The Milwaukee Journal Sentinel
Business Section April 27, 2003
Opening a branch overseas? Consider Vietnam's advantages
By JOHN TORINUS
If you are thinking about opening a branch of your company in China, you may want to take the extra leap and go to Vietnam. And you don't have to be a big, global company to do it. That's the message of Peter Sognefest, former CEO of Xymox Technologies in Milwaukee and now a consultant for small and medium-size companies that want to set up in Southeast Asia. "Americans don't know about Vietnam," which he said will be "the next big manufacturing hub." One of the attractions said Sognefest, who established a small factory for Xymox near Ho Chi Minh City, is that wages are a quarter to a half of what they are in China. His comparison shows that it's $55 a month in Vietnam vs. $110 in Shanghai. Wages, of course, are only one consideration in a location decision. China might be a more compelling choice, for instance, if the company's aim is either to tap the fast-growing domestic market there or tap into the multinationals that already have set up on the mainland. In Sognefest's analysis, it becomes a "no-brainer" decision to choose either the Shanghai area or South Vietnam.
Joint venture risks
It's not a no-brainer to make the initial, painful decision to move work out of Wisconsin, but sometimes it's necessary to stay in business. It's also complex, if you haven't done it before; Asia is a big piece of geography, and there are any number of ways to set up shop there. Often, U.S. companies opt for a joint venture on the belief that the Asian partner will take the lead through the maze of rules, regulations, language and cultures. In that sense, it's a less risky approach.
Sognefest, however, believes that strategy is unnecessary. Joint ventures can be riskier, he maintains, because the chance of getting your technologies and customers ripped off is greater than in a 100%-owned company. Besides, if you go it alone, you get to keep 100% of the profits. His formula is to start small and to locate in one of the industrial parks in either China or Vietnam that is owned jointly by the Singaporean government and Singaporean companies. The advantage is that Singapore ranks high for transparency and absence of corruption. Singapore ranks fifth in an international comparison of that characteristic behind Finland, Denmark, New Zealand and Iceland, while the U.S. ranks only 16th, China 59th and Vietnam in general way down at 85th. Bangladesh was last out of 102 countries listed in 2002.
The Singaporeans cut deals with the Chinese governments so that their high standards apply in their parks. Xymox is in the Vietnam Singapore Industrial Park. "There's no funny stuff there," Sognefest said.
He is helping an Ohio company set up there, and one of the allures was the park's self-sufficient, high-quality infrastructure. Much of the hassle is avoided.
Originally, the relatively small firm had considered the Shanghai area but was swung over to Vietnam by the wage differential and other advantages:
∑ "The Vietnamese love Americans. That may surprise you. They treat you well."
∑ Vietnam is fairly central in Southeast Asia, so shipping costs are reasonable.
∑ The country is one of the safest for American executives.
∑ Because of the long French presence, Vietnam has a more Western culture than other Asian countries.
∑ The population is 93% literate and has switched to English as the dominant foreign language from French.
∑ There's an abundant labor pool in a population of 80 million.
∑ Taxes are low: A new company gets a tax holiday for four years, then pays 5% for the next four and 10% thereafter, assuming a certain level of imports. China runs around 15% in special zones and 34% outside of them.
∑ Well-educated managers can be hired for about $600 a month. In China, second-tier managers run $800 to $1,500 and, because demand is rising, there's a lot of job hopping.
The domestic market in Vietnam still is small because of the low wages, so a Vietnam move only makes sense if exporting is the strategy. It makes sense if you have to be the absolute low-cost provider in a commodity market.
"If you're going to set up over there (in Asia), don't you want to get an advantage on China?" he asks.
John Torinus is chief executive officer of Serigraph Inc. of West Bend. Contact him at email@example.com.
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