Feasibility study for a manufacturing site for abrasive products in vietnam

ECOLE SUPERIEURE DES AFFAIRES GRADUATE SCHOOL OF· BUSINESS UNIVERSITE PIERRE MENDES FRANCEGRENOBLE - FRANCE Master in Management LE DESS CAAE "MANAGER" Report Presented by Mau Chien DANG

ECOLE SUPERIEURE DES AFFAIRES GRADUATE SCHOOL OF· BUSINESS UNIVERSITE PIERRE MENDES FRANCE

GRENOBLE - FRANCE

Master in Management (LE DESS CAAE "MANAGER")

Report Presented by

Mau Chien DANG

FEASffiILITY STUDY FOR A MANuFACTURING SITE FOR

ABRASIVE PRODUCTS IN VIETNAM

NORTON ABRASIVES PTY LTD2S Nyntog Street

Lldcombe NSW 2041Australia

Se:ptember26 1995

Mr DANG MauChi~n

74 Avenue Jules Val Its

?8100 Grenoble

FRANCE

Fax No 33 76 82 63 82

Dear Chien

This letter serves as confinnntion that your project to conductafeasibility study of startinga

manufacturing f:.lcility inVidnam has been satisfactorily completed In addition, I wouldlike

toaddsome comments regardinganassessment of your work

I would descrilx the fuJ.i5heJ document you provided asathorough llnd comprehensive analysis'

of the details JJecessary to ddenrune whether a Saint-Gobain business should invest inmar.ufa<:furin:i: fa(;ilities in VietTI:\nl;YOU(final report (and presentation) reflected many hours

of ddig<:nt research, cvmp.ehe;-;sive~ynthesi7jngof infontUltion and00excellent understandingcfL'1ek,~ybusi"es:: dccil;i"ns thatneectobemade: J believe that any rc:mer could gai.na demiJedinsight ioto tt~e CCOCiOmit.:, sociological and political factors that influence business andin"0stmenlcecis!:J;)SinVietnam

I abo bli(;ve dUll the rerort you provided demonstrated a disciplined and highly energeticapproach to the project Tf (wer~ t'_, -ir,nv a conclusion of your work ethic on the basis of thisprcj:~ct,Iwould be highlycomplerue"'1I)'0 $ Ibelieve you generatedBsignificant amount ofwork intLr.}C Jnonlhs' time

Finally, I \\'ol!ld like to thank you ror your time and effort and the enthusiasm demonstnltedduring t!lis prvject TI,c result )f your work will be a valuable tool for all Saint-Gobain

business~swith any r-oteatial illt(;f~st ininvesting in Vietnam

AsII re~·,It of y:-:nr work andtHe assessment of your etTorts,I will be recommending that you be

cone 1fo~ 00plo/~TleJlt within in oneofthe Saint Gobain businesses I am prepared to

provid~ Olny jnter~st(;d M:uJa;er with further input regarding your work with the AbrasivesBranch

Yours ~inccrely.

Cpk.~.~ A 8~V\~'V

FeQ.fibi/ity Study for a Mcmujacturing Site for·Abrasive Products in Vietnam

Thanks

FtnltofaD, I would liketocxprc88my apprcci.ati.onto Saint-Gobain Corporation for approving

myco-opcrationand financing1hisproject

I wishalsotocxprc88mygreatappreciationto Ms 1'fJcoleLawson, Saint-Gobain Corporation(USA), andMs.F~Tridon, Saint-GobainCompany(France) for helping meaccomplish

the administrativeprocedures,so!hatI couldcartyout myassignmentinVietnam

I must say a special thank to Mr Douglas Amston, Regional Fmancia1 Controncr, Soulheast

Asia (Singapore), who hasworked directly withme His co-opcration hashelpedme a lotin

carrying outthisproject

I amverygrateful to Mr Stephen Stockman.theDirectorofa1JrasMbranchin Asia(Aus1raJia)forhisuseful guidance

f wish to express my sincere thanb to Mr Hubert Drouvot, the Professor of the GraduateSchoolofBusinessinGrenoble(FJ'3DCC),whohas acceptedtheresponsibilityfor guiding metoconductthisproject

I am grat.cfu1to Ms Susan Kob, theOfficeManager ofNortonin Singapore, for helping mecomplete documcnm needed formyassignmentinHoChiMinh City

I wouldlike to thank all Vietnamesecompanies, administrative organs, business organisations,

as wen as anjoint-venture companies, foreign companies and their reprcscntativc offices forprovidingme usefulinformatiOn.IlCCCS83IY dataand practicalexperience whichhavebeenused

• HCM City InvestmentConsultingService Company,

• HCM CityExportProcessing Zone Authority (HEPZA),

• Foreign TradeandInvestment Development Centre,

• Thehnport-Exportand lDvestment for DevelopmentCompanyCan Gio,

• Service CompanytoForeignMissions,FOSCO Business Centre,

• Visingpack, CartonPackaging Enterprise,

• Textile Mechanic Factoi)',

• VietThangTextileCompany,

• HCM CityLawAssociation Legal Consulting Office No 4,

• HCM City University,

• HCM City University of Technology

I would like to say special thanks to all Lecturers, Professors of the Graduate School of

Business in Grenoble forimpartingvaluable knowledge in business management to me Above

an,I am deeply indebtedtoProf MichelAIbouy, Prof Pierre Girod, Mr.Michel Bouche, Mr

Olivier Taramasco,andMs Anne-Marie Dobias

Finally, Iwishtoexpressmygratitude toall myfriends at the Graduate School of Business inGrenoble and the National Polytecbnic Institute in Grenoble for their good relationship

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

3 EcoNOYIC INOICATOJ.S, ADVANTAClI!S AND DIPFICtlI.1lE8lNnlElNVI!STWIlNI" IN VIE1NAw 20

4 FOREIGN INVI!3TWllNI" AND nlE PRl!SI!NCI! OP NORTON AND SAINT -GoBA!N IN V!Im'lAlol 25

aIAPTER 2: ADVANTAGES OF STARTING-UP A MANUFACTURING SITE IN VIElNAM J8

I FACTORS OP PIl0DUC"IlON 30

1.7 Insuranu, bonJcing .J)Istm&, and agreemmu ofinve.rtmml 42

3.2 Industrial Zonu (lZ) - Locatton.r with a rdD/tveJy good Infrastructure 52 3.3 Esport ProcU.Jing Zonu(EPZ.J)-1tkallocatton.r for invutmDltl 54

