Will FIEs continue producing in Vietnam or shift to sell imports?

The import tariffs on finished products from regional countries have been gradually lowered to zero percent, which has raised the concern that foreign invested enterprises (FIEs) will stop producing in Vietnam and shift to import products to sell domestically.

In late November 2010, at a meeting with the press to introduce products and business strategies in ASEAN countries, including Vietnam, Shigenori Tokumitsu, Deputy President of Visual Products Company belonging to Toshiba Group, said that it is highly possible that the group will relocate its LCD TV production base to Indonesia instead of Vietnam.

“We are still thinking about where is the best place in ASEAN to set up our factories. We have an LCD TV production factory in Indonesia already. I think that focusing on one production base would be a good solution that can help reduce expenses. Maybe we will relocate the production base to Indonesia,” he said.

Toshiba Vietnam now has a factory in Thu Duc district in HCM City that prodices LCD TVs and DVD players. The factory began operating in 1996 and the products have been mainly distributed in Vietnam’s market.

Toshiba said it has not made final decision, however, people said that it would be quite understandable if the group decided to stop the production line in Vietnam and focus on the production line in Indonesia.

Prior to that, in 2008, Sony also decided to make TV tubes in Vietnam and focus on importing products and selling import products in the domestic market. After the “Sony’s story”, experts have warned about the new wave of foreign producers leaving Vietnam. Most recently, Deputy Minister of Industry and Trade Nguyen Thanh Bien admitted that there are signs of the wave, especially in electronic products.

Currently, most of Toshiba LCD TVs sold in Vietnam have been imported from Indonesia. Other electronics available on the domestic market also have been imported from Indonesia and Malaysia while only a small number of products are assembled in Vietnam.

The impacts of the global integration

Pham Chi Lan, a well known economist, sees the tendency of FIEs importing products to sell domestically instead of maintaining production in Vietnam as the result of the global economic integration.

Since 2006, Vietnam has been cutting tariffs on products imported from ASEAN countries. Products have been enjoying very low tariffs of 0-5percent.

Lan said that the tariff cuts have made foreign investors rethink their investment strategies. The enterprises, especially the ones which make products for exporting, should think about if they should gather production on one place, or set up different production bases.

“They may understand that it would be less profitable to make products in Vietnam than to import products from other countries and sell them domestically,” Lan said.

“I’m worried that the movement of FIEs stopping production in Vietnam and shifting to distribute imports in Vietnam will also occur in other fields, such as automobile and mechanical engineering production,” Lan said.

She went on to say that the tools Vietnam has been using to attract foreign investment since 2005 have not brought the desired effects.

“Now is the right time for Vietnam to become more selective in receiving foreign investment,” Lan said. “What Vietnam needs are investments in fields which can bring high added values, and technology transfer.”

Lan has also urged the government to reconsider the commitments made by foreign investors and check if the investors have fulfilled their commitments. “When they do not fulfill their commitments, we should remove the investment incentives we promise,” she said.- Thoi bao Kinh te Saigon

Tags: FIEs, Vietnam companies, Vietnam enterprises