong to provide a deeper insight into the top Industrial Zones in the different regions of Vietnam. Please see our comparison of the three locations below: Criteria Dinh Vu Long Thanh Chu Lai Logistics Best logistic hub in the North of Vietnam with growing industrial cluster. Industrial Zone in the South of Vietnam with very good logistic connections, which is 44km from Ho Chi Minh City center and 50km to the southern manufacturing hub Binh Duong. Basic logistic infrastructure. Moderate trading and manufacturing area. -- Port Located next to Lach Huyen Deep See Port (-14m draft and largest port in the North) -- Airport Closest to Cat Bi International Airport (soon with connection to Japan, Korea, China, Taiwan, etc.) - 23 km to Go Dau Port - 35km to Phu My Deep Water Port - 45km to Cai Mep Port - 45km to Saigon New Port - Cat Lai - 75km to Vung Tau Port (biggest port in Vietnam) - 44km from Tan Son Nhat International Airport (Ho Chi Minh City) with best domestic and international connection - Long Thanh International Airport expected to go into - 30km from Dung Quat Port - 11km from Ky Ha Port 8km from the west of Chu Lai Airport (connection to Ho Chi Minh City, Hanoi and Buan Me Thuot) Market Entry Project Management

2 operation by the end of Road and Railway Approx. Investment cost (Land price) Incentive programs Express highway from Hanoi to Hai Phong (105km, 2x3 lanes, 1 hour 15 min travel time) - 15km from Bien Hoa Railway Station - 30km to Song Than Railway Station - National Route 51 with 85km total length, which is back-bone link of Vietnam s southeastern economic area (Bien Hoa to Vung Tau) - Highway connecting Ho Chi Minh City with Long Thanh and Dau Giay - National Highway 1A with km total length, 2x2 lanes, from China-Vietnam border to Ca Mau Province, South of Vietnam) - Danang - Dung Quat Highway (140 km) 82 USD per sqm 90 USD per squm 20 USD per sqm Dinh Vu Industrial Zone offers one of the best forwarded incentive program to all tenants without minimum investment volume. Basic incentive program. Investment project by the Prime Minister s Decision No. 43/2004/QD-TTg in Quang Nam Province, the Center region of Vietnam. Therefore, tenants of North Chu Lai Industrial Park enjoy the highest governmental preferential policies. -- Tax Benefit All tenants of Dinh Vu Industrial Part receive following incentive - Corporate Income Tax: 10% for 15 years from first commercial invoice (100% exemption for 4 years and 50% reduction for - Personal Income Tax: 50% reduction on normal rate Only high-tech industry receives following incentive - Corporate Income Tax: 10% for 15 years from first commercial invoice (100% exemption for 4 years and 50% reduction for - Personal Income Tax: 50% reduction on normal rate Only high-tech industry receives following incentive - Corporate Income Tax: 10% for 15 years from first commercial invoice (100% exemption for 4 years and 50% reduction for - Personal Income Tax: 50% reduction on normal rate -- Land ownership Pink book receivable (land and property ownership) Pink book negotiable Pink book negotiable Market Entry Project Management

3 Governmental support Dinh Vu Industrial Cluster is a Joint Venture of the Belgium Government and Hai Phong People s committee, which assures good governmental support. Long Thanh is a Joint Venture between Japan and the vietnamese Sonadezi Group, which doesn t secure high governmental support. Highest governmental support: Investors are leased and are exempt from land rent for the whole building houses for workers; support vocational training. Availability of qualified labor force and training center Dinh Vu is only 7km from Hai Phong s city center with 2 million people and 1,3 million labour force. Four major universities and 25 vocational training centers ensure availability of qualified workers. Located only 44km from Ho Chi Minh City, which is the commercial hub of Vietnam with ~10 million people. Excess of qualified workers. Industrial Zone is 80km south of Danang with 1 million people with 24 universities and 19 vocational secondary schools. Environmental friendliness The Industrial Zone is highly committed to a green environment with modern water and waste water processing facilities, drainage system, 18ha green space, etc. Basic environmental facilities including water supply and sewage treatment. Good environmental facilities such as water supply and waste water system, drainage, bus system, etc. Availability of supportive industry - Close to Vietnam Automotive center in the North - Good connection with automotive supply chain - Big tier 1 supplier such as Toyota Boshoku, Hilex, Yazaki, etc. - Many big suppliers like Bosch, Kumho, Yazaki, Saigon Precision Co., etc. - Big companies are geographically close, but road connection between them are still weak - Industrial Zone is fragmented - Automotive supporting industry is developing - Good automotive cluster available but only for THACO production facility (12 factories). Power supply Dinh Vu is connected to the national grid with 365/24 secure power availability an back up The National grid + Power line: 110V/22KV + Capacity: 2 x 63 MVA Standby power plant Power is supplied from the 500kV national grid through the Ky Hoa 110kV substation with two transformers of 40 MVA capacity each machine, the power supply for the IP is constant As mentioned above, we strongly believe that from an industrial management point of view, the logistic criteria are as important as the financial/monetary aspects, such as incentive programs and initial investments for a longterm engagement on a new production facility. Especially, if the overall infrastructure of the entire surrounding is not well developed yet. These factors receive the highest priority in our rating scheme. Market Entry Project Management

