A REVIEW ON KUCHIKI’S FLOWCHART APPROACH
TO INDUSTRIAL CLUSTER POLICY−CANON EFFECT IN HANOI VIETNAM−

Hitosubashi University, School of International and Public Policy (IPP)
Public Economics Program Master Course Sophomore
Anh Dinh

August 2007

Abstract
Whether a region can survive in the competitive world may depend on the success of
its industrial cluster policy. Many East Asian countries and regions have successfully
developed their economies by adopting their industrial clusters such as Hong Kong,
Taiwan, Singapore and Korea. Some other less developed countries like China andVietnam are trying hard to learn from these experiences.
Kuchiki has developed an original theory to analyze and modelize how to adopt anindustrial cluster. It’s called the flowchart approach to industrial cluster policy. This
paper is to make a review on Kuchiki’s flowchart approach and apply this model into thecase of Canon electronics cluster in Hanoi, Vietnam.
Chapter 1 simply gives a brief introduction of Kuchiki’s the flowchart approach toindustrial cluster policy.
Chapter 2 and Chapter 3 are my contribution to the flowchart approach to industrial
cluster policy. Using data and papers of various institutions on the case of Canon, I
would like to apply the model to Canon cluster to see how it works in reality, and to findout problems we encountered when applying the model in Hanoi. Taking into account of
the experience of Canon and the problems that arose, I try to offer some proposals to
the government of Vietnam on how to successfully and efficiently form an industrial
cluster in the country.

Acknowledgements
Firstly, I would like to thank my advisor, Professor Eiji Tajika Ph.D., for supporting me
on my MEXT scholarship application and entrance exam to IPP as well as leading myway through my hard times at school. Thank you for being the guiding star.
Secondly, I deeply appreciate Dr. Akifumi Kuchiki, Executive Vice President of
JETRO, for instructing me on this research. Thank you for your time, your kind flexibility
and your profound understanding on the matter. I could never have done it without yourteaching and supporting.
Thirdly, I feel thankful for the warm cooperation and support of JETRO Headquarters
General Director Mr. Yasuhiro Yamada and JETRO Hanoi Center Investment Advisor
Mr. Ken Arakawa.
And many thanks to Dr. Shinji Yamashige, Dr. Shunichiro Bessho, Dr. Motohiro Satoand my classmates at IPP Public Economics Program for giving me valued advice andsupport during my making of this essay.

Contents

Page

Chapter 1 The Flowchart Approach to Industrial Cluster Policy

1

1. The importance of Industrial Clusters to a region

12. The flowchart approach to industrial cluster policy

2

Chapter 2 In Light Of Canon Effect In Hanoi, Vietnam

10

1. Canon in TLIP, Hanoi, Vietnam

10

2. Canon Effect20

Chapter 3 Lessons from the experience of Canon Effect26

1. Master plans for regional industrial development

26

2. Smart and efficient usage of ODA in infrastructure building27

3. Active overseas marketing towards foreign investors

28“JETRO Hanoi Center Survey: Why Canon made its decision and30

moved in TLIP?”
4. Workers’ life support measures31

5. Environment protection measures

32

6. Local supporting industry development plan

32

Conclusions

34

Bibliography

35

A Review on Kuchiki’s Flowchart Approach to Industrial Cluster Policy:
Canon Effect in Vietnam

Chapter I The Flowchart Approach to Industrial Cluster Policy
1. The importance of Industrial Clusters to a region
It is a known fact that FDI has greatly contributed to economic growth inmany Asian countries by agglomerating firms in their many cities. This has been well
testified by those cases in South Korea, Malaysia and Thailand, etc. In these countries, theso-called industrial policy for export-oriented development has been widely adopted witheffective measures to lure foreign investment such as establishing export processing
zones (EPZs) and industrial zones (IZs) and offering more favorable tax incentives. This led
to the success and the formation of NIEs: Hong Kong, Singapore, South Korea and Taiwan.
Being

attracted

tofavorable

investment

environment

and

cheap

labor

of

these Asian countries, foreign multinational corporations (MNCs) choose to enter newly
built EPZs and IZs

to

seek

for

low-cost

high-profit

production

opportunities.

Mutually related companies tend to gather together around the same region as long as
they want to keep operation cost down,

and

by

doing

so,

they

form

industrial

agglomeration, or the so-called “industrial clusters”.

What is a cluster?

“A cluster is a geographically proximate group of companies and associated institutions in aparticular field, linked by commonalities and complementarities.”(Michael E. Porter, On Competition. P 199)

1

Why do clusters exist?

Industries tend to cluster. Basically, proximity brings:•

Easy access to specialized suppliers, services and human resources•

Information spillovers•

Flexibility and fast change reaction due to extreme specialization•

Imitation facilitates faster innovation adoption

All in all, a cluster allows SMEs to compete globally thanks to a better access to informationand specialized resources, flexibility and rapid adoption of innovations.

Using a new data set on the growth of large industries in 170 U.S. cities between 1956
and

1987,

agglomeration

Glaeser,

Kallal,Scheinkman

andShleifer(1992)findthatof people and enterprises into a spatially narrow scope may facilitate

information transaction andtechnology

innovation,thus

encourage

industrial

development along with municipal growth.
Making the best use of industrial cluster policy to form industrial clusters suitable for aregion’s conditions can be an efficient way to adopt and develop industries and therefore
accelerate poverty reduction and economic growth in developing countries.

2. The flowchart approach to industrial cluster policy
The success or failure of industrial cluster policy of a region may determine whether it cansurvive in nowadays competitive world or not.

There

is

a

variety

of

types

of

industrial clusters in Asia: the automobile industry cluster in Guangzhou, China; theelectronics cluster in
Thang

Penang,Long Industrial Park

Malaysia;

and

the

electronics

industryclusterin(TLIP).

There have been efforts made to search for a way, a model of how to create a cluster byimplementing industrial cluster policy. Kuchiki (2005) proposed a “flowchart approach2

to industrial cluster policy”, theorizing that cluster policy is effective in forming industrial
clusters by establishing EPZs and/or IZs, building capacity, and inviting anchor firms. The
model can be seen in the flowchart below.