3

3.6 How fonigfl nuuU gootb get to tM coruumer in Vietnam

3.7 Import-cport procedun

CHAPTER J : HOW TO INVEST IN VIETNAM

1 A IllUEF Im'IlODUCI1ON TO lAW ON FOREIGN INVES11oiI!NI'

1.1 Form.rofinvutment in Vietnam

1.2 Investment guarantees

1.3 Inwsrment encouragemmt

2 1NPoR.TANI' BUlIINIllI8 lAWS

2.1 Vietnamese Contract Law

3.1o-vt-3.1 Invutmmt projectc1octDttMt.r

3.3 Appr-OWJlproudvre (Eva1IuJItOtl ofprojeeu)

J.4 Implementation ofprojects

CHAPTER : CONCLUSIONS AND PERSPECTIVES

1 SUMYAR.Y AND PaOPOIIlJ1ONlI

1.1 Ho ChI Minh City, Vietnam - Itkallocattonfor mDktng your SllCceufid In\lUtment.J

1.1 Proposetlfonru offoreigfllnWlltment in Vietnam

2 WHATTODOlNmBFtmlItE

1.1 Iktermlnlng ItrVctun and i1CGpe oflM projectetl mterprile

1.1 Eeono-technical appraisalfor a manufacturing project for abrasive productsinVietnam

1.3 Mtll'bttng strategies for abraslWl products

APPENDIX: TOOLS FOR ESTIMATING MARKET POTENTIAL

REFERENCES

Contents

62 64

"6969 69

85

100

100 101 lQ.1 106

108

108

lOB IlO

112

Il2

112 123

126

Feasibility Study for a Mamifacturi"g Site for Abrasive Products in Vietnam

Caption of tables

TabU1 : 1n1~/On8hip,Nr-m control ofeconomic tu:ttvtty and 0WfIu.fIJip offtu:UJr, ofproductton _ _18

Tabk3:TM ImIemIIenI by cocmtry from1988to1994 (Souree: Vle_1~mnenJ &vi",,) 15

Tabk5 :TM yearly uUu ofNorton " proJMcll realUed by 1M dtstrlbulor In Ho Chi Minh City 17

Tobk 7:Quality andprice ofNorton " produCII Inc~wtth 1M cOffllHttlon' than 19 TabU8 : Thecolt0/raw mDJerlall for productng convenrtonal abrtUlw3 31 Table 9: The lilt oflop len projeellfor /nfraltnu:lInY! and induItrial zonu In HCM City 33

Tabk11 :TM IatuJ renting price3for 41L In Dong Nat prtrrlnce andfor SongBe provinceIZ 37

Table18:TM lilt ofcormtrlu which have ,Iptd agre""'llIIII ontheguaranJBB ofI""Bmnml wllhVietnam _ 44

Table13 : The C03t for appro<U:hing Vietnam "TTWr~tforaFrllllCh lruline,.rman 48 Tabk14:IMta1Jalion confor a local commercial mlJ,ldlary and It, annual exploltatton con 49 Table15 : Thecon forthreerepre-.raltw!bau.rfor Nort0nmtJ3 w1u:eb In HCM City. 51

Table16 :Auu31l'lml ofEPZ natIU blUed on /nfOmJlJttonawJllabU10theend1994 56

Table 30: Thelin oflJlrJwver ltZ%rale3 tkpmdingonthe c1a.JnjlcalJon and the~ofbwtne.u 93 Table31 :Remittance 1tZ% depmdtngonlegal capital contribu/ed by foreign brvuIor 94

Table33 :Per,onallncome ttZ% rtJIB bantkforfortlg17D"3 andfor Vlet:1ulmue clltzlllll wori:tng OYer,eQ$. 97

Table34:Ptr30nal income ttZ% rtJIe bantkfor V l e _ cltlzllll3 and other, rendingpermanmlly tilVletnalfl 97

Table 35 : TtZ%rtJIe bantk tiltheCQ3B ofirregular income for forngTltr3 andV l e _dtlz , 98 Table36 :Production royaltlu ta:" raJe3 depmding on k:indI ofnatural re.wurce3 100

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

Figure1 :AJilninlstrGttw structJln ofs R.VldllQ7IJ(Source: VletnDm Info oftiNChamber ofCctruru!rce&:

Figure3 :The mop zhowIng tiN Iocatton ofTan "",an EJrport Procemng ZOIU! In HCM City 58 Figure4 :Plow chart :rIwwIng howfonlgn trUMk goodsgdthe COn.JWner in Vietnam 61

Figure 6: Country allroctlYme.u-company :rtrmgth matrix showing po:rsibk fomu ofopuotlons 111 Figure7:Plow chart for thtermlnlng structure and :rcap« ofthe projectedemerpri.Je 112

,

Feasibility Study for a Manufactwing Site for Abrasive Products in Vietnam

Introduction

Today Asia in general and Southeast Asia in p8rticular are considered the world's most dynamicregion in terms of economic development Asia reJl1'esents half of the world's population andcontributes almost half of the total increase in gross world products With its fast economicgrowth rate and huge need for infrastructure development, the Asian area offers vastopportunities for investmentthatwant to expand operations beyond national borders

The day has come for Vietnam to stand shoulder to shoulder withjts Southeast Asiapeers Thefact that Vietnam has become an official member of ASEAN is not only a testimony to thecountry's internal efforts but also a sign of developing regionalisation Moreover, Vietnam hasestablished diplomatic relations with 155 countries For the first time Vietnam has normalrelations with all the world's super powers and major economic-political centres Ofthese,Vietnam has commerciallinks with morethan100 nations

Vietnam has achieved such good results because the country has a lot of advantages to foreigninvestors such as : politicalstability, high economic growth rate, cheap labour, abundantmineral

and natural resources, tremendous needs for infrastructure development, a seventy millionpopulation market

Besides Vietnam's Law on Foreign Investment has been regarded as one of the most liberal andfavourable Laws on Foreign Investment available in Asia

Since Vietnam has the open-door policy and the Law on Foreign Investment has beenpromulgated, this has encouraged more and more foreign countries to invest in Vietnam

7

Especially when the United States liftedthe embargo in February 1994, the foreign investmenthas increased rapidly anduntil now companies and groups from 50 countries have invested inprojects in Vietnam

However, Vietnam is a new and strange market to foreign investors, first and foremost, foreigninvestors from Europe and America Therefore, most of them have had to face a lot ofdifficulties when penetrating into Vietnam's market Since they are lack of necessaryinformation about theinfrastructure, the factors of production, machinery and equipment, people,traditional customs and culture in Vietnam So, it is very necessary to study the economicenvironment and the feasibility of a project before having a decision to set up a manufacturingsite in Vietnam

Saint-Gobain Company is a multinational company with many sectors in which the sector ofmanufacturing abrasive products accounts for 8% of total turnover Abr:asivehas been produced

in Norton enterprise which isleader in the sector andhas a lot of factories all over the world It

is certainthat Vietnam is one of the attracting markets to Saint-Gobain Company in general andNorton in particular

