-
 In
terms of input costs, there is not much difference between
Vietnamese and Chinese garment companies. But production costs
of Vietnamese companies are higher, due mainly to the high cost
of transportation in Vietnam. There are several reasons for
this.
First, port-handling charges are high, as ports are monopolies
operated by the State. Second, Vietnamese ports are small enough
that large ships cannot access them directly, forcing Vietnamese
exporters to pay for smaller ships to transport goods from the
port to the large ships. Lastly, the necessary unofficial
payments to Customs officers can add significantly to costs,
especially for exporters who ship many small orders.
Another factor that adds to the production costs of Vietnamese
companies is the requirement that the employer pays labor union
fees. According to Government regulations, employers must pay a
labor union fee equivalent to 2% of an employee's income. The
garment sector is labor-intensive, and workers' wages and other
relevant payments already account for 50% to 60% of total
production costs; any additional costs are a burden to
businesses. Recently a regulation was issued concerning
foreign-owned garment companies, which no longer requires the
employer to pay this fee. But in domestic garment companies,
this fee is still charged to the employer.
We would like to recommend that the Government makes further
investments in infrastructure, especially in ports, to help
Vietnamese exporters reduce costs. In addition, the Government
needs to change the regulation that requires domestic businesses
to pay labor union fees for their employees in order to level
the playing field.
Mr. Diep Thanh Kiet, Vice Chairman, Ho Chi Minh City Garment and
Textile Association
-
The quality of roads
and trucks is a real problem. If these were better, the
transport costs of my company would be reduced by at least 30%.
It is true that labor costs in Vietnam are relatively cheap.
However, qualified workers are lacking, resulting in us having
to import more than 50% of our experts and machines from abroad.
It is very expensive given the appreciation of the Euro, salary
requirements of foreign workers, and transport costs.
Like other countries such as France, Vietnam requires a
reasonable level of employer's contribution to employee's social
security which is 23% of worker's salary; the employer pays 17%
and the employee pays 6%. However, many of my employees feel
that the benefits they get are not worth the money we pay. So I
think in terms of value-for-money, social security costs are too
expensive.
Mr. Thierry Mermet , General Director, The Bamboo Factory
-
 JETRO
Hanoi works to promote import and exports between Vietnam and
Japan. Every year, we carry out studies on market risks and the
investment situation in these countries to help investors make
informed decisions. We focus on the costs of doing business,
which is one of the biggest concerns of investors. In 2004, we
saw some positive changes with reduced labor costs due to
reductions in Vietnamese workers' personal income tax rates. But
the most striking cost reduction was in the telecommunications
sector. These are good signs for foreign investors.
Despite this progress, I think Vietnam can further reduce the
costs of doing business. One solution is to develop local
supporting industries that are currently nonexistent or weak,
requiring enterprises to import expensive inputs from other
countries. The Government, especially the Ministry of Industry,
is aware of the problem and is working with Donors to address
it. I think the Government needs to develop a comprehensive
policy to support small and medium enterprises that can act as
supporting industries.
Another area investors wish could be improved in Vietnam is the
infrastructure. There are many Japanese manufacturers in the
Hanoi-based Thang Long Industrial Zone that are expanding their
investment, such as Canon. I am worried that within the very
near future, Highway 5 to Hai Phong will reach full capacity.
There is an urgent need for expansion of the existing road,
building a new road, or usage of railway as an alternative.
Finally, the cost of electricity in Vietnam is relatively high
compared to other regional countries. But we are more concerned
about the dual price of electricity, which discriminates against
foreign investors. This is not good for Vietnam's image. We wish
the dual pricing in the electricity sector could be phased out,
as has been the case with airfare, TV advertising, and water.
Mr. Kenjiro
Ishiwata, Chief Representative Hanoi Office,
Japan External Trade Organization (JETRO)
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