Figure 1. Flowchart Approach to Industrial Cluster Policy
Market with saucers: initial conditions
1. Roles of local governments: leadership
Domestic

ExportIZ

EPZ

Capacity building: Core competencies
1. Infrastructure: logistics
2. Institution (deregulation)
3. Human resources: universities, colleges
4. Living conditions (information)
Anchor Firm
Related firms (complementary firms)
2. Financial firms, logistics firms, research institutes
Industrial Cluster 3. Innovation

Regional
Economic
GrowthSource: Kuchiki 2005

To begin with, there are some premises that are to be taken into account of: the strong
relation between an anchor firm and related firms, and necessity of prioritization of actions
and appointment of actors in charge.
If thou trap the mother duck, thou also have her babies

In the manufacturing industry, an anchor firm means a firm that assembles many partsand components into products.

The

relation
3

betweenananchor

firm

and

its

related companies,

which

produce

and

sell

parts

and

components

to

the

anchor firm, can be described as that of a mother duck and her babies. An anchor firm in
the automobile industry needs more than twenty thousand parts to assemble one car, andthat in the printer industry requires about eight hundred parts per printer. So once the anchor
firm has moved into an IZ, its

relatedcompanies

will

follow

suit,

just

like

the

way baby ducks follow their mother, because they find it convenient and economical
to stay near their anchor firm, as it is easier to access and exchange information as wellas transport goods between each other. As a result, an industrial cluster will be formed
around the IZ by the anchor firm’s related firms if sufficient conditions are met.
agglomeration

will

bring

regional

growthaswe

can observe

in

those

This
cases

of the automobile industry cluster in Tianjin and Guangzhou in China.
The effective way is to make a list of things to be done then determine
priorities and actors in charge

It is advised that in this model, priorities of actions and roles of actors in charge of eachaction are extremely imperative. The process of creating a cluster consists of somany phases and in each phase there are many actions to take. Which we should do first,
which we should do next and who should do each action are really important and if weknow the right
the

key

to

answers
successtothesequestions,in establishing a cluster.

4

it’s

likely

that

we

can

find

3 Steps To Industrial Cluster Formation

Step 1: IZ as a saucer

Step 2: Capacity building

Step 3: Inviting anchor firm

Step 1: IZ as a saucer
In many East Asian countries, an industrial cluster is started with building an IZ typicallywith the central government being in charge. An IZ plays the role as a saucer, with fulfilledconditions ready for business and manufacturing operation, to invite foreign investors. Thisis the initial condition for foreign companies to consider investing into the region.
As a matter of fact, in the early stage of development in Thailand and Malaysia in the
1980s, actors in the semi-public sector were responsible for establishing EPZs and the Free
Trade Zones or IZs. Japanese trading corporations also established many IZs in the
ASEAN countries.
If this condition is met, which means there is at least one IZ in the region, then we move tothe next step.
Step 2: Capacity building
Physical Infrastructure
The process of capacity building is described precisely in the following Figure 2-1. First
we start with water supply: “Is water sufficient for the IZs?”. There are 2 possible answers:“Yes” and “No”. If it is “Yes” then we proceed right down to the next one: Electricity, but if itshould be “No”, we have to work on it. In case it is “No”, follow the arrow, we try to find actors
5who should be in charge of building water supply system inside the IZs. Generally the actors
tend to be local government (the 1st priority) and semi-government (also the 1st priority, suchas JICA, JBIC, etc).
After

determining

theactor(s)inchargeofwatersupply,weproceeddown

along the flowchart to examine power supply, communication and transportation.

Figure 2 Flowchart Approach to Industrial Cluster Policy
IZ

No

Yes
(1)

Find actors
Local gov. Central gov. Semi-gov NPOs Private companies

No

2

No
ReturnYes

2ReturnInfrastructure: communication
Yes

No

Find actors
Local gov. Central gov. Semi-gov NPOs Private companies

No

Yes

Find actors
Local gov. Central gov. Semi-gov NPOs Private companies

No

Yes

No

Yes

Find actors
Local gov. Central gov. Semi-gov NPOs Private companies

No

No

Yes

4

ReturnFind actors
Local gov. Central gov. Semi-gov NPOs Private companies

2

No

ReturnLiving conditions

3

ReturnReturnHuman resources

2

No

ReturnInstitutions

1

No
ReturnReturnInfrastructure: transport(4)

No
ReturnReturnInfrastructure: electricity(3)

ReturnFind actors
Local gov. Central gov. Semi-gov NPOs Private companies

No

Priority of actors of bottlenecks
Local gov. Central gov. Semi-gov NPOs Private companies
1
1No

ReturnInfrastructure: water
Yes

(2)

Find actors
Local gov. Central gov. Semi-gov NPOs Private companies

2

ReturnFind actors
Local gov. Central gov. Semi-gov NPOs Private companies

No

1

ReturnReturnAnchor firms

Source: A. Kuchiki and J. KabirAmong all, power supply is the most important, since in both China and Vietnam there has
been a severe power shortage that affects production activities of industries.
In

2004

degradedrank

a serious
thehigherofelectricity

fascinating Chinese

investment

thandeficiency

China

on

the

occurredinenvironment,

ChinahelpedandthusVietnamlist (Infrastructure issues of countries to which

Japanese companies are likely to invest, JBIC). However, in 2005 a large deficiency of
power in Vietnam reversed the situation: Vietnam

ranked lower than China. The JBIC

report also mentions that the so-called power problem

has improved, and is now

switchinginto“surplus”

statusin

China,
6

while

Vietnamthe problem

isgettingmuchworse.

Withthequickly

growing

economy,increasing

foreigninvestment, and the high dependence on weather conditions of the power supply
system (Vietnam has many hydro power stations), Vietnam is expected to keep
puttingupwith power

shortage

for

the

next

few

years.