The main purpose of this project is the feasibility study for a manufacturing site for abrasiveproducts in Vietnam This project report consists of four chapters as below:

Chapter I : Introduce some general features of Vietnam: geographical characteristics, natural

resources, people, economic indicators as well as some information of the foreign investment inVietnam

Chapter II: We would like to present themainpoints of the project in this chapter They includethe advantages of startingup a manufacturing site, such as, the factors of production, start-upcosts, and practicalities of doing business in Vietnam

Chapter III : After having $died the practical situations and the advantages of the investment in

Vietnam, we would like to present Vietnam'sLaws on Foreign Investment, Business Laws andthe administrative procedures to apply for an investment license of foreign companies

Feasibility Study for a ManufaetuTing Site for AbrasNe Products in Vietnam

Chapter IV : After swnmarising some advantages of the investment in Ho Chi Minh City,Vietnam, we would liketo suggest some appropriate forms of investment in Vietnam We alsopoint out the necessary things to do in the future, such as, econo-technical appraisal of amanufacturing project for abrasive products and marketing strategies for these products inVietnam's market

9

Feasibility Study for a ManufactUTing Site for Abrasive Products in Vietnam

Chapter 1 : Vietnam - A true market in the future?

1 A brief introduction to Vietnam

1.1 Geography, climate and natural resources

The Socialist Republic of Vietnam (SRV) is located in the geographical centre of SouthEast

Asia, bordering China in the Nonh, Laos in the West, Cambodia in the West and South Westand looking on to the sea in the Eastern and Southeastern side whence comes the appellation

"The balcony over the Pacific Ocean" Vietnam's territory comprises a continental partwith

an area of 333,689 sq Ian and an uninterrupted coastline of 3,260 Ian and thousands ofislands and archipelagos

Owing to geographical factors, the country can be divided into three main regions: theNorthernpartwith the Red River Delta enclosedbymountains on three sides andbysystems

of dikes ; the Centralpartwith a vast expanse of high plateaux and a plain strip along the side; the Southern partwith the immense Mekong River Delta stretching to the border withCambodia

sea-Forests and mountains occupy 3/4 of the country's landarea Vietnam's forests are rich in theforest produce As they belong to the tropical category, a great many of fauna and floraspecies are found in these forests Vietnam is rich in minerals The country has considerablereserves of coal, silica sarid., bauxite, iron ore, lead copper and other metals Diamonds,rubies, and other gemstones are also present Oil has been found on Vietnam's continentalshelf, and foreign oil companies are currently undertaking further offshore exploration Apetroleum law has been enacted to regulate exploration and production New laws on miningare also expected

Located within the tropical and sub-tropical zone Vietnam has a humid tropical climate

ClUJpter 1 : Vietnam - A True Marlcet in the FuJure ?

Located within the tropical and sub-tropical zone Vietnam has a humid tropical climateheavily influenced by the monsoon which enables an all-out agricultural development

1.2 Population and social patterns

• Popll1JltJon

Vietnam has a population of over 70 million inhabitants, 80% of them live inruralareas Themean population density is about 200 people per square kilometre Almost 4D% of thepopulation are under 15 years of age The population is growing rapidly at an annual ratecurrently above 2%

Hanoi is the capital city with a population of about 3 million of people The country's largestcity is HoChiMinhCity (formerly Saigon) with nearly 4 million of inhabitants

At present there are over 54 ethnic groups making up the collective community of Vietnamwith the Viet (Kinh) being the most numerous and other ethnicity like Khmer, Thai, Hoa,Tay, Muong, Nung These ethnic minorities make up more than 10% of the population.The constitution specifically mentions and protects these minority's rights However,minorities still suffer from below-average living standards and levels of education As

elsewhere in Southeast Asia, the Chinese minority wields great influence in the economy HoChi Minh City is estimated to have about haft a million Cantonese-speaking ethnic Chineseresidents

Up to two million ethnic Vietnamese are estimated to be living abroad They are known as

"Overseas Vietnamese" or "Viet Kieu" The largest Vietnamese community abroad is inthe United Stated of America where an estimated 700,000 Vietnamese live The Vietnamesesettlers in Cambodia could well exceed half a million Other sizeable Vietnamesecommunities live in France,Canadaand Australia

Although each ethnic group has its own vernacular language which constitutes its particularculture, but Vietnamese is the national language as it is spoken and used in the entire country.The French language is known and used by the persons advanced in years while English isquite popular in the Southern part as well as in the Northem Besides, the Chinese andRussian languages are known by a considerable number of persons

11

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

# Edllcation

At close to 90%, Vietnam's literacy rate is one of the highest in The Southeast AsiaTraditionally, educationhas been of great importance to the Vietnamese However, there isstill little understanding of capitalist economic and business concepts, and the technologyused in the country is largely out-date Trainingisnecessary in these areas

1.3 Vietnam's eristing infrastructure

Vietnam's existing infrastructure is obsolete, overloaded, deteriorating and lacking regularmaintenance To re-build and develop infrastructure facilities constitutes one of theGovernment's urgent priorities The infrastructure development had been seriously affected

by the US embargo and would be carried out successfully in the time to come with the lifting

of the US embargo (Feb 3M, 1994) and the resumption of capital lending by majorinternational banks

# Transport and Communication

At present Vietnam has over 106,048Ianof roads andrails with 174,595 m of bridges and

135 ferries Only 13,000 Ian are asphalt or asphalt half-penetrated roads A good manysections of roads and bridges havebeenout of order and badly damaged particularly in theNorthern and Centralpart Most ofthebridges are dilapidated and 50% of them had been

temporarily designed All these factors have badlyaffected the traffic

The railway network comprises 2,600 km of single track with seven main lines among thesethe longestandmore important being that which links Hanoi, the capital city with the largestmetropolis, HoChiMinh City in the Southern part (1,726 km) Although being restored afterthewar ,the railway systemremainsin the verybadconditions with 80% being narrow gauge(I m) and 20% of the locomotives being steam machines which cause problemsto the speedand the carrying capacity of thetrains At present the journey from Hanoi to Ho Chi MinhCity takes 36 hours

The sea routesandwaterways playa highly important role in transport and communication ofthe country The major sea-ports are Hai Phong (in the Northern part), Da Nang (Centralpart) and Saigon (Ho ChiMinhCity) which have been under the management of theMinistry

of TransportandCommunications The volume of transported goods via Vietnam's sea,ports

Chapter 1 : Vietnam - A True Marlcet in the FutuTe?

in 1992was9 million tonnes (excluding fuel and coal) Most of the port facilities have not

beenmodernised (except forHaiPhong and Ho ChiMinhCity)

