Over the past few years more and more Taiwanese firms have moved to Vietnam. China is becoming an increasingly unattractive investment destination and many multinational companies, including Taiwanese companies, have adopted a China + 1 strategy, which means finding alternative countries with a cheap labor base to develop their manufacturing plants. Many Taiwanese companies have moved some of their manufacturing to Vietnam however, this is becoming and increasingly fraught strategy.
Earlier in the year Taiwan firms were warned about Vietnam by the Taiwanese government. A dramatic devaluation in the Dong and an unstable economic environment was the main point of concern. However, some companies such as Mitac and Compal decided to continue to invest in Vietnam regardless of the deteriorating situation. However, not all companies have.
The investment environment in Vietnam has continued to deteriorate. An annual inflation rate of 27% in July led to widespread strikes from workers battling to make ends meet and fighting for increased wages. The China Economic News (CENS) writes (emphasis added):
Many Taiwanese enterprises in Vietnam are striving to cope with the thorny problem of labor strike, as Vietnamese laborers suspended their works seeking better pays, in order to compensate soaring commodity prices.
The most serious spot is Don Nai province, where 44 foreign enterprises, including 27 Taiwanese-invested ones, in a major industrial zone were paralyzed by labor strikes at the end of July, over 10 of which are still mired in the problem now.
Don Nai boasts the largest amount of foreign investment in Vietnam and the said industrial zone is the third largest spot where foreign investors cluster, trailing Ho Chi Minh City and Hanoi.
The labor strike problem is not confined to Don Nai Province. In fact, over 100 Taiwanese enterprises have been hit by illegal strikes so far this year. The Department of Investment Services, the Ministry of Economic Affairs, reported that in the first five months in southern Vietnam alone, over 280 strikes broke out, of which 55 involved Taiwanese enterprises. Even hi-tech enterprises boasting better pays and fringe benefits were not immune from the problem.
As a result of these concerns, a number of tech companies, including Chi Mei, have recently decided to halt their investments in Vietnam. Reuters says:
Chi Mei Optoelectronics Corp, Taiwan's No.2 LCD maker, said its plan to reduce output in an industry downturn remained unchanged, and it has suspended a plan to build an LCD module factory in Vietnam. A company official confirmed on Friday a local newspaper report that Chi Mei President Ho Jau-yang said on Thursday his company's previous plan to cut production of liquid crystal displays (LCDs) has not been changed.
Two weeks ago, Chi Mei said it would follow the lead of several peers, such as AU Optronics Corp , and cut its output in the third quarter by about 15 percent from the second quarter after demand for PCs and flat-screen TVs slowed.
But Ho said the display market could have hit a bottom in July and demand is picking up this month.
Chi Mei has also decided to suspend a plan to build an LCD module assembly plant in Vietnam, said the official, who delined to be named.
The Standard provides some additional insight stating:
Chi Mei had planned to build a factory to assemble LCD modules in Hanoi in 2010, Denis Chen, said director of finance and accounting at Tainan-based Chi Mei.
Vietnam's annual inflation quickened to 27 percent in July, the fastest pace since at least 1992.
Chi Mei joined companies including Sony, the world's second-largest television maker, in delaying or pulling out of investment in Vietnam. The Taiwanese company said last month it will lower its LCD output by 15 percent in the current quarter from the second after oversupply drove down prices.
This case is a very good example of the country risk all foreign direct investments (FDI) are exposed to. A few years ago Vietnam seemed to be an attractive place for investments but now the situation is increasingly unstable. The situation can be stabilized through proper fiscal policies by the government and the situation reversed in the coming months and years, but right now companies will be looking at other places in which to invest (maybe Cambodia, maybe Laos).
Of course one can sympathize with the workers who are trying to raise families and have their own hopes and dreams in this life. One only hopes that their protests will not create irreparable damage to the economy and to their future opportunities. The Zimbabwe in this world is enough!
References:
CENS: Taiwanese Enterprises in Vietnam Plagued by Labor Strikes
Reuters: Chi Mei keeps LCD output plan, Vietnam plant on hold
The Standard: Chi Mei to delay Vietnam project
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