In

big

citieslike

Hanoi and Ho Chi Minh City, rotational blackouts and a decrease in public lighting
have been applied to help cope with the ongoing power hardship. It is reported by EVN
that the shortage can reach 1000 MW every day. The government is also trying
to make it suffice by purchasing power from Yunnan, China and operating moregas power stations.
Institutions (tax systems, one-stop services)
At this stage, the central government must institutionalize national tax systems andthe local government has to institutionalize local tax systems. Tax incentives,
deregulation andone-stop

foreignininvestors

services,

etc

are

imperativeinattracting

the contemporary competitive world.

Human Resources
Foreign investors in manufacturing industry obviously seek for cheap labor in developing
countries in order to keep the cost down. Therefore, an abundance of cheap unskilled laborwith a high literacy rate is crucial to invite the above-mentioned kind of anchor firms. Besides,
whatindustrial

clusters

industrialization progressed:

alwaysface

universities

is

the

and

shortage

OJT

ofcenters

skilled
for

labor

after

innovationarethus necessary for further development.
Living Conditions
Comfortable and satisfactory living conditions are needed to assure that staff members of
foreign companies enjoy their lives and feel fulfilled to work hard. Housing,schools,

hospitals, shopping centers, and entertainment facilities etc should be

sufficient and of high-quality so foreign investors, who tend to be from countries moredeveloped than the host one, of high positions and thus very high demanding, can be7satisfied.
Priorities of actors

Figure 3 Priorities of actors
Local government
Priority 1 = Industrial Zone
Priority 2 = Water, Electricity, Communication
Priority 3 = Transport
Priority 4 = Institutions
Central Government
Priority 1 = Electricity
Priority 2 = Institutions

Semi Government
Priority 1 = Industrial Zone
Priority 2 = Human Resources

NPOs
Priority 1 =Living Conditions

Source: A. Kuchiki and J. Kabir
As shown in Figure 3, local governments play the main role in constructing IZs, supplying
electricity, facilitating transport, and forming institutions. The first priority of local
governmentsinFigure

2-2

is

to

construct

IZs

as saucers

toinviteforeigninvestors. The second priority during the same stage is to supply electricity, facilitatetransport and form institutions. Central governments are in charge of supplying electricity
and building institutions with these at an equal level of priority.
Step 3: Anchor Firm – Here comes Prince Charming to the rescue
After all conditions above-mentioned are satisfied, the IZ is ready for anchor firm(s)to become a tenant. The anchor firm coming to the IZ will bring with it a lot of related
suppliers and partners; and that brings prosperity to the IZ and the local
region. It forms an industrial cluster inside and around the IZ. Even if it is a poor areawith a low income level and high unemployment rate, after the arrival of the anchor firm, it
will rise and become the Mecca for not only economic/production activities but also municipal
development.
8

Two Major Phases to an Industrial Cluster

We have examined the 3 steps to build an industrial zone above, and will discuss two
major phases to an industrial cluster hereafter, as described in the following Figure 4.
Industrial agglomeration (Phase I) consists of the 3 steps that we analyzed above, andInnovation (Phase II) has the same “Capacity Building” as Phase I, only at a higher level.
The differences here are: (1) Once Phase 1 has been accomplished, the demand for moreskilled labor and R&D activities for the sake of further development will urge universities andresearch institutes to grow and enhance themselves; (2) The advent of anchor person(s),such as Bill Gates, Japanese Prime Minister, Honda CEO, and Keidanren President, etc canencourage further foreign investment into the region, enlarge the scope as well as enhance
the quality of the industrial cluster(s).
Figure 4
Phase I:
Agglomeration

Phase II
Innovation

Flowchart Approach to Industrial Cluster

(a)

IZ

(b)

Capacity Building (I)
1. Infrastructure
2. Institutions
3. Human Resources
4. Living Conditions(c)Anchor Firm(d)Related Firms(a)Universities/ Research Institutes(b)Capacity Building (II)
1. Infrastructure
2. Institutions
3. Human Resources
4. Living Conditions(c)Anchor Persons(d)Cluster
Source: A. Kuchiki and K. Yoshida

9Chapter II In Light Of Canon Effect In Hanoi, Vietnam
1.

Canon in TLIP, Hanoi, Vietnam

The Canon cluster in Hanoi can be observed during 3 phases:(1) Step 1: The construction of Thang Long Industrial Park (TLIP, Thang Long is the oldname for Hanoi) completed in 2000
(2) Step 2: Capacity building (core competence, infrastructure, institutions)(3) Step 3: The advent of anchor firm Canon in TLIP
Hereafter let us analyze details on the case of Canon cluster in Hanoi.

STEP 1: TLIP construction

The construction of TLIP, a joint project between Sumitomo Corporation (Japanese, 58%)
and

Dong

Anh

Mechanical

Company(Vietnamese,

42%)

was

commenced

in1998 and completed in 2000. Being located on one side of the highway from Noi Bai
Airport to Hanoi city central area, it is an outstanding spot that every one accessing to or
leaving the airport for Hanoi can easily notice.

10

Information on TLIP
16 km from the center of Hanoi City (30mins by car)
14 km from Noi Bai International Airport (15mins)
Location

122 km from Hai Phong Port (100mins)
120 km from Cai Lan Port (100mins)

Nationality

Japanese-Vietnamese(Sumitomo Corporation 58% / Dong Anh Mechanical Company 42%)
[Phase1]
Development Area: 121 ha
Sellable Area: 87 ha

Scale[Phase2]74 ha (completed by end Sep.2004)[Phase3]89 ha (construction started in 2005)

Total FDI
registered

US$ 439,623,667 (total of 1998-2003)

capitalVarious types of support are provided including the One-door Service, bank,cargo distribution centre, post office, general engineering and maintenancecompanies operating inside TLIP.
Characteristic

Standard rental factories are available, that makes tenants start their operationin the IP easily with a minimum start-up time.
Hanoi Steel Center was opened in the IP in July 2003.
TLIP is the first IP with ISO14001 (certified by BVQI in Feb 2000).

