In any office in the world, for every three computers in operation, at least one has a "brain" - a CPU, manufactured in Ho Chi Minh City. That is the result of more than 17 years of investment by Intel - the world's first high-tech corporation, choosing Vietnam for a billion-dollar project. The US chipmaker accounts for about 70% of the global computer CPU market share. The factory in Ho Chi Minh City High-Tech Park (SHTP) is assembling, testing and packaging more than half of Intel's total chips. "Inviting Intel is an important milestone in the process of attracting FDI investment," said Mr. Pham Chanh Truc, former Deputy Secretary of the Ho Chi Minh City Party Committee and the first Head of the SHTP Management Board. Mr. Truc played a key role in the more than two-year negotiation to bring the US semiconductor corporation to Vietnam. After Intel, many global technology brands such as Samsung and LG have also set up billion-dollar factories in Vietnam, along with a series of assembly units of Dell and Apple. From clothes and shoes, the phrase "made in Vietnam" has begun to appear on TVs, smartphones, smart watches, and semiconductor chips consumed globally. Electrical and electronic equipment has become the most important commodity today, accounting for nearly half of Vietnam's total export value with a turnover of 155 billion USD, a 5-fold increase after 10 years. Vietnam is among the top 10 countries supplying the world with the largest electrical and electronic equipment. However, the billions of USD invested by these corporations have only given Vietnam a new image on the trade map and have not been able to lift the economy to a higher value level.
"Vietnam still specializes in assembling parts and simple processing, while specialized components and equipment have not made any progress" is the conclusion about the electronics industry in the first and only Industrial White Book to date, published by the Ministry of Industry and Trade in 2019.
That's not the outcome that tech investors like Mr. Truc are aiming for.
"The high-tech park or any investor is just the initial nucleus. The ultimate goal must be the spillover effect to the outside so that our own industry can develop," he said.
Clean the nest to welcome the "eagle"
After Doi Moi , Ho Chi Minh City was the place where the first export processing zone of the country was established - Tan Thuan, located south of Saigon in 1991. The model was learned from Taiwan, taking advantage of tax and customs incentives to attract foreign enterprises to set up processing and export factories. The first investors to come to Tan Thuan were mostly related to the textile and footwear sectors - the manufacturing sector representing the early days of industrialization.
But the city and central leaders both realized that since they integrated late, they had to find a way to develop quickly, and could not linger around traditional industries.
"We must upgrade the export processing zone to access the world's advanced technologies," Mr. Pham Chanh Truc (then Vice Chairman of the City People's Committee, in charge of foreign economic affairs) recalled the conclusion in a meeting between Ho Chi Minh City leaders and Chairman of the State Committee for Cooperation and Investment Dau Ngoc Xuan.
That was the premise for SHTP. Mr. Truc was also the person in charge of the research team that realized this idea in 1992. It took 10 years for SHTP to be officially established, becoming the first high-tech park in the country in 2002.
At that time, Mr. Truc was 62 years old, Deputy Head of the Central Economic Committee and was preparing to retire. But when the City Party Committee leader asked him to become Head of the SHTP Management Board, he immediately agreed, temporarily putting his retirement plan on hold.
"This position is equivalent to a department director, but I didn't consider the position and accepted it immediately because I wanted to complete the unfinished project," he said.
Mr. Truc discussed with Mr. Xuan that if SHTP could attract an investor from the list of 500 largest companies in the US (Fortune 500), it would be a big boost for Ho Chi Minh City and the whole country.
The first name targeted was HP, because the person in charge of expanding the production activities of the American computer company at that time was a Vietnamese expatriate - an advantage for the city. However, this person passed away suddenly, leaving the plan to invest HP in SHTP unfinished.
After contacting several more companies, the city was determined to attract Intel when it learned that the largest chip manufacturer in the US was looking for a location to build a new assembly and testing plant in Asia. Vietnam was on the list of options.
In 2003, Deputy Prime Minister Vu Khoan led a Vietnamese delegation to Intel's headquarters in the US, bringing a letter from Prime Minister Phan Van Khai inviting the group to invest, introducing two locations including Hoa Lac High-Tech Park (Hanoi) and SHTP.