There are three international airports in the country : Noi Bai, Da Nang and Tan Son Nhatand the nwnber airfields which serve the domestic flights The current infrastructure andequipment of the international airports have been inadequate to meet the ever increasingnwnber of airpassengersand the world standards

• Information - ContmllnicaDon

International telecommunications in the country have been initially improved with theinstallation of two satellite communications receiving stations However the overallcommunicationsystemremains to be completed and requires large investment At present anwnber of projects designed for upgrade of the telecommunication network have been in theprocessof deployment

• Power supply

The electric power has been atop priority for improving the infrastructure of the country.The electric power shortage has been impeding industrial and agricultural production,particularly in the dryseason in the Southern part Several thermal, hydro-power plants andgaze-plants have been actively built The 500 KV North-South transmission line has beencompleted in April 1994 These projects are going to give a considerable booster to thepower source in the Southernpartin the year to come

2 Political, administlative, legal and economic environment

2 1 Politic:a.l system and administrative structure

Vietnam is socialist republic operating under a constitution Ithas a single political party, theCommunistParty

13

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

In April 1992, an almost entirely re-written constitution was adopted The preamble stillspeaks of the Communist party's leadership, but the overall intention of the revisedconstitution seems tobeto provide a greater separation ofpartyand state institutions and givemore power to the latter

Figure I : Administrativestructureof S R Vietnam (Source: Vietnam Info of the Chamber

of Commerce& IndustryofVN)

The government of Vietnamhasthree arms:

• The legislative arm comprises the National Assembly (395 members), the Standing

Committee ofthe National Assembly, various special committees and the People'sCouncils;

• The executive arm romprises the Prime Minister, twenty Ministries, five StateCommittees which have reporting lines similar to those of the ministries (theseinclude the State Bank and the State Committee for Co-<>peration and Investment),three General Departments and thePeople's Committees and their associated offices

at the local level ;

• The judiciary arm comprises the People's Supreme Court and local courts, and the

Chapter J : Vietnam - A True Market in the Future?

The constitutiondescribesthe administrative structure of the country as follows : Provinces

directly under the central authorities are sub-divided into districts, provincial cities andmunicipalities Cities directly under the central authorities are made up of precincts ordistricts and municipalities Districts are further divided into communes and townships.Provincial cities and municipalities are divided into wards and communes

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

2.2 Structure of the legal system

The National Assembly is the highest law-making body in the country Its current 395members are electedbyuniversal suffrage for a term of five years The present assemblywas

elected in July 1992

Apart from enacting laws, the National Assembly is amongst other things responsible forelecting, suspending, and retiring the President, the Vice-President and the Prime Minister.All three have to be members of the National Assembly Since the National Assembly meetsfor only two sections annually, most of its functions, especially much of the actual work ofdrafting and discussing laws, will normally be assumed by the Standing Committee of theNational Assembly, a working parliament which is expected to comprise up to one thirdofthe members of the National Assembly

The State Finance and Monetary COlIDcil, established in November 1992, which includes keyfigures such as the Governor of the State Bank, the Finance Minister, the Minister of Tradeand the head of the State Planning Committee, is also a key institutionbody

Generally speaking, the hierarchy of the legislation is as follows :

• The constitution is Vietnam's supreme law with which all other legislationhasto beconsistent

• Laws are passed by the National Assembly and are generally framed in the fairlygeneralterms, in the expectation that they will be amplified by subordinate decreesand circulars

• The Standing Committee of the National Assemblyhas the power delegatedby theNational Assembly ·to pass Ordinances which have much the same status as Laws

In principle, Ordinances should be ratified as Laws in the subsequent session of theNational Assembly, but this does not always happen in practice

• Legislationpassedby the Government is usually referred to as a Decrees Decreesareusually subordinate legislation which make detailed provisions for the implementation

of Laws or Ordinances

Chapter I : Vietnam - A True Marlcet in the FurlJTe ?

In principle, Ordinances should be ratified asLaws in the subsequent session of theNational Assembly, but this does not always happenin practice

• Legislationpassedby the Government is usually referred to as a Decrees Decreesareusually subordinate legislation which make detailed provisions for the implementation

ofLawsor Ordinances

• Each ministry under the Government is delegated the power to make subordinatelegislation within its area of responsibility Such legislation is called Circulan

Circulars are usually issued pursuanttodelegated power set out in a particularDecree

• Also common are Decisions which, typically, are detailed ad hoc regulations on

specialised topics which have not yet been the subject of legislation Decisions can

be issuedbythe Government or by ministries and may themselves be amplifiedby

Apart from the People's Courts the main judicial authorities are Military Tnbunals andSpecial Tribunals The Ordinance on Economic Arbitration provides for the establishment of

a comparable hierarchy of economic arbitration bodies, and recently the VietnamInternational Arbitration Centrewasestablished

~ State ofdevelopment ofIulaw

Since 1987, a significant amount oflawhasbeenintroducedto createthe legal framework foreconomic reform, but not surprisingly in such a short space of time, the system is not yetcomplete Many areas have not yet been covered ; others are only partially developed Insome legal areas which are important to business and investment such as contracts and

17

Feasibility Study for a ManujaetlD'ing Site for Abrasive Products in Vietnam

arbitration, the law exists but there has not been a system to enforce it The court systemexists but there is no system to implement its verdicts The "Ordinance on the Enforcement ofCivil Judgements" took effect in June 1993, but little is knownabout itto date

Furthermore, individual interpretation of the law by authorities at different levels in thegovernment can greatly affect the way the law is put into practice The law tends to beinterpreted directly from what is written on paperand often its meaning varies depending onthe authority whoreadsit The concept of precedent is almost non-existentat present

2.3 Economic environment

• Oassiftcation ofeconomic systems

Economic systems are usually categorised as capitalist, socialist, or mixed It is possible,however, to classify them according to method of resource allocation and control (marketeconomy or command economy) and type of property ownership (private ownership orpublic ownership) Expanding this conceptto include mixed ownership and control results

in the taxonomy shown in Figure 1 For example, Hong Kong would most likely fit in block

"Market-Private", whereas the United States might fit in block "Mixed-Private", although itwouldbe in the upperpartof that block

The ownership of the means of production range from complete private ownership at oneextreme to complete public ownershipat the other extreme Inreality, the extremes do notactually exist anywhere The United States, for example, is considered to be the primeexample ofprivate enterprise, yet the government owns some means of production, and it

actively produces in such sectors of the economy as education, the military, thepostalservice,and certain utilities The Ex-Soviet Union, which espouses public ownership of the means ofproduction, allows peasant fanning on the small-scale private basis Most countries liesomewhere in the mixed category, whichisverybroadand includes varying degrees of publicand private ownership

Similarly, the control of the economic activity takes place on a continuum from markettocommand economies, with the actual situation lying somewhere in between Tremendouseconomic change is currently ta.lcing place, especially in the centrally planned economies

Chapter 1 : Vietnam - A True Marlcet in the FuJuTe ?

