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Next stop Vietnam

A clutch of Indian corporate giants is following in the footsteps of global megacorps like Microsoft, Intel and Alcoa by kickstarting operations in one of the few global economies (other than China and India) that's humming at a growth rate of 8 per cent.

By Anand Adhikari        Print Edition: July 1, 2007

Barely had the ink dried on Tata Steel's $12.9 billion acquisition of UK steel giant Corus early this year when Balasubramanian Muthuraman, who tirelessly worked on the big-ticket, highly dramatic deal for months on end, found himself in the tourist hot spot of Hanoi in South East Asia. No, it isn't as if Ratan Tata's steel point man was taking a well-deserved break in the lake city of Vietnam. Rather, the 62-year-old MD was there to give final shape to a billion-dollar memorandum of understanding that will allow Tata Steel to manufacture 4.5 million tonnes of steel per annum by putting up a complex in the Ha Tinh province. The Vietnam venture may be small beer when compared to the Tatas' recent big strides on the global landscape, but analysts see the foray as a launching pad for many of the group's other flagship businesses, such as it, telecom, power, tea and chemicals. And it's not just the Tatas who've taken a fancy to this once war-ravaged south-eastern country. A host of mega-corporations, both global as well as Indian, have trained their sights on Vietnam. The global giants include the likes of Microsoft, Intel, Alcoa and POSCO whilst the Indian majors making a beeline for cities like Ho Chi Minh, Ha Tinh, Hue, Quang Ngai and Binh include, other than Tata Steel, Satyam Computer Services, Essar Steel, ONGC Videsh, and Nicco Corporation (see Win-Win in Vietnam).

Why Vietnam

High growth and high literacy are attracting huge global investments.

GDP
8.5 per cent growth in 2006, projected at 8.2-8.5 per cent in 2007.

GDP per head
$725 compared to India's $840, and China's $2,069.

FDI
$10.2 billion in 2006, expected to touch $20 billion in 2007. Is 3.9 per cent of GDP as against just 1.1 per cent for India.

FII
$3-4 billion in 2006. So far in 2007, Vietnam's stock market is one of the best global performers, offering returns of over 40 per cent.

Population
84 million people, 90 per cent of them literate. Two-thirds of the population under 30.

Source: Economist/ BT Research.

The Global Rush

MNC             PLANS

Intel : Setting up a $1-billion global semi-conductor manufacturing facility in Ho Chi Minh  City,which is scheduled to start production in mid-2009.

Microsoft : Signed a copyright agreement to reduce software piracy. No investment committed so far.

POSCO : Undertaking a feasibility study to set up an integrated steel facility. POSCO is expected to invest over $1 billion in a 3-4 million tonnes plant, scheduled to start production by 2010-2012.

Alcoa : Has a $1.5-billion project for bauxite ore mining and another for a 1-1.5 million tonnes alumina refinery.

Banyan Tree : Singapore's Banyan Tree Group is setting up a high-end resort in the Thua Dinh Province.

Source: BT Research.

A big trigger for the fancy for Vietnam came by when the country joined the World Trade Organization (WTO) in January this year. But the interest isn't new-found for sure; in 2006 some $10 billion flowed into Vietnam as foreign direct investment (FDI). Another $3-4 billion poured into the stock markets as foreign institutional investment last year, a year in which Vietnam's gross domestic product (GDP) grew by 8.5 per cent. The good run has spilled over into the current year, with economists forecasting an 8.2-8.5 per cent growth in GDP, and the Vietnamese stock markets emerging as one of the best performing by showering investors with 40 per cent returns.

If Vietnam is on a roll, it's because global investors are beginning to recognise it as the latest low-cost manufacturing destination in the Asian region. The country is thus emerging as a worthy investment alternative to India and China. A little over 90 per cent of its 84 million population is literate, and two-thirds of it is under 30. This makes them ideally suited for industries like it and it-enabled services. And this vibrant chunk of the population would also prove to be energetic consumers, which explains in part why the economy is growing the way it is. What's more, Vietnam like India also needs to attract huge global investments for infrastructure creation.

Says Muthuraman: "Vietnam is one of the fastest growing economies with a very stable business environment. We expect a significant increase in steel consumption in Vietnam." Currently, 6 million tonnes of steel is consumed in Vietnam annually, and this figure is expected to swell to 10 million tonnes by 2010. With construction activity gaining momentum, steel constitutes the fourth-largest constituent of Vietnam's imports. "Vietnam is one of the fastest growing markets for steel consumption and that's reflected in its per captia consumption, which is 85 kilos as against 35 kilos in India," adds Jagdish Mehta, President & CEO, Essar Vietnam Steel Corporation. The Essar Group is setting up a 2 million tonnes per annum hot strip steel plant there. "The country currently imports approximately 1.9 million tonnes of hot rolled steel from global markets," says Mehta.

It won't be long before other Indian manufacturers also spot an opportunity to substitute imports by producing in that country. That's because Vietnam's imports range from commodities like fertiliser and cement to two-wheelers. Not just that, none other than Microsoft head honcho Bill Gates believes that Vietnam can become a global BPO hub. "There is no reason why Vietnam could not follow India into software development and other forms of outsourcing," Gates thought aloud at the Hanoi Universtity of Technology last April. Satyam Computer has taken heed, and announced a 2,000 people development centre by 2009. Wipro BPO is also exploring the possibility of a development centre in Vietnam. "Vietnam has a well-qualified and a large young population. In fact, Vietnam has not seen the kind of wage inflation we have seen in India and China," says Virender Aggarwal, Director & Sr. VP (APAC and MEIA), at Satyam Computer Services.

Just as in China and India, investing in Vietnam isn't totally risk-free. Infrastructure bottlenecks abound, communists are still ruling the country, and political uncertainty isn't non-existent. Not least, a situation like the 1997 Asian currency crisis-when global investors pulled out truckloads of money from East Asian countries-has all the potential to derail Vietnam's gravy train. But then again if you've got to take your chances you're better off doing so in an economy that's growing at 8 per cent.

 

 

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