The Vietnam Formosa Industrial Park
Taiwanese Business Sinks Roots in Vietnam
Amid Vietnam's current financial crisis, one industrial park was able to buck the trend, attracting an influx of large corporate tenants. What lies behind its success?
Taiwanese Business Sinks Roots in VietnamBy Hsiang-Yi Chang
From CommonWealth Magazine (vol. 401 )
A traditional industrial park in Vietnam – potholed roads and dusty air with a visibility of just five meters. The car turns a corner and seems to arrive in a different world of lush greenery. Brand-new factories and office buildings with cutting-edge designs sit along straight, tree-lined boulevards, reminiscent of Taiwan's Hsinchu Science-based Industrial Park or even a Southeast Asian holiday resort.
Developed by Taiwanese investors, the park in Ba Ria-Vung Tau Province in southern Vietnam is, along with the Vietnam Singapore Industrial Park, one of only two model industrial parks in the country. It not only defies the generally held stereotype of Vietnamese export-processing zones, but also represents a new era in Taiwanese investment activities in Vietnam.
When Formosa International Development Corp. president Peng Bing came to Vietnam ten years ago, he felt that the Southeast Asian country sooner or later would have to transform its economy focused on conventional industry. Peng, who used to work for the Retired Servicemen Engineering Agency promoting the Taiwanese government's infrastructure projects in the Middle East, observed that Vietnam was becoming less and less suited as a base for ephemeral foreign SMEs producing cheap, labor-intensive goods for export. Peng felt that import-substitution industries with a long-term business perspective of more than 20 years such as petrochemicals and steel would be able to gain a strong foothold in Vietnam.
That trend is reflected in the tenants of the Vietnam Formosa Industrial Park. Although rents in the park are about 20 percent higher than elsewhere, it is fully booked. Ocean shipping company Yang Ming Marine Transport and footwear and electronics manufacturer Pou Chen Group are among the large companies that have moved into the park, which many refer to by the nickname "Taiwanese Corporation Village." Even Taiwan's largest steel maker China Steel Corp. is planning to set up shop here.
Crucial for Peng's success amid an adverse overall economic environment was that he early on borrowed from Taiwan's own experience to set up a new type of industrial park that met international standards. This included spending its own money on the construction of a sewage treatment plant and top-notch asphalt roads. The park's roads are able to support the transport of 120-ton heavy machinery, more than what Vietnamese standards require.
Peng notes that the current financial crisis is forcing companies to undergo painful transformations earlier than originally expected. But the Formosa Plastics Group, electronics giant Hon Hai Precision Industry, notebook maker Compal Electronics, the Chi Mei Group, and OEM electronics manufacturer Wistron have all announced further investments in the park. The main reason is that the coffers of these large corporations are well filled so that they do not need to take out costly high-interest loans to finance new projects. But Peng urges small and medium-sized enterprises that have in the past preferred to make a quick buck to learn from the large corporations.
"The most urgent task is to stop investing in plant expansion and to instead improve the basic financial structure," Peng cautions. Peng expects that once the pain of economic transition has subsided, Vietnam will likely announce higher-standard environmental protection and labor laws in order to weed out conventional labor-intensive industries that are insufficiently competitive. Consequently, Taiwanese businesses need to review their niches in Vietnam and consider the possibility of transforming into high value-added industries.
The Vietnam Formosa Industrial Park that Peng heads mirrors one side of the new Vietnam. In an eight-year effort Peng turned the crisis of others into an opportunity for himself by adopting a long-term vision, consolidating the park's development, and persisting through hard times.
Translated from the Chinese by Susanne Ganz
Chinese Version: 福爾摩沙工業區，生根越南