Table 1 : Interrelationships between control of activity and ownership of production factors

OWNERSHIP

• JIietnJJm's nuuke:t economy

Economic liberalisation started in late 1986 Since then a number of measures have beentaken to gradually turn the country's cerrtral/y-p/anned economy into the mmlcet economy.

Price reform was fairly successful Most prices are free today, although some importantprices such as thecostof electricity are stillset bythe state Although price reformposedless

of a problemthanin the heavilyintegratedand industrialised countries of Central andEastern

Europe, the freeing of most prices is still remarkable

In spite of considerable efforts to industrialise the country, especially the North., Vietnam'seconomy is still dominated by agricultural prodUl:tion. This is also the sector whereeconomic reforms have so far hadmost success Vietnam recently turned from being a rice-importing nation into one of the world's largest rice-exporters

The State Bank: have succeeded in bringing inflation down to under 10% in 1993 from around400% in 1988 Although the State Bank: still controlsinterestrates,at least lending rates nowexceed depositratesand depositors may even earn a positiverateofreturn inrealterms, both

of which have led to increasing confidence in thebanking system.

A crucial issue which remains to be resolved is therestructuring ofthe state sector, where the

rate of unemployment is alreadyestimatedto be as high as 20010 Although state enterpriseshave gained a degree of autonomy in their decision-making, important constraints on theirperformance remain in place The privatisation or "equitisation" processhas moved ratherslowly However, the state sector is smallerthan many would expectat only about25% ofgross domestic product The number of state-owned enterprises has also been pruneddIamatically from around 12,000 to around 6,000 in the last year

Most important from the point of view of theforeign irrvestor, foreign investment is now

encouragedandthe new constitution guarantees thatenterpriseswith foreign invested capital

19

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

will not be nationalised A number of laws havebeenpassedto created the legal frameworkfor foreign investment Bilateral investment protection treaties have been signed with anumber of countries

The country still suffers from thedamage it suffered from decades ofwarand the US tradeembargo which was only lifted in early 1994 Foreign trade also expanded sharply.Nevertheless, the lifting oftbe embargo is expectedbymanyto lead to a further surge in tradeand investment, not only from United States businesses butalso from those of other countries(especiallyJapan) whichhadheld back their activities while the embargowasstill in place

Inbrief, while the country's long-term growth prospects have potential, short-term problemssuch as the lack of an adequate infrastructure remain a handicap

3.1 Economicindicaton

• Prlndple mtlCroecOtwmU::s Indicators over the past yetUS

The principle macroeconomics indicators of the country over the past years are as follows :Table 2: The principle macroeconomics indicators of Vietnam from 1991 to 1994

Population: 70.9 million (1993)

GOP per capita: USS230 (1993)

GOP 1993 : USSI6.3 billion (Agriculture: 360/0, Indu.stty : 26%, Services: 38%)

Chapter 1 : Vietnam - A True Market in the Future?

• First Six Mortlhs of 1995 : JIietNun's Economy keeps Growing (Source: General

Statistics Bureau)

• Agriculture

Food production developed well The Spring-Winterwas abundant nation-wide The sowingsurface reached 2,475,000 hectares, increasing 94,000 hectares compared to that of theSpring-Winter crop in 1993-1994 The Mekong Delta's sowing surface reached 1,092hectares, increasing 82,000 hectares (+8.1%) Themainreasons for the increasing surface arethe wasteland clearance in Dong Tbap Muoi, crop increases in Long-Xuyen Quadrangle, andcrop transferring from several provinces to avoid flooding in the Summer-Autumnharvest

The Spring-Winter crop yield is estimated at 4,500 kglhectare, increasing 100 kg-.Jhectarecompax:ed to the last crop The Mekong Delta, with the alluvial soil remaining after the1995's flood, had over 5,400 kglhectare, increasing 300kglhectare compared to the Spring-winter of 1993-1994 Itwasthe most abundant crop ever The Hong Deltahasharvested 70%

of the spring fifth-month rice Thanksto favourable weather, sufficient and cheap fertiliserand materials, fewer insects, the starting turnover reached 47,000 kglha, compared to49,7oo/ha harvested in the last crop As a result, the Spring-Winter crop yield nation-wide

reached over 11.2 million tons, increasing about 700,000 tons compare the previous crop and·wasthe highest level ever

However, other food crops such as com and potatoesdecreasedboth in surface and quantity,making the rice-equivalent yield decrease by 60,000 tons compared to the previous crop(4.1%)

Total rice-equivalent output ofthe Spring-Winter crop of 1994-1995 nation-wide reachedabout12.5 million tons, increasing over 600,000 tons compared to that of 1993-1994

Feasibility Study for a ManufactW'ing Site for Abrasive Products in Vietnam

finding more consumer markets, both domestically and internationally, better organisationand flexible management

Particularly, food and foodstuff processing rapidly improved, contributing to meeting therequirements of rice, coffee and cassava starch exporting Thanks tothat,Vietnam's exportedagricultural products inthefirstsix months of 1995 were much better

• Basic constnJction

Rate of progress of the construction of vital works is continuing Building plans for Ha-LongCity, some export processing zones and some vital areas in Hanoi and HCM City have beencompleted However, due to lack of capital and some negative effects caused by the recentcement fever, several construction works experienced difficulties and their progress rateswere slower

The fact that consumer price index increasedby 11.4% in thefirstsix months inflation rate toexceed two-digits and be higher for the whole year

• Impol'1s-Expol'1s

Total value of imports is estimated at US$2.37 billion., an increase of 14.49% compared to thesame period in 1994 The strongly increasing imported items are: fertiliser (41.3%), cementand clinker (216%), sugar (225%), motorcycles (7.8%) A decreasing itemwascars, reducingover 700!o compared to the same period last year

Chapter 1 : Vietnam - A True Market in the Future?