Infrastructures Water Purification and Supply System
TLIP provides tenants with purified water for industrial use through the distribution11

pipe network made of ductile iron.
Electricity
TLIP has its own on-site sub-station with capacity of 40MVA x 2 which receives
the extra high voltage electricity directly from the national network, through 2
circuits. Tapping from the new 110kV transmission line from the Hoa Binh
Hydraulic Power Plant via Chem sub-station as one source; and from Pha Lai
Thermal Power Plant via Dong Anh sub-station as the second source can ensure
the stability of power supply to tenants with less fluctuation of voltage.
Transformer and Switch-gear in Chem sub-station was renewed and expanded to
250MVA x 2 in 1999 with financial support from the World Bank.
The internal power distribution system is also underground and is a double loop
system for making sure the power supply to the tenant is uninterrupted andreliable enough for manufacturing operation. Tenants receive electricity from ring
main units which are installed right at every plot.
Road System
Internal roads are classified into two types as shown below. The road system in
TLIP is designed to cope with the increase of traffic volume in the future andtraffic characteristic of Vietnam.
Main Road
Width of the road ranging between 37 m (121 feet) and 42 m (138 feet). Asphalt
pavement road with 6 traffic lanes for 2 sides. Street light poles are aligning inparallel with 40 m (131 feet) interval at both sides of road. 3 m - wide (10 feet)median and sidewalk at both sides. This Main Road, which is as high as the
Hanoi - Noi Bai Highway, meets Level C in Japanese Traffic Classification.
Secondary Road
Width of the road ranging between 26 m (85 feet) and 27 m (89 feet). Asphalt
pavement road with 2 traffic lanes for 2 sides. Street light poles are aligning inzigzag with 45 m (148 feet) interval at both sides of road. Sidewalk at both sides.

12Telecommunications System
Theinternal

telecommunication

networkisunderground,withconsideration of appearance and safety. 400 lines are available for thePhase 1 (121 ha) and Hanoi Post and Telecom Company will supply morelines for the future in capacity and quality with optical fiber to accommodatehigh speed data communication, ISDN and so on.
Source: GRIPS website
TLIP was not built by the central or local government of Vietnam, but by the initiative of theJapanese trading company Sumitomo Corporation. However, there are also industrial zones
developed by private companies such as Nam Sach IP and Noi Bai IZ, or those constructedby central or local governments such as Que Vo IP (Bac Ninh city) and Hoa Lac Hi-Tech
Park (Ministry of Science and Technology).

STEP 2 Capacity Building
Infrastructure:
Capacity building process inside TLIP was conducted during the construction of
TLIP. Here

we

only

emphasize

the

roles

of

Japan

ODA,

Vietnameseandthe central/local governments.
Role of Japan ODA
Japan ODA has played an extremely important role in infrastructuredevelopment of Vietnam including Northern area.
In the first years of the 90s, Vietnam former Vice Minister of industry ministry Le Van Dy
visited Japan and attended a meeting with Mitsui Corporation, where he asked
the company to draw a Master Plan for Industrial Development for Vietnam. Mitsui
has made the Master Plan in which some crucial proposals were given:

13•

Vietnam should give top priority to infrastructure development•

Vietnam should take advantage of both public and private sectors: use public sector in
infrastructuredevelopment

which

costs

a

great

deal

of

capitalwithlittleprofit and strengthen private sector by inviting foreign investors. Private sector
is imperative to industrial development.
Along
which

with

the

master

plan,

Japan

restarted

its

ODA

towards

Vietnam,helped bloom infrastructure projects in the country, especially those relatingtransport and power. There were also several projects that positively contributed to theinvestment environment of TLIP. National highway 5 is the highway that connects Hanoi
and Hai Phong port and very important for cargo transport in Northern area. It used to be
nasty, jumpy and narrow with a lot of ruts and tracks on the surface so it took
about 5 hours to drive from Hanoi to Hai Phong, but after the restoration the timeneeded to finish the distance of 102 km was shortened to only 2 hours. Hai Phong port
and Cai Lan port, both accessible within 100 minutes drive from TLIP, have been renovated
to increase their capacities. That was before the construction of TLIP, after that in 2005 theHanoi – Noibai highway which passes the front of TLIP was also restored with JapanODA.
On the other hand, Japan ODA has also helped finance many projects on power supply
such as: Phu My power station construction, power development master plan
research (1995-1996), etc. However, it could never satisfy the increasing thirst forelectricity of the growing economy of Vietnam. There is still so much to work on.

14

Table 1: Japan ODA on Vietnam Infrastructure Improvement
Year Budget (billion yen)Content
EffectNational highway 5 rehabilitation Shorten the time needed to travel from
Hanoi to Hai Phong from 4-5 hours
8.782
to about 2 hours. Lessen traffic(1st term )jams,
Hai Phong port restoration work Raise the water level, eliminate mud so
39.75
bigger ships can enter, reduce cost per(1st term)
container
National highway 5 rehabilitation
54.7
Improve further quality of the highway(2nd term)
Enlarge the port to receive more capacities
102.73 Cai Lan port expansion
Hai Phong port restoration work
132.67
Improve further quality of the port
(2nd term)
More bridges for vehicles andpedestrians, more safe lanes and exits
44 Hanoi - Noi Bai highway
vehicles: faster access, a modern
forrestoration
face for Hanoi

1993

1995
1999

2005

Source: Japan MOFA, made by consultant

Role of the governmentDuetogovernment’s

thelimitation

attitude towardsofresearch

papersinfrastructurebuilding,

relating
thisiscentral/local

reallyhard

toexamine, but we can still make the following conclusions:•

Initiative in industrial development master plan (according to Mitsui Corporation report)•

High priority to power supply in IZs•

Hanoi was at first was in charge of constructing TLIP but then it was
switched to•

Ministry of Construction, with the cooperation of Sumitomo Corporation.

Hanoi allowed and collaborated to support the construction of TLIP under the initiationof Sumitomo Corporation. Hanoi was too inexperienced to do such a big
project. Central government wanted to invite more well-known companies to theNorth so as to industrialize the area, which was a good timing for TLIP and Canon.
Hanoi, with the big boss’ okay, didn’t hesitate to facilitate administrative
procedures for TLIP and Canon.

