Vietnam is at the head of several nations vying to become the new destination for outsourced manufacturing, reports E&T.
'Made in China' reads the unambiguous label stuck on the back of the shiny new laptop. "Of course," I immediately think to myself. "What else was I expecting?"
It's just that, after a few days of searching around for signs of Vietnam becoming a potential manufacturing challenger to the fast growing economies of Brazil, Russia, India and China, which together form the so called BRIC nations, I've just come across a news story claiming that Acer already has a factory in Vietnam.
As soon as I read this I ran to the kitchen table, where a brand new Acer laptop is sitting. Was this beautiful Intel-powered machine an example of the kind of high-tech manufacturing prowess that Vietnam was said to be developing?
It wasn't. Not only was this gadget built in China, but - as further research would reveal - it could never have been built in Vietnam. The news story was wrong. Acer does have a presence in Vietnam, but this is only a marketing and commercial presence to cater for the domestic market. In fact, the Taiwanese 'manufacturer' isn't strictly a manufacturer, with all its production being outsourced to contract electronics manufacturers.
China is still, and will continue to be, the undisputed manufacturing centre of the world. But evidence is mounting that Vietnam, which in 2007 joined the World Trade Organisation, is positioning itself as a viable alternative destination for companies in search of the next low-cost manufacturing location.
'Tomorrow's Markets', a report published in September 2008 by the government business development organisation UK Trade & Investment in collaboration with the Economist Intelligence Unit, shows how companies see Vietnam as the most attractive of a new wave of emerging countries which also includes Mexico, the United Arab Emirates and Ukraine.
Low labour costs
So what's driving this interest? "There are a number of things that make Vietnam very attractive," says Matt Chanoff, chief economist at electronics market research firm Technology Forecasters and author of another recent report, 'Vietnam: The Next Outsourcing Centre?'.
"The thing that's initially attracting people is the labour cost, of course. Vietnam has the lowest direct labour costs that are really practical in Asia. I mean, you can get lower costs in Cambodia or Laos but, in terms of operating in a country that's really practical to work in, Vietnam offers the lowest costs. Wages have been rising and they're still rising, but from a much lower base than direct labour costs in China."
One of the reasons wages are climbing is that 2008 saw inflation spiralling out of control in the south-east Asian nation. On 1 January 2009, a government-approved increase of 20 per cent in the minimum wage came into force. This took the minimum wage up to 1.2m Vietnamese dong ($72) per month for employees working in foreign-invested firms located in major cities, and $55 for those employed in rural areas. Domestic companies are allowed to pay less: $48 and $41 a month, respectively, to metropolitan and rural workers.
Jason Craft, deputy general director of Spartronics, the first high-tech company from the US to open a plant in Vietnam, says his firm saves as much cost on its highly-qualified support staff as it does on direct factory labour. "I'm getting an engineer there with a degree and two or three years of experience for $500 or $600 a month, whereas an equivalent position in the US would cost us $6,000 a month," he points out.
Don't expect this kind of 90 per cent savings on electronic engineers to last for too long, though.
Vietnam has a population of around 85 million people - nowhere near the vast pool of workers that countries such as China or India have to offer but still a relatively large population for a country that's a similar size to Germany.
However, while an impressive 90 per cent of the population is literate, foreign companies established there complain about a widespread lack of the type of skills they require.
"There is a noticeable lack of hardware engineers," notes Chanoff. "There aren't really very many good people, there isn't very much good training, the education system there is stuck in the 1950s and people don't tend to develop the kind of flexibility and creative problem-solving skills that these companies want in their engineers."
Intel, which is currently building a semiconductor assembly and test plant in Ho Chi Minh City, has had to resort to setting up its own in-campus university to train engineers that it will employ. It's an investment from which the chipmaker will surely hope to benefit in the long run. Like all investments, though, it carries a risk.
The number of electronics firms that have announced plans to establish - or have already established - manufacturing bases in Vietnam is growing all the time. The list includes Canon, Foxconn, Chi Mei Optoelectronics, Compal Electronics and Jabil (the world's third-largest electronics manufacturing service provider, currently making HP printers).
With all of these companies clustered around either Ho Chi Minh City or Hanoi, the two large industrial areas in Vietnam, highly-skilled workers are in high demand. "There's a pretty serious churn-rate issue, with people job-hopping a lot," says Chanoff.
Spartronics' Craft agrees the high-tech labour market is beginning to heat up: "All the good people and people with some level of experience are already employed. Even as we continue to expand a little bit, I cannot find anybody with experience. I find a lot of people who are educated and are working, but they are underemployed: they're working in the food processing or textile industries, and they've got an engineering degree. They're understandably anxious to get out of these jobs, so I can find people like that - but I have to train them.
"Educated people are available; educated people with the skills that companies coming in now want, they're hard to find.
"The fact that we've been there for five years now and we are an American company means that I now have a lot of people trying to steal my employees away. That demands constant vigilance in terms of keeping my people happy and keeping their salaries up."
One major issue Vietnam will need to tackle if it is to maximise its potential as one of the world's next hot manufacturing destinations is the modernisation of its infrastructure.
"They will need to invest heavily over the next 15 years to bring it up to par with China or even Thailand," says Hilary Ewing, an analyst with the Economist Intelligence Unit.
"Their port system is bad," adds Chanoff. "It's very fragmented, with lots of little sort of 'mom-and-pop' ports rather than large, coordinated container ports. I think there's only one deep water port in the whole country, so most of the shipping has to go up to Hong Kong, where it's consolidated into containers. That causes delays."
The Vietnamese government is aware of the problem and is working on the construction of two new ports, one in the north of the country in Hai Phong and the other one in the south, in close proximity to the new industrial parks which have been developed just north of Ho Chi Minh.
The Vietnamese road system is equally inadequate. "The 'highways' for the most part are still the kind of roads that become the main street of all the towns between the two cities," says Chanoff. "So it takes a long time and it tends to be really bumpy, which causes damage to the transported goods - the sort of thing you see in India, too. They have been working like mad to fix that; there are new roads and bridges going up all the time."
The only bright spot in terms of transport infrastructure is the airport system. Both Hanoi and Ho Chi Minh have good, reliable airports, which Spartronics and other manufacturers of small-volume, high-value products use to ship them.
Then there's the other big infrastructure-related deficiency: electricity. "The power infrastructure is a big issue," notes Chanoff. "They've been building pretty significantly - especially hydroelectric - but they are still below the curve. That's a problem for facilities that need reliable, clean power."
The analyst, who was last in Vietnam at the beginning of 2008, says he was shocked when he discovered the measures that Intel was having to adopt at the site where the firm is building its plant: "They were connecting into the grid in two different main nodes in the north and the south so that, if half the grid went down, they'd still have power. They were also building their own generation plant and still expected multiple shutoffs per year. Unbelievably, they're buying power from China; that's how precarious the situation is."
But the power problem doesn't seem to be affecting every company. "I'm OK with that," says the Spartronics boss. "From what I understand, the south of Vietnam is more stable than the central or the northern regions.
"You know, I'm at one of the other factories that Sparton [Spartronics' parent company] has in Florida in the US at the moment. And, with Florida being the lighting capital of the world, I actually remember having much more problems with electricity when I was managing this factory here than I currently do in Vietnam."