4 Following, the second highest weighting have been given to the factors initial investment cost for land usage 1, the availability of qualified labor as well as the opportunity for good education and a strong supplier network. Usually, key employees don t prefer to live on the country side for a long period. However, in case they move to a remote region, they often expect a higher salary as a compensation for the lack of cultural live and city lifestyle. Furthermore, to ensure a lean production, key suppliers should be located close to your production facility to enable just-in-time workflow. Naturally, with high bargaining power you can force the key suppliers to set-up their production in your proximity, however, at the end it is always a cost issue. Consequently, the supplier will apply a price markup on the product price because of the additional investment costs and risks. In addition to a favorable business environment, governmental support is a must-have for doing business in Vietnam. As the SR Vietnam is the only land owner, all Industrial Parks involve the government in certain extent. They even own some Industrial Zones. Consequently, we rated Governmental support as the third important factor in the Industrial Zone evaluation. Finally, environmental friendliness has been weighted lowest, because barely considered in the decision-making process. However, recently we noticed a mindset change by the population and authorities. After the fish death scandal caused by Formosa, the checks of governmental officials are stricter, however didn t eliminate corruption completely. The environmental aspect will play a bigger and bigger role in the near future and certainly ISO standards need to be applied. In summary, we rated logistics and incentive Programs with 20% as the most important factors. Secondly, weighted with 15% are the initial investment, the labor and supplier availability. Governmental support received a rating of 10% and finally environmental friendliness was rated with 5 percent. Below you can find the diagrams with our ratings: Logistics Power supply 10 8 Incentive programs Dinh Vu Environmental 0 Investment cost Long Thanh Chu Lai Governmental support Supportive industry Labor force 1 Remark: Property ownership is exclusive to the SR of Vietnam, so companies only have right of use, which is represented by the red book. For ownership of the construction building on the land, the pink book needs to be obtained. Market Entry Project Management

5 Conclusion: From our and a global OEM s perspective, DINH VU Industrial Zone, rated with 9,3 out of 10 appears to be the best location for automotive production. Why? Not only soft and hard facts are showing clear advantages, but also the development in the North, and especially in Hai Phong are overwhelming. This area reminds on Shenzhen (China) in the past, but just smaller. The growth of the surrounding region and the efforts and future plans for infrastructure by the government make the North become the new production hub in Vietnam. Secondly, we recommend CHU LAI Industrial Zone, rated with 8,3 out of 10 as the automotive hub for local production in Vietnam with a good supplier network followed by LONG THAN Industrial Park with 7,7 points, which is close to Ho Chi Minh City. Even though Chu Lai has been ranked on second place, but this Industrial Zone is dominated by THACO, which makes it difficult for competitors to enter a ruling ground. Long Than is well developed with a lot of international companies such as Bosch, but there are limited advantages from our perspective. We hope that we could give you a good overview of the industrial zones in Vietnam and helpful comparison for the needs of an OEM. If you have questions or inquiries please do not hesitate to contact us. Who are we? SOPEC is an independent one-stop-shop consultancy in Vietnam that supports international companies to enter the market as well as provide expertise in Production and Project Management for the manufacturing indstry in Vietnam Market Entry Strategy Feasibility Study Business Partner Match-making Technical Due Diligence Sales Excellence Sales & Marketing Training CRM Solution Digital Marketing Strategy Mystery Shopping ONE-STOP-SHOP CONSULTING IN AUTOMOTIVE INDUSTRY Quick Win Stable & quality-driven processes Lean 6 Sigma Visual Management Long-term strategy Training Project Management Interim Management Kick-off Excellence Project Managment Office Training For more information, please contact us. Mr. Frank Schoeninger Ms. Jen Nguyen Managing Partner Market Entry Consultant Frank.Schoeninger@sopec.org Jen.Nguyen@sopec.org Phone GER: Phone GER: Phone VN: Phone VN: Market Entry Project Management