Mr. Pham Chanh Truc (middle) and Prime Minister Nguyen Tan Dung at the announcement ceremony of Intel's project in 2006 at the Ho Chi Minh City High-Tech Park. Photo: AFP
In the following two years, Intel sent many delegations to Ho Chi Minh City to learn about infrastructure conditions, logistics, transportation, human resources, and preferential policies. "The city has never met an investor who set out as many detailed and strict conditions as Intel," said Mr. Truc. The negotiations therefore "had to resolve many unprecedented requests", and with the company's leaders speaking from the US, the meeting ended late at night. Once, when discussing electricity prices, Mr. Truc called the Government directly to ask for opinions through Deputy Prime Minister Nguyen Tan Dung - who was in charge of directing the negotiations at that time. With the "green light", he immediately agreed on preferential terms with Intel.
"If I don't break the rules and send documents to EVN and other ministries for comments and wait for the Government to conclude according to the process, I don't know when I will be able to respond to them. Not all requests can be met immediately, but my commitment makes them feel confident," said the former Head of the SHTP Board.
During Prime Minister Phan Van Khai's visit to the US in 2005, the negotiating team also went to Intel's headquarters in California to discuss directly with the group's leaders. But when they arrived, Mr. Truc received news that the Intel Chairman was in Washington DC. "When we saw that, we immediately flew to the US capital and invited the Chairman to the Vietnamese embassy for a discussion," Mr. Truc said.
It was at this meeting that Intel's top leader confirmed that it would build a $600 million factory in Ho Chi Minh City, and then raise the investment to $1 billion when it received the license a year later.
Fragile Link
Three years after the factory's groundbreaking, Intel shipped its first "made in Vietnam" chips in 2010. At that time, no domestic company was capable of being a partner of the American corporation.
Today, the factory has more than 100 Vietnamese businesses in its supplier network, according to Mr. Kim Huat Ooi, Vice President of Manufacturing, Supply Chain and Operations and General Director of Intel Products Vietnam.
However, the above-mentioned progress in "quantity" does not go hand in hand with "quality". After 13 years, there is still no Vietnamese enterprise that can directly supply raw materials for the chip assembly and packaging stages such as substrates, capacitors, flux forming agents, solder resins or adhesives. Neither can the equipment and machinery in Intel's production line.
The playground of domestic companies is still outside the direct production line of semiconductor corporations. These are indirect inputs such as conveyor belts, tables, chairs, fixtures or transportation, human resources and security services.
That is, although Vietnam is the place where more than half of Intel's products are manufactured, the domestic manufacturing industry has not been able to supply any essential inputs for chips. Domestic enterprises have not been able to fly high with the "eagles".
Samsung is another example of Vietnam’s position in the global value chain. More than half of the brand’s smartphones are sold at factories in Bac Ninh and Thai Nguyen.
Every year, the South Korean conglomerate publicly lists its key suppliers, which account for 80% of its purchases. Last year, 26 of Samsung’s key suppliers were operating in Vietnam. Of those, 22 were Korean, 2 were Japanese, 2 were Chinese, and 0 were Vietnamese.
In the global value chain, forward linkages represent a country’s ability to supply inputs to other countries’ businesses to create final products. Conversely, backward linkages represent a country’s dependence on imported raw materials and components for production.
Vietnam currently has a lower forward linkage ratio than many Southeast Asian countries, and it continues to decline. Meanwhile, backward linkages are gradually increasing, indicating a growing dependence on imports for finished product assembly.
"FDI corporations find it difficult to take root in Vietnam when the connection with the domestic economy is very fragile," said Nguyen Dinh Nam, Chairman of the Board of Directors and General Director of Vietnam Investment Promotion and Cooperation Joint Stock Company. Vietnam's role with foreign enterprises is mainly to provide labor, which is associated with a low-cost positioning.
Sharing the same view, Dr. Phan Huu Thang, former Director of the Foreign Investment Department, Ministry of Planning and Investment, said that the policy of attracting FDI has long set the goal of accessing and learning core technology from leading industrial countries. However, after more than 3 decades, the goal of technology transfer has not been achieved effectively, and the main reason is the lack of connection between foreign and domestic enterprises.
Meanwhile, investors themselves also want to increase the localization rate to reduce costs compared to imports, according to Chief Representative of the Japan External Trade Organization (JETRO) in Ho Chi Minh City Matsumoto Nobuyuki.
Mr. Nobuyuki is often asked by many Japanese corporations to "matchmake" Vietnamese businesses to have more domestic suppliers, especially for important parts. "But very few companies meet the standards of Japanese businesses," he said.
About 97% of domestic enterprises are small and medium-sized, most of which have limited capital and management capacity. Meanwhile, becoming a supplier of world-class manufacturers requires large investments in technology.