(JICA report on TLIP development project)

15

Institutions:•

Tax incentives: To invite foreign investors to Vietnam, the central government has toimplement favorable tax system to compete with other Southeast Asian
countries. The following Table 2 (Page 17) shows that as of 2001 Vietnam had
given foreign investors a lot of tax incentives: dividend withholding taxes, tax
holiday length, and reduced
favorable•comparedto

CIT

rates,

etcofVietnam

are

quite

Indonesia, Malaysia, Thailand and so on.

One-door service: with the support of Hanoi, a support center, wherenoF/S

is required, investment licenses can be done within 14 days, custom

procedures can be completed, was formed inside TLIP.
•

The Cargo Distribution Center: was built and operated by Dragon Logistics Co., Ltd(powered mostly by Sumitomo Corporation). The company provides domestic andinternational logistics services to enterprises located inside TLIP.

Human Resources:•

Unskilled labor: TLIP is located in Dong Anh province, the countryside of Hanoi, where
there is an abundance of unskilled labor. Besides, there are so many young unskilled
unemployed Vietnamese people who flock to big cities like Hanoi to lookfor jobs. According to the Japanese project consultant of Vietnam Toyo Denso, amanufacturing company in the North of Vietnam, job opportunities are always appliedwith times more than the number of real vacancies. Vietnamese are wellknown as hardworking and handy people. There is no need to worry about the
supply of unskilled labor in Hanoi. However, there is always an ongoing raise in wages
due to annual inflation.

•

Middle-class management, professional: There are 22 universities and a lot of colleges

16Standard
CIT Rate 1
Dividend

withholding

taxes
Tax
Sectors

Table 2 Tax Incentives in Selected Southeast Asian Countries
Cambodia
Indonesia
Laos
Malaysia
Philippines
Thailand
Vietnam28%
32%
30%
20% Progressive
Greater of 35 %32%
rates:
or 1% ofturnover10% onTaxed at10%; creditable
10-25% on
3,5, or 7% on
15%: residents,
dividends
10-20%: nonrelevant CIT
remitted abroad; dividends
residents (50%
dividends
domestic
reductioninremitted
rate, creditableintercompany
favoreddividends aresectors/zones)
against CIT
against CIT
remitted abroad partly or wholly
abroadHi-tech, export,
tourism,
qualifying forinfrastructure,energy, rural,
incentives
development,(notenvironmental
exhaustive) protection
Tax holidays Up to 8 years

Exports, hard-crop

Corporations in Exporters
Exporters,
Exporters,
manufacturing,
plantations,agricultural
agriculture,
tourism, andvarious otherprocessors,
mining,various othermay
activities
certainbusinesses inreceiveindustries
remote areas
locations"pioneer"
3-8 years income Negotiable but
5 year tax
3-8 year
3-8 year income Up to 8 years
holiday on 70tax holidays for
100% ofstatuary
new enterprises inincome tax
income (10years for22 specificcompanies ofnational/staterare
holiday
tax holiday
sectors
gic
Reduced9% after end of
20%: foreign
Enterprises in
25%: foreign
3%: offshore
investors;
investors; 15%companies ininvestmentcompanies inLabuan, 10%:promotion zones 10,15, andholiday for
20% for 10+
lowlands, 10%
foreign fundget 50%years whencompanies inmanagement
reduction of CIT certain are
CIT rates
remote areasfor 5 years
companies
favored projects
criteria.
Investment
Reduction of
Investment
Tax credits for Allowance ofIf profits
purchases ofreinvested forallowances oftaxable income bydomestic
3 consecutive
25% forbreeding stocks
60-100% of
allowances
up to 30% ofyears, aand genetic
qualifying
material, as
portion or all
investment ininvestment inwell as forcapitalof CIT may be
incremental
and credits
refunded.
expenditure
priority sectors
export revenue. infrastructure
Accelerated Immediate
Doubling of
Accelerated
Immediate
depreciation of expensing ofexpensing ofmajor
computer,depreciation rates
plant andinfrastructuretechnology,
equipment
investments byandexportinvestment
in favoredenvironmental
enterprises infinanced fromprotection
less developed
depreciation reinvested profit zones/sectors
investments
areas
Import duty Import duty
Exemptions and Reduced import Exemptions
Exemptions and Exemptions
Exemptions
and reduced
and reduced
reduced import
reduced importfrom importduties on inputs:
exemptions forimport duty
import and VAT duty and VAT
duty and VAT
and VAT
duties and
1%-foreign
and VAT rates rates on inputs
rates on inputs inrates on inputs inpromotedon inputs inin certain
VAT in certain
investors; 0%:certain sectors,
certain sectors,
certainsectors, esp.
exemptions investments
esp. exporters
esp. exporters
exporters
sectors
sectors, esp.
exporters
EPZs
After tax
Variousholiday lapse,
additional
enterprises inincentives
these zones
apply in thesepay only 5% tax
zones
on gross
Other
Loss carry-forward Investors can
DoubleAdditional 50- Dividend
100%extended to 10
negotiate fordeduction of
deductions for
distributions
labor expenses
years forspecialcertainfor export
companies inincentives on a expenses
projects above during holidays
a certain
favoredcase-by-case(e.g., R&D,
capital/laborzones/sectors
basis
training).
are tax exempt.
ratio.
Source: Chalk (2001) and PriceW aterhouseCoopers (2001)17

as well as vocational schools in Hanoi, including famous technical education institutes
such

as

Hanoi

Poly-technical

University,

Hanoi

National

University,

Hanoi

Open University. In terms of Japanese education, there are Hanoi Foreign

Trade University, Hanoi University of Foreign Studies, Hanoi Open University,
Phuong Dong University. Aninterpreter

can

be

hired

at

US$

200

–

1000/month depending on the nature of projects. But as investment fromJapan

increases,

there

can

be

a

shortageinthe number of Japanese

speakers in Hanoi. Hanoi local government, education institutes, and privatecompanies (Eikoh Seminar has a branch in Hanoi. It supports Japanese education,
head-hunting, training, etc) should gather together and solve this problem.
•

High-level management: this is always a problem in countries of the 3rd world. Vietnam
is not an exception. Mr. Ken Arakawa, JETRO investment advisor, who studied Vietnam
history, has lived in Vietnam for more than 10 years, and was Seiyu General Director in
Hanoi, also mentioned that it is hard to find qualified top management in
Vietnam. Foreign companies have to hire people from abroad. This is a difficult
problem, which can

only

be

themselves(theyshouldmanagement

since

to

solved

hire

reach

by

the

and nurture
top

efforts
theirmanagement,

of

own

companies
local

top

OJT experience is verymuch required) and the government, education institutes as well as private companies.
Living conditions:Being located near Hanoi is an advantage to the living conditions around TLIP. Hanoi isthe second biggest city in the country so it has many sophisticated aspects.
•

Accommodation:
It is not difficult for foreign investors to find accommodation in Hanoi. There aremany international

top

class

Melia, Daewoo,

Sheraton,

hotelsSofitelsuch as: Hanoi
Metropole,
18

Hanoi

Hilton, Hanoi Tower,

Hanoi

Nikko,

have

etc

and

some

extravagant apartments.

