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Canon’s plans to manufacture in Vietnam have placed the spotlight on a new contender for China’s glory. How does it match up?

Just last decade, Vietnam was likened to the American Wild West – an expanse of badly-connected towns governed by little regulation. The cause? Ravaging years of war and the loss of financial support from the old Soviet Bloc.

So with such a solemn backdrop, news in December that Canon plans to start manufacturing laser printers for export in Vietnam as of January 2006 (and inkjet printers as of June 2005) still makes headlines. The tech giant, which has been making bubble-jet printers there for export since 2002, has earmarked ¥5 billion ($48.7 million) to build a large industrial park in the Bacninh province, at which it expects around 3,000 workers to knock out 700,000 units a month by 2007.

Indeed, modern day Vietnam is a lot less wild and unruly than last time many of us looked. Since the beginning of the decade, the Vietnamese authorities have reaffirmed their commitment to economic liberalisation and attracting competitive, export-driven industries. Vietnam is expected to achieve a GDP of 7.4 per cent this year, and the industrial sector grew by a whopping 39.7 per cent in 2004.

But although these figures are impressive, can Vietnam really market itself to foreign manufacturers as a viable alternative to China?

Canon would say so. A company spokesman told OPI: "From a strategic point of view, a Vietnamese location offered many real advantages. At the top of our list was the perfect match between the skilful, highly motivated Vietnamese workers and the cell production environment we employ at our plants. For the production of printers, Canon Vietnam is a self-sufficient operation.

"And although manufacturing costs are comparatively low in Vietnam, the local wage structure was peripheral to our decision to locate a plant there," he adds. In fact, the average salary of Vietnamese workers is about 60-70 per cent of that of China and Thailand, according to Vietnamese minister of planning and investment Vo Hong Phuc.

Certainly, the Vietnamese government is out to woo foreign manufacturers. It has already lowered land rental fees; loosened approval of investment licences for new factories from central to local level; and set out plans to give foreign companies the right to mortgage their assets.

Trading environments have warmed too. And in the two years after the US-Vietnam Bilateral Trade Agreement came into force in 2001, the export of computers and electronic single parts to the US increased more than 480 times; furniture and plastic products three times – good news for OP and furniture manufacturers. And if Vietnam enters the WTO as scheduled this year – even better.

But, despite the advantages, many manufacturers are still reticent. According to a survey released in December on business sentiment among 115 foreign and 80 domestic companies conducted by the World Bank, the Vietnamese government and the International Finance Corporation, a significant number of businesses expressed concerns over uneven regulations, bureaucracy and poor legal enforcement.

Furthermore, the country does not yet possess a wide range of supporting industries that are able to provide manufacturers with raw materials. Rather than import, OP manufacturers could be forced to look to China where supply chains are more established.

But, according to Desmond Wong, America’s coordinating partner for China at Ernst & Young, Vietnam’s largest downfall is its limited domestic market. He says: "In China you have a surging middle class with increasing purchasing power. Vietnam may boast favourable conditions for manufacturers, but its market can never compete with China’s."

OP manufacturers, however, may be among the few that can enjoy a market on their doorstep. With Vietnam’s services sector estimated to have grown 38.5 per cent in 2004, a huge amount of new offices are springing up.

Wong agrees that OP manufacturers could find their niche in Vietnam. "In general they make smaller products, which do not require a huge amount of skill or an economy of scale." he says, citing Canon’s printer cells and printer cartridges as good examples.

Therefore, although Vietnam cannot compete on an even keel with China quite yet, it should not be dismissed outright. Vietnam has the benefit of learning from its neighbours and has proved willing to implement the necessary changes to entice foreign manufacturers – although, ultimately, they will judge the country on actions not words in the long run.