The Blog

"Have You Been Struck Yet?"

11:41 AM, Jul 21, 2008 • By JENNIFER CHOU
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The Hong Kong-based newspaper Wen Wei Pao reported last week that in the wake of the recent labor unrest in Vietnam, dozens of Taiwanese businesses are considering pulling out of the Southeast Asian country. The report cited a Taiwanese trade representative in Ho Chi Minh City as saying that a wave of bankruptcies, beginning this month, will result in more than 1,000 factory closures in Vietnam before the year is out.

Labor disputes have been increasing in Vietnam. According to Taiwan media, strikes were occurring so frequently that since September of last year Taiwanese businessmen in Vietnam have been greeting each other with "Have you been struck yet?" instead of the customary expression "Have you eaten yet?"

Vietnamese government statistics indicate that in 2007 there were 541 strikes as compared with the previous year's 387. In the first four months of this year alone, the country was hit by 295 strikes. Workers are demanding higher wages to cope with soaring inflation, which topped 25 percent year-on-year in May, with food prices witnessing a jump of 42 percent.

Most of the strikes have involved low-end footwear, textile, and toy factories owned by Taiwanese, Hong Kong, or South Korean businesses. The Taiwanese have been especially hard hit. During the first four months of this year, more than 20 Taiwanese-owned plants in or around Ho Chi Minh City had to suspend operation temporarily due to strikes, including one that makes shoes for Nike and employs 20,000 workers.

Adopting the China-plus-one strategy, Taiwanese companies with operations in China began diversifying into Vietnam in the late 1980s, long before that country's economy gained steam and many felt it would become the next "Asian tiger." By this past April, approximately 3,000 Taiwanese firms had invested a total of $10.9 billion in the Vietnamese economy, making the self-governing island Vietnam's third-largest target=_blank>source of foreign capital, after South Korea and Singapore.

The recent spate of strikes by Vietnamese workers has since made some Taiwanese firms rethink their investment strategies. The Pacific Hospital Supply Company and Taiwan Sugar Corporation, for example, have both postponed plans to invest in Vietnam.

It's not all gloom and doom, however. While investors in labor-intensive sectors such as clothing and footwear may be getting jittery about Vietnam, Taiwan's Formosa Plastics Group (FPG) recently poured a whopping $8 billion into the more upstream steel industry. Earlier this month, in the central Vietnamese province of Ha Tinh, prime minister Nguyen Tan Dung presided over the ground-breaking ceremony for an FPG iron and steel complex, the largest foreign investment project in Vietnam to date. FPG reportedly will also build an oil refinery and ethylene plant near the complex.

Despite these occasional positive developments, unless the underlying problems with Vietnam's economy are dealt with effectively, the future of Taiwan investment in Vietnam can be characterized as, at best, uncertain.