Rents range from US$ 1000 – 5000 a month. This is reasonable

for foreign staff members of foreign companies.
•

Hospitals:
There is a French international hospital (Japanese OK) next to Bach Mai hospital, which is

5 minutes drive from Nikko Hotel. There are also many hospitals with Japanese speaking
staff such as: International SOS in Hai Ba Trung Street, Family Medical Practice.
•

Shopping centers:
Food shops are all over the city but it would be safer to buy in super markets. Hanoi is fullof medium-sized super markets, even some particularly for foreigners. There is also a huge
German whole sale super market called METRO and located 20 minutes drive from TLIP
with a variety of food, beverage, clothes, electronics, office equipments, etc. There are also
many tailors around Hanoi old town, or expensive fashion shops around Hoan Kiem Lake
area or in Hanoi Tower, etc. Shiseido also has a branch in Hanoi.
There are a lot of good Japanese restaurants such as: Edo in Daewoo Hotel,
Ky Y restaurant, Taiyo Restaurant, Café Mot, etc.
•

International, Japanese Schools:
There are at least 4 international kindergartens, 2 international schools (HIS secondary

school, UN International school with elementary, junior high and high school levels) and aJapanese
inside•schoolforJapanesechildren(HanoiNihonjinGakko

locatedHanoi Transport University, 5 minutes drive from Japan Embassy in Hanoi).

Entertainment facilities:
There is a variety of choices when it comes to entertainment in Hanoi.
-

Parks: Thong Nhat Park, Ho Tay Park, Bach Thao Park. All are peaceful and large.

19-Music: Hanoi Opera House concerts, several jazz clubs, etc-

Cinemas: Dan Chu, Fa Film Vietnam, National Cinema, etc-

Sports: pools (Bon Mua, Sao Mai, etc), My Dinh National Stadium, Thai Ha Tennis,
Thai Ha Golf Court, a lot of gyms, etc.

-

Library for Japanese: VJCC in Hanoi Foreign Trade University. NHK,
Nikkei Shinbum, Japanese books, etc are available.

With these living conditions, sure enough foreign staff members can enjoy their lives tothe fullest in Hanoi.
And then a hero comes along…
When all the above-mentioned conditions are sufficient to satisfy foreign manufacturingfirms, they will make their decisions and settle down in TLIP.

STEP 3 Anchor Firm Canon
Canon became a tenant of TLIP in 2001 and started its operation in 2002. At thesame time, its related companies also followed suit such as Parker Processing
Vn Co., Volex Cable Assembly, Sumitomo Coil Center, Santomas Vn Co., etc.
We will analyze the Canon effect further in section 2 below.
2.

Canon Effect:
Positive Effects•

Create an industrial cluster in TLIP
Canon is an internationally well-known manufacturing corporation. But it can’t manufacture

products on its own: it needs parts and components from suppliers to assemble into products.
As soon as Canon started to build its plant in TLIP, its suppliers would move into the IZ tolook for new business chance. This has formed an electronics cluster in TLIP.
As we can see in the following tables, in 2000 and 2001, the number of tenants in TLIP
raised from 22 firms in 2001 to twice as much (40 firms) in 2007. This can be explained as20

follows:•

The advent of Canon at TLIP has urged its related companies to move into TLIP.

•

The restoration of Hai Phong port a part of Japan ODA towards Vietnam in 1999
improved its capacities and therefore TLIP became more attractive and accessible forforeign investors, especially those belonging to manufacturing industries.
This once more proves the fact that ODA for infrastructure and successful invitation to an

anchor firm are 2 of the key factors to form an industrial cluster.

List of Tenants in TLIP
Entered TLIP in 2000 and 2001

No

Date ofInvestment
LicenseCompany Name

Nationality

Land Rental

Products(ha)1

Parker Processing Vietnam Co., Ltd.

8-Aug-00

Japan

2.31

Paint & Surface treatment for metal parts2

Mitsubishi Pencil Vietnam Co., Ltd.

29-Nov-00

Japan

3.8

Writing implements

3

SD Vietnam Co., Ltd.

Japan

1.65

Wire harness & power supply cord

4

Canon Vietnam Co., Ltd.

15-Sep-03
15 Jan 01
11-Apr-01

Japan

20

Ink jet printers

5

Volex Cable Assembly (Vietnam) Co., Ltd.

9-Aug-01

Singapore

0.47

Power supply cord, Interconnectors

6

Sumitomo Bakelite Vietnam Co., Ltd.

10-Aug-01

Japan

6.55

Flexible printed circuit board

7

Denso Manufacturing Vietnam Co., Ltd.

4-Oct-01

Japan

5.48

Parts for automobile

8

TOA Vietnam Co., Ltd.

5-Nov-01

Japan

1

Security camera

0.5

Precision plastic injection molding

9

Santomas Vietnam Co., Ltd.

9-Jan-02

Malaysia10

Abe Asian Tech Hanoi Ltd.

22-Mar-02

Japan

11

TOTO Vietnam Co., Ltd.

1-Mar-02

12

Dragon Logistics Co., Ltd.

13

Sakurai Vietnam Ltd.

