Vietnam's ascension to the World Trade Organization in November marked a coming-out party of sorts, as foreign investment floods in and the country hopes to become Asia's next manufacturing hub.
For some, it means money: Hozumi Yoda, president of Nangano, Japan-based injection molding machine maker Nissei Plastic Industrial Co. Ltd., said his firm sells about 100 presses a year in Vietnam now, but expects to sell 300 annually in five years, as Japanese electronics and auto manufacturers set up factories.
For others, though, Vietnam and its 84 million people raise the specter that they will be a smaller version of China, flooding world markets with low-cost plastic products and hurting manufacturing in more-established industrial economies.
``If the U.S. trade deficit with Vietnam follows the same pattern as with China ... [it] could jump into the neighborhood of $15 billion annually by 2010, with most of the growth coming in manufactured goods,'' said Auggie Tantillo, executive director of the Washington-based American Manufacturing Trade Action Coalition.
However it plays out, it's easy to see why the country, which is the size of New Mexico, is attracting attention.
Gross domestic product growth is running at more than 8 percent a year, the second-highest in Asia after China.
Foreign investment is pouring in. Intel is planning a $1 billion computer chip assembly plant near Ho Chi Minh City, and the country attracted more than $6 billion in foreign direct investment this year. That's about the same as India and its 1.1 billion people and, on a per capita basis, more than China.
For plastics, the numbers look strong as well.
While statistics in Vietnam are not always reliable, the industry is reportedly growing 16-20 percent a year, albeit from a very small base, as it follows the general rule of developing economies seeing plastics growth rising at double that of GDP.
Plastics exports are growing as well. According to the Vietnam Plastics Association, exports of direct plastic products, mainly lower-end items, rose 46 percent in 2005 to $380 million, and are expected to hit $1 billion in 2010.
Plastics firms, mainly from other Asian nations, are starting to invest, drawn by factory wages that can be lower than in China, from $60 a month for unskilled workers to $200-$250 for good mold makers.
``Vietnam is much more stable than China,'' said Nissei's Yoda. ``Vietnam is much easier to get a profit.''
Nissei set up a sales and service center in Vietnam earlier this year, and press maker Victor Taichung Machinery Works Co. Ltd. in Taichung, Taiwan, plans to do likewise next year. As well, molders like Ge-Shen Corp. Bhd of Johor Baru, Malaysia, are setting up factories, as is Tainen, Taiwan, firm Chuan Lih Fa Machinery Works Co. Ltd., which plans to start assembling injection presses in Vietnam next year.
But the country also has some significant challenges.
Its roads and other infrastructure are weak. Vietnam has to import at least 80 percent of its resin, it has very little domestic technology like machinery, and plastics industry groups estimate that 65 percent of its workers are unskilled.
As well, it has formerly state-owned enterprises that are being privatized and may struggle to compete globally. Some say the country still favors state-owned firms, even as it is loosening government control on its economy.
Nguyen Nhu Khue, managing director of bag and film maker RKW Lotus Ltd. in Ho Chi Minh City, said government firms can get letters of credit from state-owned banks with a deposit of 10 percent or less, while private firms like his must supply 30-50 percent. RKW Lotus is a joint venture between German plastic film maker RKW AG and Vietnam's Lotus Chemical Technology.
Nguyen Dang Cuong, vice president of the Vietnam Plastics Association, said in a Nov. 16 interview in his Ho Chi Minh City office that heavy dependence on foreign resin and technology are two of the biggest challenges.
The country's communist government, which has been pursuing its dÃ´i mÃ³i (renovation) policy of economic liberalization since the mid-1980s, has an ambitious plan to use its oil resources to attract foreign investors to build domestic petrochemical plants. It hopes it can meet half its resin needs domestically by 2010.
But VPA's Nguyen, who said resin consumption in Vietnam is projected to go from 3.5 million pounds a year now to about 8.8 million pounds by 2010, said 20-30 percent is a more realistic target.
That leaves the country with huge needs for recycled resin, said Hoang Luat, the Vietnamese agent for U.S. recycler Domino Plastics Co. Inc. of Setauket, N.Y.,
As well, local business people said the country's educational system badly needs modernization.
RKW's Nguyen said his plastic film and bag plant in Ho Chi Minh City has to spend two years training workers, even those it hires from vocational schools.
``It costs us a lot of money and trouble,'' he said. ``Even when we get people from the technical school, a very well-regarded school, we need to train them about two years in order for them to become good workers.
``The system is not practical-oriented in Vietnam,'' said Nguyen.
He said his country's labor laws are stricter than China's. He estimates the joint venture could operate with 200 workers in China, rather than 350 he has in Ho Chi Minh City.
Still, in spite of those challenges, many of Vietnam's larger plastics firms said they are gearing up to take advantage of the WTO and export more.
Partially state-owned Rang Dong Plastic Joint Stock Co. in Ho Chi Minh City, one of Vietnam's largest film extruders, wants to boost exports from 10 percent of sales this year to 30 percent in 2007, mainly to Malaysia, the Philippines and Cuba.
And Poly Tower Ventures Bhd of Klang, Malaysia, told local papers earlier this year it was setting up a bag-making plant in Vietnam to get around U.S. trade restrictions on Malaysian bags.
Developments like that prompt some in developed countries to regard Vietnam as a smaller version of China, and to predict rising trade deficits now that Vietnam has joined the WTO.
Amtac's Tantillo told the U.S. Congress in July that the U.S. trade deficit with China went from negligible amounts when relations were restored in 1978, to $83 billion in 2001, when the country joined the WTO.
``Since China joined the WTO, however, the U.S. trade deficit with China has more than doubled, jumping from the aforementioned $83 billion to a staggering $202 billion in 2005,'' Tantillo said. ``We should take this painful lesson to heart and require that Vietnam become a much more transparent and market-driven economy.''
But others say Vietnam's WTO deal is better for countries like the United States than the one reached with China.
Vietnam doesn't have the overwhelming potential market China does, so the country had much less leverage in WTO talks and had to be more accommodating, said Chris Runckel, president of Portland, Ore.-based Runckel & Associates, which advises companies on Asian manufacturing strategies.
Runckel, a career U.S. diplomat, served throughout Asia and said he was the first American diplomat assigned there when relations reopened between the countries.
Those who are advocates of Vietnam as a manufacturing base point to rising per capita plastic consumption - from 28.6 pounds per person in 2001 to an estimated 88 pounds by 2010 - and strong needs for foreign machinery, resin and technical expertise in plastic processing.
``The playing field has leveled much more quickly in Vietnam than it has in China,'' Runckel said. ``Because of that, Vietnam is someplace that every manufacturer should be taking a look at.''