Total value of exports reached about USS2.2 billion, increasing 35.47"10 compared to thesame period last year Themainexported items are : crude oil (3.7 million, increasing 10%),rice (1.27 million tons, increasing 30%), coffee (115,000 tons, increasing 25%), marineproducts (USS254 million, increasing 11.4%), coconuts (42,000 tons, increasing 13.5%) andcoal (1.5 million tons, increasing 99.47%)

• Plan for the next sa months ofl995

Food production for the whole year will reach over 27 million tons, rice exports will also

surpass 2 million tons, crude oil exploitation will reach over 7 million tons, and coal over 6million tons Progress in industrial growth will be at about 13%, while agriculture will growover 4% For the whole year, the GDP will also increase over 8%

An interested and worrisome fact is that the national budget has received lessthan expected(up to now, it is estimated tobecompleted at 39% of the year's plan, tax collecting reached38%) The inflation rate is likely to rise to over 20%peryear

3.2 Advantages and difficulties in the investmentinVietnam

After years as a closed economy, Vietnam opened up to foreign investment in 1987 with thepromulgation of the foreign investment law, consideredone ofmost liberal in the Asia Pacific region. The opportunities the country has to offer have been greeted enthusiastically byforeign investors, and since 1987 licences have beengrantedto over 1200 foreign investmentprojects having an aggregate investment capital of the order of USS16 billion Foreign tradehas also mushroomed

Not surprisingly, Vietnam is often touted as the next"Asia tiger", and there is no doubt thatits emerging economy offers foreign businesses a range of exciting trade and investmentpossibilities However, to succeed in Vietnam, the foreign businessman must have patienceand needs to be aware of the possible pitfalls that may be encountered, just asthey may be encountered in the early stages ofany rapidly developing economy.

Vietnam can offer the followingattractions and advantages:

- Abundant mineral and natural resources;

- Cheap labour and the literate workforce;

23·

Feasibility Study for a ManujactlD'ing Site for Abrasive Products in Vietnam

- Potential of tourism;

- A central locationinthe fast-growing Asia-Pacific region;

- A potentially important consumer market with a population of more than70 million;

- Active government encouragement of foreign investment;

- A comparatively liberal foreign investment law which continues to be refined,mostly to the benefit of the foreign investor,

- Attractive tax incentives for foreign investors;

- The Government's success in bringing a previously weak local currency and highinflation under control Both have been remarkably stable since 1992 There islittledifference between official exchange rates and those on the black market;

- Once an adequate legal and infrastructural framework has been created, Vietnammay will have similar growth to that enjoyed by, interalia,Thailand and Chinaoverrecent years

On the other hand, foreign businessmen need to be aware of the following difficulties :

- Poor infrastructure There are severe problems with roads and railway system., portfacilities, bridges, water and electric supply sewage and drainage Official statisticsare not always consistent Communication and the banking system also need fwtherdevelopment;

- A lack of experience in business, accounting and taxation concepts Contracts arenot alwaystreatedwith respect and are difficult to enforce;

- Bureaucracy and corruption;

- Legal uncertainties due to the lack of the system to resolve civil and contractualdisputes andtheauthorities' occasional unfamiliarity with laws;

- Languagebarriers and cultural differences;

- Difficulty in obtaining third-party finance for projects The prime reason for this is

thedifficulty in getting security for loans in the absence of alandtitle system;

Chapter I : Vietnam - A True Market in the Future?

- All foreign investtnent have to be licensedandthe application process may be longand arduous

Itis however, importantto point out that progress is being made in nearlyallthe above areas.The pace of change over the last few yearshasbeen remarkable

to 1994 are shown in the following table :

Table 3: The investtnentby country from 1988 to 1994 (Source: Vietnam Invest Review)

No Country Projects lDvatllleut capital (USS Lep.I capiW (USS

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

Note:The increased capital of operating projects is not included

~ In theflrst halfof 1995

For the first time, Japan has surpassedTaiwan, Hong Kong, Singapore and South Korea tobecome the largest foreign investor in Vietnam as following :

Table 4: The top ten foreign investors in Vietnaminfirst halfof 1995 (Source: SCC!).

~ Position ofNorton's prodJu:ts in Vietnam's mJUUl

Although Vietnam has a market with great demands of goods, but as we have heard, at

present Saint-Gobain ComPany has only two distributors in HCM City which sell glass

materials and abrasive materials Abrasive products are introduced in Vietnam's market byNorton's distnbutor in HCM City

InHCM City there are about 4 - 5 markets where people can buy mechanic handtoois and all

kindsof abrasive products made in America, Japan, Russia, China, Taiwan, Hong Kong In

ChapterJ :Vietnam - A True Market in lhe Future?

these markets, about forty or fifty small shops sell abrasive products, some of them sellproducts of Norton which are bought in Norton's distributor

There are all kinds of products on sale in Norton's distributor However, it is convenientto

estimatethe position of Norton in Vietnam's market, we have chosen three popular productsconsumed a lot in Vietnam : Crystolon abrasive, Alundum abrasive and Resinoid BondedWheels for cutting and grinding (see the below)

Table 5 : The yearly sales of Norton's products realisedby the distributor in Ho ChiMinhCity

"tldla-iII Size Yeartv loid Quadty

VJetDam'1 «()YenD

Crystolon abruive Silicon carbide Vitrified (VK) 39C 150 200 0.15

• DemtDuifor abrasive pt'Olbu:tsin VIet1Uun's market

We can use many different methods toestimatethe demand for aproduct(see Appendix)

Toestimatethe demand for abrasiveproductsin Viet:nam, we have had a lot of contacts anddiscussions with the abrasive distributors, retailers in specialised markets and the local

27

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

abrasive factories The obtained data have been analysed and presented in the followingtable:

Table 6:Annual demand for abrasive products in Vietnam's market

Groo~ of produetl Yearly Norton's Loa! Other muafaeturen/coontries (lDal RemaiDinl

VietDam'slDarket market (IDa) (fDa) Cllina Ru.ia JapIIII Taiwu Boa~kAIat: (fDa) Grinding wheels:

From thesedata,wecan come to two conclusions :

• The share market of Norton's distributor is small about 2% for resinoid bondedwheels,

• The remaining market is relatively large, about 1/3 of the total market This willbe

very convenient for establishing a abrasive factory in Vietnam

~ Quality-Price ratio ofabrasive prodlu:ts

The quality of products and price are two important factors in mix-marketing Therefore, wehave compared the "quality-price ratio" of Norton'sproducts with the other manufacturers'products, as follows :

Chapter 1 : Vietnam - A True Marlcet in the Future?