Rental Office Film & Manuals

Japan

7.2

Sanitary wares

Vietnam

2.5

Logistic services

29-Apr-02

Japan

1.76

Parts of machine tools, machines, laser beammachines, semi-conductor equipment

1.26

Plastic molding parts & steel processing partsfor automobile and others

14

Matsuo Industries Vietnam Inc.

13-Jun-02

Japan

15

Fujikin Vietnam Co., Ltd.

3-Jul-02

Japan

16

Yabashi Vietnam CAD Technology Corporation

18-Jul-02

Japan

Rental Office17

Ohara Plastics Vietnam Co., Ltd.

30-Aug-02

Japan

0.98

Plastic molding products

18

Seed Vietnam Co., Ltd.

17-Sep-02

Japan

0.6

Manufacturing and sales of stationery products

19

Hanoi Steel Center Co., Ltd.

16-Sep-02

Japan

1.89

Processing steel sheets

20

TOHO Vietnam Co., Ltd.

9-Oct-02

Japan

1.36

21

Kayaba Vietnam Co., Ltd.

22-Oct-02

Japan

22

HAL Vietnam Co., Ltd.

17-Nov-02

Japan

Source: TLIP website archive

21

0.52

0.56

1.97

Super precision flow control systems,
equipments and parts
Designs, design processing and software
products

Design and manufacturing mold for plastic
products
Manufacture and sales of parts andcomponents of automobile, motorcycles, andothers
Production and sales of all types of aluminum
castings, casting mole

LIST OF TLIP TENANTS IN 2007#

1
2

Company Name
Parker Processing
Vietnam Co., Ltd.
Mitsubishi Pencil Vietnam Co., Ltd.

Date ofInvestment
LicenseNationality

Land Rental(ha)

8-Aug-00

Japan

2.31

Paint & Surface treatment for metal parts

29-Nov-00

Japan

3.8

Writing implements

Products

0.48
3

Vina KDC Wiring Industries Ltd.

15-Jan-01

Japan

4

Canon Vietnam Co. Ltd

11-Apr-01

Japan

20

Wire harness & power supply cord
Ink jet printers

0.47

Volex Cable Assembly
5(Rentalfactory)

9-Aug-01

Singapore(Vietnam) Co., Ltd.

(RentalFactory)

Power supply cord, Interconnectors

6

Sumitomo Bakelite Vietnam Co., Ltd.

10-Aug-01

Japan

6.55

Flexible printed circuit board

7

Denso Manufacturing Vietnam Co., Ltd.

4-Oct-01

Japan

5.48

Parts for automobile

8

TOA Vietnam Co., Ltd.

5-Nov-01

Japan

1

Security camera

9

Santomas Vietnam Co., Ltd.

9-Jan-02

Malaysia

0.5

Precision plastic injection molding

10

Abe Asian Tech Hanoi Ltd.

22-Mar-02

Japan

11

TOTO Vietnam Co., Ltd.

1-Mar-02

12

Dragon Logistics Co., Ltd.

13
14

Sakurai Vietnam Ltd.
Matsuo Industries Vietnam Inc.

Rental Office Film & Manuals

Japan

7.2

Sanitary wares

Vietnam

2.5

Logistic services

29-Apr-02

Japan

1.76

Parts of machine tools, machines, laser beam machines, semiconductor equipment

13-Jun-02

Japan

1.26

Plastic molding parts & steel processing parts for automobile
and others

3-Jul-02

Japan

0.52
(RentalSuper precision flow control systems, equipments and parts

15

Fujikin Vietnam Co., Ltd.

16

Yabashi Vietnam CAD Technology Corporation

18-Jul-02

Japan

17

Ohara Plastics Vietnam Co., Ltd.

30-Aug-02

Japan

0.98

18

Seed Vietnam Co., Ltd.

17-Sep-02

Japan

19

Hanoi Steel Center Co., Ltd.

16-Sep-02

Japan(Rental
0.6(Renta1.89

20

TOHO Vietnam Co., Ltd.

9-Oct-02

Japan

1.36

21

Kayaba Vietnam Co., Ltd.

22-Oct-02

Japan

0.56
(Renta22

HAL Vietnam Co., Ltd.

17-Nov-02

Japan

1.97

23

Matsushita Home Appliances Vietnam Co., Ltd.

16-Jun-03

Japan

5(RentalFactory)

24

Kein Hing Muramoto (Vietnam) Co., Ltd.

28-Aug-03

Malaysia/
Japan

1.57

25

Ryonan Electric Vietnam Co., Ltd.

29-Sep-03

Japan

Rental Office Designs, design processing and software products

0.48

Plastic molding products
Manufacturing and sales of stationery products
Processing steel sheets
Design and manufacturing mold for plastic products
Manufacture and sales of parts and components of automobile,
motorcycles, and others
Production and sales of all types of aluminum castings, castingmole
Manufacture, assemble, install, research, design, developmentof products: electric home appliances, housing-related
products, semi-products, components, and parts thereof.
Sheet metal forming, precision machining and assembly ofcomponents for electrical , electronic, automotive and otherindustries.
Wire harness for home appliances & electronics(Rental26

Chiyoda Integre Vietnam Co., Ltd.

2-Oct-03

Japan

1.28

Stamping, printing parts & components for electric, electronic,
automotive industries

27

Yasufuku Vietnam Co., Ltd.

9-Nov-03

Japan

0.59
(Renta28

Tokyo Micro Vietnam Co., Ltd.

6-Nov-03

Japan

1.24

Micro motors for didtal cameras, AV equipment, ...

29

Bemac Panels Manufacturing Vietnam Co., Ltd

6-Apr-04

Japan

1.24

Manufacturing and installing the electric equipments andsystems for vessels.