"The above barriers cause most Vietnamese enterprises to remain outside the supply chains of high-tech corporations," a group of experts from the Fulbright School of Public Policy and Management pointed out in a summary report of Intel's investment in Vietnam, published in 2016.
When investing in Vietnam, large corporations often bring along their existing network of foreign suppliers, then seek out and support training for domestic enterprises to participate in the supply chain. However, not all companies have enough resources.
Earlier this year, CEO Nguyen Dinh Nam's client - a German medical equipment manufacturer - announced that it would choose Indonesia instead of Vietnam as originally planned to build a factory.
"They traveled from North to South but could not find a supplier of chips and microchips for their devices, so they gave up, even though they assessed Vietnam's preferential policies as very good," said Mr. Nam.
Bottom of the curve
When Intel agreed to invest 17 years ago, some senior leaders raised the issue of convincing the American corporation to deploy more research and development (R&D) activities in Vietnam. But Pham Chanh Truc knew that was almost impossible. "No one can easily bring their core technology outside for fear of being copied," he said.
Reality has shown that up to now, only Samsung and LG are the two high-tech FDI corporations that have opened large-scale R&D centers in Vietnam.
The life cycle of a technology product starts with R&D, then proceeds to component procurement, final assembly, distribution, branding, sales and after-sales. These activities are on a parabolic curve from left to right according to their respective added value.
This is called the "smile curve" - a concept first introduced by Acer computer founder Stan Shih in 1992 to describe the value chain. In which, assembly is at the bottom of the curve - synonymous with the lowest added value, which is also the stage that most factories of technology corporations in Vietnam are performing.
For example, with a high-end Samsung smartphone, the assembly and testing process performed in Vietnam accounts for only 5% of the production cost, according to results analyzed by TechInsights, a technology research company based in Canada, in 2020.
"Every country wants to take on high-value stages, but multinational corporations will allocate activities according to each country's capacity," said Do Thien Anh Tuan, co-author of a study on Intel's operations in Vietnam by Fulbright.
In the chip industry, after design, the manufacturing process takes place in two types of factories: fabrication (Fab) and assembly, testing, and packaging (ATM). Intel has 5 manufacturing factories in the US, Ireland, and Israel and 4 packaging factories in Costa Rica, China, Malaysia, and Vietnam.
Mr. Kim Huat Ooi said the group's plan is to continue focusing on assembly and testing at its facility in Ho Chi Minh City. Accounting for the largest output among ATM factories, Vietnam plays an important role in the company's production process.
However, Malaysia is the first place outside the US that Intel has chosen to deploy its most advanced 3D chip packaging technology. Unlike Vietnam, Malaysia has a complete semiconductor manufacturing ecosystem with domestic enterprises undertaking all stages from design, manufacturing to assembly and testing of chips.
In addition to Malaysia, Singapore also has chip factories. These two countries, along with Thailand and the Philippines, rank above Vietnam in the ECI, an index of the ability to produce complex products, calculated by Harvard University. Despite being one of the fastest-improving countries in the past 20 years, Vietnam ranks only 61st out of 133 countries in the world on this index, higher than Indonesia, Laos and Cambodia in Southeast Asia.
Although Vietnam is the most attractive destination for Japanese businesses wanting to implement the "China + 1" strategy to diversify production bases outside the world's most populous country, it still only attracts the assembly stage.
"If Vietnam wants to move up the ladder, it should forget low-productivity jobs and focus on added value," said Mr. Nobyuki.
This recommendation is not new, but it is becoming increasingly urgent as the labor advantage - the main attraction for assembly and processing activities - is declining along with the fastest aging population in the region. The peak of the golden population period has passed, and the number of workers in Vietnam will start to decline after 15 years, according to forecast models of the United Nations Population Fund.
According to Mr. Do Thien Anh Tuan, Vietnamese labor productivity is still slow to improve, lagging behind ASEAN countries, while wages continue to increase, making actual labor costs associated with productivity not cheap. "Investing in people and science and technology to move up the value chain must therefore be the number one priority," he said.
More than 30 years since sketching out the first ideas of a high-tech park, Mr. Pham Chanh Truc still has not seen the advanced manufacturing industry as he wished.
"We have a few businesses and high-tech products, but they are too few; most of them are still processing and assembling. If we continue at the current pace, how can we achieve the goal of becoming a rich country?" Mr. Truc wondered.
Content : Viet Duc Graphics: Hoang Khanh - Thanh Ha
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