Table 7: Quaiity and price of Norton's productsincomparison with the competitors' those

Nortoo's I roduco VieiDamese produe:u Produe:u from aiDa ud Taiw_

Pric:e per kg, Pric:e per Price per kg, Groups of produe:u Quality VND Quality kt.VND Quality VND Grinding wheels :

Crystolon ablll3ive International

Resinoid bonded International

wheels (Nortonmas) standard (= 1.0) 90000

The figures show that Norton's products have high quality, however, the prices are also high

in comparison with others For example : the price of grinding wheels made in France ismuch higher (4 or 5 times) thanthatof grinding wheels made inVietnam or China, but thequality is only double Asa result of this, it is very difficult to sell this productinVietnam's

29

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

Chapter 2 : Advantages of starting-up a

manufacturing site in Vietnam

1 Factors of production

1.1 Mineral and energy resources, andnwmaterials

• Mineraland energyresources

Vietnam is rich in minerals The country has considerable reserves of coal, silica sand,bauxite, iron ore, lead copper and other metals Diamonds, rubies, and other gemstones arealso present

Oil has been found on Vietnam's continental shelf, and foreign oil companies are currentlyundertaking further offshore exploration A petroleum law has been enacted to regulateexploration and production

Crude oil topped Vietnam's export top-10 with a turnover ofUS$976 million in 1994 Inthefirst half of 1995 Petro Vietnam has exported 3.8 million tonnes of crude oil The oil wasexploited from three wells : White Tiger, Dragon and Big Bear This amount is equal to 50%

of the annual planned target with the turnover of around USS500 million

• RJrwmaterials/orabrasiveproducts

The raw materials for the conventional abrasives (aluminium oxide and silicon carbideabrasives) exist in Vietnam Indeed, Vietnam is rich in bauxite (for obtaining aluminium

oxide) and in silica sand (for producing silicon carbide) as well as in coal.

Chapter2:Advantages a/Starting-up a Manufacturing Site in Vietnam

Table 8 : The cost of raw materials for producing conventional abrasives

Name of Location Distance from the Cost at the mine Cost 8l Ho Chi Minh ~

raw llUlterials of mine mine to HCMC VNDDerklL US$nerlur VND oer Iur US$ O<!I" kll

Coal (best quality) VangDay 2000km 1,300.00 0.1182 1,500.00 0.1364 Coal laver aualitv) VanllDav 2000km 650.00 OoGS91 850.00 0.D773

1.2 Infrastructure anditsrenting price

Since infrastructure in Vietnam is obsolete, and overloaded, to re-build and developinfrastructure facilities constitutes one of the Government's urgent priorities Over the lastfew years the infrastructure development have been carried out successfully This isthankstothe capital lent by international banks Some of infrastructure projects in HCM Citywillbepresented below

• Puwer supply projects being constructed in HCM City

• The Government has allowed the Electricity Corporation of Vietnam (BCY) tocarry out the first phase of construction ofPhu My 2 Thermopower Plant with two

gas turbines (total capacity: 200-280 MW) to supplement power for SouthernVietnam in 1996 and 1997 Funding for the project is estimated at USS 106.6million

• CT&D Group has invested in the Hiep Phuoc Power Plant which will supplypower to the Tan Thuan EPZ The plant will be a 675 MW oil-fired thermalpower facility consisting of five 125 MWunits and one 50 MW unit The first 125

MW unit will be operational by early 1996, and 125 MW of additional powerwill

be brought on line every six months thereafter or as the demand requires Interimelectricity needs will be met by two 25 MW gas turbine power generating unitswhich have been installed in 1994 The Hiep Phuoc Power Plant will have thecapacity to ensure the sufficient and stable supply to Tan Thuan EPZ and adjacentareas

31

Feasibility Study for a Manufacturmg Site for Abrasrve Produces in Vietnam

• According to HCMC Electric Company 144 projects with investment capital ofover VND343,8 billion in the 1995 planned target will finished during the firstquarter of1996 They are projects repairing and upgrading the power networks inHCMe

• The Ministry of Energy and the Ministry of Science, Technology and Environmenthave submitted to the Government a plan for building an atomic power plant inVietnam The projected will be put into operation in the period 201~2015.

Funding is estimated at USS 2-3 billion

• The World Bank: (WE) granted of US$165 million for power rehabilitation andupgrading in Vietnam

# Water supply projects being constructed in HCM City

• Asian Development Bank provided USS65 million loan for building andrenovation of the water supply system in Ho Chi Minh City

• The Water Supply Company and the City authorities have had projects :

- To construct the Saigon River Water Supply Station,

- To construct the Hoc Mon underground Water supply,

- To repair and upgrade Thu Duc Waterworks

# Top ten projects for infrastructure and industrial zones in HCM City

afthe 42 projects called for foreign investment in HCMC, there are 10 infrastructure projectswhose total investment capitalhasbeen estimated at US$2.2 billion:

Chapter2 :Advantages a/Starting-up a Manufacturing Site in Vietnam

Table 9 : The list of top ten projects for infrastructure and industrial zones inHCM City

Cat Lai Industrial 100- ISO ha industrial Thanh My, Thu

Binh Quoi-Thanh Cultural, sport and Binh Thanh D.

Da Resort recreational fiIcilities

HCMC High- 2 mi11ion sqm high-tech Tang NOOn Phu,

Tech Industrial industrialparle' Thu Due D.

Park

Infrastructure for Construction of the Hiep Plmoc, Nha

Hiep Phuoc infrastructure for the Be D.

Industrial Zone Hiep Phuoc Ind Zone

Nba Be-Can Gio Upgrading of the 36 Ion Can Gio D.

East-West (Binh Upgrading of the 26 Ion Thu Due, Binh

Chanh-Thu Due road from Thu Due to Chanh and D I, 3,

Dan Xay Bridge ConCrete bridge

of Can Gio

District

Water Supply 18~000 m 3

/day running Can Gio D.

System for Can water system

4

10

Saigon Export Processing Zone (Sepzone)

SaigonTouristCo

High-tech Industrial Development Co

Tan Thuan Industrial Development Co

People's committee

of Can Gio District HCMe Department

of ColIlJIDJIlication & Publie Works People's Committee

of Can Gio District

People's Committee

of Can Gio District

9 Go Yap 250,000 sqm residential Ward 16, Go Yap

Residential Area area with villas, high-rise D.

bldgs & Apartments

10 Phu My 250,000 sqm housing Phu My, Nba Be

Residential Area complex & D.

