Vietnam: The Asian Alternative To China

Vietnam has quickly become a leading recipient of foreign investment by U.S. companies. As a result of favorable governmental policies, a well-educated workforce and concern about China's rising costs, Vietnam has experienced a significant rise in direct foreign investment. These companies view Vietnam as a real alternative for establishing manufacturing and distribution centers, primarily for export.

Recent investments include Intel's project in Ho Chi Minh City with a total investment of $1 billion. This investment is being followed by other hi-tech investments as well as prospective Intel suppliers.
Vietnam attracted more than $10.2 billion in registered capital to carry out foreign investment projects in 2006--nearly $8 billion went toward 800 new projects and more than $2.2 billion to 440 applications for capital expansion of existing projects.

In comparison to many of its Asian neighbors, Vietnam has a relatively inexpensive labor rate. For factory operators, the average salary is $200.00/month while key managers and senior engineers are paid $1,500.00/month. Vietnam has a 48-hour work week and the government-mandated social programs are approximately 25% of the salary costs. In comparison, China has a 40-hour work week and social costs are 50-60% of the operator's salary.

The government has implemented an aggressive program of corporate income tax incentives. This program involves up to 4 years of tax holiday following (and including) the first year of 'carried forward' profitability. Thereafter, the tax rate is 1/2 of the nominal tax rate for a period of up to 7 years, with a total application period of up to 15 years. The nominal tax rate can be 10%, 15%, or 20%--depending on the industry sector, investment classification and location. The standard tax rate is 28%.

In the last 2 years, Vietnam has invested some 10% of GDP into its infrastructure. By 2012, Vietnam will have completed a major logistical milestone via deep water ports and surface transport--this development will give Vietnam a huge competitive advantage and allow them to further support investors supply chain initiatives and exports to ASEAN, China and North America.
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