Day Three

Thursday 20 Sept '07

Itinerary:
1. Vinh Phuc Planning & Investment Department
2. Honda Vietnam
3. Yamaha Vietnam

Vinh Phuc Planning & Investment Department

The speaker was the Vice Chairman of Vinh Phuc Province. He was very hospitable and glad to have us visit Vinh Phuc. During his speech, he compared Vietnam with Singapore a number of times and has hopes that his country will be able to achieve what Singapore has. He was very encouraging as well and welcomes us to go back to Vietnam to invest. Thus, Vietnam is actually very receptive to foreign investment.

Vinh Phuc is located in the North-South of Hanoi (53km away) with a population of approximately 1.2 million. The total land area is 1,400 sq km, which is bigger than Singapore. Vinh Phuc is not very far from Noi Bai International Airport and Kunming, China. There are plans to build a new road connecting with the West from China to Vietnam.

Business Opportunities:

The province can be divided into 3 areas - mountainous, fertile soil and low land. Firstly, the mountainous area has good weather, thus it is suitable for tourism development. Vinh Phuc has plans to build huge resorts in this area (e.g. with Genting). Secondly, as a part of the province is near the Red River, the soil there is very fertile and thus good for agricultural development. The province intends to grow special agriculture in this area so as to boost tourism. Lastly, the low land is apt for developing the industrial aspect (e.g. build Small Medium Enterprises).

Currently, there are 120 projects from 16 countries with a total capital of USD1.5 billion. Despite the influx of foregn investment into Vinh Phuc Province, the province is still calling for investment in high-technology areas and infrastructure. Vinh Phuc is developing to become the IT hub of Vietnam. As the province is in the stage of transition from an agriculture to industrialisation, Vinh Phuc requires better infrastructure (electricity, communication, etc), and requires 1,500 workers to be trained for factories. Moreover, Vinh Phuc is offering various privileges and incentives for foreign investors, especially in human resource for education and healthcare services.

It may be easier to do IB in places like Vinh Phuc whose government welcomes foreign investment as there will be incentives and privileges offered. Companies will be able to enjoy government aid, facilitation of business permits, approvals, etc.

There is a range of opportunities available in Vinh Phuc Province itself. Businessmen can choose to invest in tourism and resorts, infrastructure construction, education, healthcare, IT, etc. Foreign companies can also look towards opening a factory in Vinh Phuc's industrial area or entrepreneurs may start SMEs. Hence, the opportunities are endless but ultimately, it is up to individuals to create them.

Honda Vietnam

The speaker was the CFO of Honda Vietnam. He gave us a brief presentation on Honda and its operations in Vietnam, after which we had a tour around the factory.

Honda has been established in Vietnam for 10 years (since 1996) but got its licence to manufacture automobiles only in 2005. The company started its automobile business in the subsequent year. Honda Vietnam currently has 2 dealers in Hanoi and 2 in HCMC. It is planning to open 2 new dealers in Central Vietnam (Da Nang and Vinh).

The production capacity is 1 million motorcycles and 10,000 automobiles annually. Daily production capacity is around 4,000 motorcycles. There are plans to build a second motorcycle factory next to the current factory with a legal capital of USD62.9 million. Honda Vietnam is 70% owned by Honda and Asia Honda, with the remaining 30% owned by VEAM (government).

There are over 20 manufacturers in Vietnam and Chinese motorbikes dominate the market due to its affordability (3 times cheaper than Honda). In 2002, the company tried to lower its production costs so as to have a more competitive pricing, sales increased significantly as a result. Honda's edge over Chinese motorbikes is its strict quality control (Chinese motorbikes can only last for 2 to 3 years).

In addition, Honda is also practices Corporate Social Responsibility (CSR). There are safety riding activities such as the "Toi Yue Vietnam" contest on VTV. Such actions are highly appreciated by the government and local people. Another event is the "Helmet Fashion 2005" which was aimed at encouraging the younger generation to wear a helmet while riding.

Social contribution is compulsary for companies operating in Vietnam. It can be through education scholarships and donations to funds for children protection. In Honda's case, it offers the Honda Foundation Award which is a scholarship to Japan for the local people.

The host manager mentioned that most Japan companies have factories in Vietnam. As for Honda Vietnam, it is the 5th Honda automobile factory in Asia. One of the reasons is the rising demand for MUVs (6 seaters) since 2003. In Vietnam, Toyota's Innova MUV dominates the market.

Honda's philosophy is based on the 3 Joys: Joy of buying, Joy of selling and Joy of creating. Thus, where there is demand, Honda will produce. Moreover, it is advantageous to have the factory located near to customers.

Yamaha Vietnam

Established in 1998, Yamaha is another Japan company producing motorcycles. For production purposes, the spare parts are imported (from Malaysia, China and Japan) and not produced in Vietnam. About 1,800 units are produced per day and the time taken to assemble a motorcyle is approximately 0.6 minutes, equivalent to 36 seconds.

Motorcycles are very popular in Vietnam and currently there are a total of 18 million motorcycles. Yamaha Vietnam's production is solely for the domestic market and not for export.

Yamaha Vietnam has a workforce of 2,500 workers and the workers are paid about USD80 per month and floor managers USD200.

On the way out, I saw a van filled with mooncakes and noticed that each of the workers carried a box of mooncakes home. Moreover, there were several buses and mini vans waiting outside the factory, and it seemed like company transport. I feel that Yamaha has done well by recognising the need to provide employee benefits. Small actions like this can go a long way as employees are contented with working in Yamaha.

Business Opportunities (Honda & Yamaha)

From the visits to these 2 companies, I have learnt of the popularity of motorcycles in Vietnam thus making it a lucrative market. However, there are also several competitors and certain government restrictions on foreign brands like Honda and Yamaha. For example, the government reduced the production volumn of foreign manufacturers thus affecting their sales.

Thus, although the Vietnam motorcycle industry is a viable one, investors should be prudent. Market timing is also very important. With so many competitors in the market, one should be cautious not to enter the market at a time where supply has outstriped demand.