Saigon Housing Development Co

According to experts, Vietnam has more advantages in developing a system of seaportsthan

other regional countries with sea access such as Japan, Indonesia and Malaysia

33

Feasibility Study for a Manufacturing Site for Abrasrve Products in Vietnam

As for Laos, Vietnam's neighbouring land-locked nation and Northeast Cambodia andThailand, the shortest way to the Pacific is via Vietnam Vietnam's coastline is only a shortdistance from international maritime lines leading to Northeast and Southeast Asia

Thefutureconstruction of the Kora Canal, which is expected to connect maritime lines fromthe Indian Oceanto the Pacific, will benefit Vietnam considerably with the development ofinternational transhipment services such as those in Singapore and Hong Kong

At present, Vietnamhasclose to60 seaport!of various sizes with a capacity of handling over

30 million tonsof goods per annum Major seaports are located in HCM City, Ba Ria - VungTau andHai Phong - Quang Ninh Vietnam's two largest seaports are Saigon port andHai

Phong Port which have annual handling capacities of 6.5 million aod 4 million tons,respectively

Almost all Vietnamese seaports have no piers which can receive 15,000 ton ships ;specialised piers for container handling exist only in Saigon, Hai Phong and Da Nang portswhich have a capacity of 400,000 TED per year in total

• Saigon Port

The Saigon Port is the nation-wide biggest international Port This is the Southern way to international markets and is linked to many shipping terminals in the world.Following are the relevant data of the Port:

main.gate The depths of the navigation channel: 9.7 m 12.1 m

- The drafts of the water front at the quays: 6 m - 11 m

- Accessibility : to ocean-going vessel of 20,000 DWf in normal condition, and30,000 DWf in high tide condition

In thepastfew years, the~ougb-put capacity of the Porthasbeen increased quickly owing tothe increase of the quays as well as installing more modem facilities The present through-put capacity is over 7.3 million tons of general cargoes and 2 million tons of petroleumproducts

• Shipping agencies and forwarders based in HCM City

Chapter2:Advantages o/Starting-up a Manufacturing Site in Vietnam

Cargo delivering to and receiving from other international commercial ports over the world isundertaken by agreatmany shipping and forwarding agents now based in Ho ChiMinhCity :Table 10 : The list of shipping agencies and freight forwarders

No Name ohllipping agency and forwarder No Name ofsbipping ageacy and

OOCL(Orieut Overseas Container Line)

American President Lines

CMA Container Service

Wan Hai Lines

Dongnama & Safi HoChiMinh City

30 Schenker HoChiMinh City

31 Kune& Nagel

38 Far-East Shipping & Trading (GB) Ltd

39 Ben Nghe Straits Container Agencies

40 Katran-Saigon Ship

41 Lotus Joint Venture Co., Ltd

42 MDV (Maritime Delmas Viejeux)

43 Transimex-ASTG Container Line

44 Contship Container Lines Ltd

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

• Airport

fan SonNhatAirport, which is about 6Ianaway from downtown Ho ChiMinhCity is nowthe biggest international airport in Vietnam It has been reconstructed and transfonnedquickly with more and more modernised facilities and utilities

Now the airfield has been provided with a more landing-take off runway which canaccommodate allkindsof modern carriers

The airfield has been linked to almost all important counterparts over the world, includingthose in theU S A

With the presently established aviation network people nowadays can fly to almost everycomer of the world and vice versa

• Post and telecommunication links

With a notable achievement gained through a joint-venture with Telstra, a company fromAustralia, post and telecommunication links from Ho Chi Minh City to other Vietnamesetowns and provinces and to foreign countries, have been upgraded very fast, making availableany up-to-date facilities

• lnfrastnu:tlue renting price in EPZ and IZ

Table II : The infrastructure renting price in Tan Thuan EPZ and SongThanlZ

T_ ThIUll Export Proces.ing SOIIg Thaa IndllStriai LIoe (With minimum renting surface s"", Zoae <s"",=2000 m'; Duration = = 5000 m' ; Duration = 50 -70 years and renewal at the end of the

Fim 10vears Thereafter Year 1 -10 Year 11 - 20 Year 21 - 30 Year 31 - 40 Year 41 - 50 Infrastructure

Chapter 2 : Advantages ofStarting-up a Manufacturing Site in Vietnam

The basic principle is that land is considered to be owned by the Vietnamese people as awhole and is administered on the their behalf by the state Consequently, it is not for anyoneperson (individual or corporate) to own a particular piece of land outright A person can get

only a "right to use" land However, the State specifies a number of guarantees to the land

user, allowing him to transfer and mortgage the right of using land

Under the Land Law the local people's committees will issue land use rights Inpractice, theassignment of land use rights to foreign enterprises is carried out by the SCCI Joint venturecompanies with foreign investors can be granted a right to use land; the Vietnamese partywill normally be responsible for all land-related payments to the government Strictlyspeaking, wholly foreign-owned companies cannot be granted land use rights outright; theyhave to lease the right

~ Land renting price

The leasing of land use rights by foreign investors is in effect a form of property tax It isusually known as "land rental" but it also applies to sea surfaces and inland water surfaces.The rates are standardised Rates depend on the site within the area, the infrastructure and theindustrial sector in which the business is operating

According to the Circular issued on 31 December 1994 by Minister of Finance, land· rentingprice frame is following:

• City group 1 : US$1.7 - US$13.6/m2/year,

• City group 2: US$l.5 - US$12.0/m2Iyear,

• City group 3 : US$1.125 - US$9.0/m2Iyear,

• City group 4: US$O.75 - US$6.0/m 2 Iyear,

• City group 5: U8$0.375 - US$3.0/m2Iyear

~ Land renting price in Export Processing zones (EPZS) and Industrial Zones (IZs)

The land renting prices in Tan Thuan EPZ in HCM City and in IZs in provinces close to HCMCity are presented in the following tables:

37

Feasibility Study for a Manufacturing Site for Abrasive Products in Vietnam

Table 12 : The land renting prices for 4 IZs in Dong Nai province and for Song Be provinceIZ

Name of Industtial Zones Bien Hoa 1 Bien Hoa2 GoDw Tuy Ha Son!! Be province IZ

-Land rentinR price (USSlm2/year) 4.5 2.25 1.5 2 < 1

Table 13 : The land renting price in Tan Thuan EPZ and SongThanIZ

Tan Thuan EP7., HCM Gty Soog T1wa IZ, Soag Be Province (With minimum renting (s =2000 m'; Duration = 50 - 70 swfaces = 5000 m' ; Duration = 50 -70 years and renewal at

Fin! 10 years Thereafter Year 1 -10 Year 11 - 20 Year 21 - 30 Year31-40 Year 41 - 50 Land renting

1.4 Availability of engineering support and building cost in HCM City

# Availability ofengineering Sllpport

Vietnam's construction branch passed through periods ofwar,budget subsidies and economicblockade After those years of trial, many precious qualities of Vietnamese people have beenformed, such as their ability of standings hardships, their steadiness to overcome alldifficulties, their inventive mind and their prompt ability of integration Despite their of lowincomes and hard life, many of technicians and workers go on keeping up their nobleconscience, trying to acquire new knowledge and preserving the good quality of their works.However, the Vietnam's construction industry is beginning to lack inskilled workersin order

to meet new requirements In consequence of the number of policies during the period ofbudget subsidies, itwas very hard to carry out the proper enrolment and training of technicalworkers At present, many clever workers with high seniority, who haven't received anybasic training, are meeting withgreatdifficulties in using new technologies