30

SATO Vietnam Co., Ltd

9-Jun-04

Japan

4

Manufacture, process, assembly, sale of Electronic Printers,
Hand Labellers

31

Daiwa Plastic Thang Long Joint Venture Co.,Ltd

5-Aug-04

Japan

1.53

Manufacturing and processing plastic parts

32

HOYA Glass Disk Vietnam Ltd

4-Nov-04

Netherlands

10.3

Manufacture of glass substrates for magnetic memory disk

33

Suncall Technology Vietnam Co., Ltd

25-Nov-04

Japan

2

Manufacturing and processing of electronics and information
technology related parts

34

Fujipla Engineering Vietnam Co., Ltd

26-Nov-04

Japan

0.65

Manufacture of plastic Injection moldings

35

Kane Package Vietnam Co., Ltd

6-Dec-04

Japan

1.42

Manufacturing and processing packages

36

Kyoei Dietech Vietnam Co., Ltd

6-Dec-04

Japan

Rental Office37

IKEUCHI Vietnam Co.,Ltd

30-Dec-04

Japan

38

JSW Plastics Machinery Vietnam Co., Ltd

31-Dec-04

Japan

39

Yamaha Motor Parts Manufacturing Vietnam Co., Ltd

4-Jan-05

Japan

10

Automotives parts

40

Takara Tool & Die Hanoi Co., Ltd

12-Jan-05

Japan

4

Design and manufacture of dies, processing of plastic andmetal parts for various industries

Source: TLIP website

22

0.81

Industrial rubber, plastic parts for automotives

Manufacturing and Maintenance of Circuit Board Die andrelated Business
Manufacturing of spray nozzles and parts thereof.

Rental Office Maintenance service for injection molding machineryCertainly, not all tenants of TLIP are related companies of Canon, but through the nature of
their businesses (products) we can speculate that they are Canon’s suppliers, such as
Parker Processing Vietnam Co., Ltd., Sumitomo Bakelite Vietnam Co., Ltd, etc.
And the cluster soon created jobs, increased income of the region as analyzed below.
•

Help create more jobs for locals:
According to Mr. Takeichi Omata – General Director of TLIP in 2004, the cluster in

TLIP had created 8 thousand jobs in which 90% is of manual labor. The cluster was
expected to create 30 thousand more jobs in the next few years.
•

Nurture local supporting industries:

Canon needs a lot of parts and components to produce printers. If Vietnam has a good
master plan for developing local supporting industries in the country and the region, thedemand of Canon will help local makers grow and accumulate technology know-how. We
will discuss this further in Chapter 3.
•

Increase local income:Jobs soon bring more income for local people. And the business growth of Canon willbring tax income to the local government and they can use it to invest into local public
facilities to improve living standards of the area. For Canon it is unknown but for Honda, it
is said that more than 40% of tax income of Vinh Phuc province where Honda motorbike
plant is located is from this firm itself.

Negative Effects

Nothing comes for free. There is always a price for economic development and whether
this price is high or not depends on how well the government handles the trade-off situation,
which can be seen as a haggle. If it makes efforts to maximize benefits and minimize flawsof the economy model, then the price is low and the haggle succeeds.
Likewise, industrial clusters do not only bring economic development and all, they bring23

negative effects too. Those are slums, local security deterioration and pollution.
•

Cause slums around the IZ:
According to Hanoi Socio-economic Development Research Institute(March2006),

around TLIP there are about 350 households who own lodgings for rent and approximately 4
thousand workers are now renting these lodgings.
These so-called lodgings are actually 8-10 ㎡rooms with a 4 ㎡flat wooden board (halfsize of the room) used as a bed. The space left is only enough to put a bicycle and save aplace to cook: there’s no kitchen. It’s even hard to walk inside the room. 2-4 persons share aroom like this, and the rent is usually 200,000 – 300,000 VND a month (US$ 12.5 – 18.75)
while the average income of each worker who works 12 hours a day is about 900,000 –
1000,000 VND (US$ 56.25 – 62.5). So the ratio of rent/income is about 22.22% 30%. Workers who rent rooms like this tend to be away from home and have to send money
back to their families so they have to save money. They cannot afford better accommodation.
Lodgings like this are very simply constructed, with a thin roof so it’s really hot when thesummer comes. Workers have to sit in front of their doors to escape the hot air inside theirrooms. This is not good for their health.
The rear of lodging buildings is often filled with trash, because there is no trash dealer in
the area. They have to put up with all the smell and the dirty environment.
Hanoi has set up a plan to build apartment buildings for workers in TLIP at the nearby Kim
Chung village in 2000. It took 7 years for the plan to start and it is promised to open 4 newapartment

buildings

expected to be

with

the

capacityof2400

persons,

and

the

rent

is

130,000 VND (US$ 8,125). This is not enough for all workers of the

expanding TLIP but if it succeeds it will be a good model to apply nationwide.
•

Contaminate surrounding environment:
Because most of TLIP tenants are Japanese firms, environment standards seem to be24

well-complied.

There has been almost no complaint about environment relating TLIP

tenants around the region, but there are a lot related to workers of TLIP living in villagesaround the IZ.
The most typical example is that of Kim Chung commune which is homefor some 7 thousand workers (by a resident of Kim Chung commune, Bau
village, 2007). Everyday workers emit several tons of garbage but there is no space todispose. Some people even bring their garbage out and throw it into some pond or lake
nearby.
Wastewater from everyday life is also directly drawn into drainage systemof which capacity is originally only enough for old local villagers. No wonder there isalways flood all over the village every time it rains.
Rivers are therefore polluted and stinky. All residents still use underground water, and thiscan also be threaten since once surface water is polluted so is underground water.
Villagers are requesting Hanoi to improve infrastructure conditions of their village.
•

Deteriorate security of local community:
Some firms in TLIP (Ohara Plastics, Machino) reported that their contracted guards gave

outsiders confidential information of their firms so they can steal properties from the firms
and their staff. The total loss was about US$6400 and the police have found the thieves.
Local police also reported that there have been too many larceny cases (money, bicycles,
clothes, etc) in lodging area and around the village. Drug abuse, gambling are similarly very
serious problems that they have to deal with.

25

Chapter III

Lessons from the experience of Canon Effect

From the analysis of the experience in the formation of Canon cluster in TLIP above wecan extract some worthy lessons for future reference. These lessons are presented inorders that show decreasing importance and priorities. Therefore, number 1 will be the mostimportant and has to be done first, then number 2, 3, etc and the final one to be done will benumber 8. However, we can, and at times should, implement several measures at the sametime, if these are required at the same level of importance. Priorities given here are only on acase-by-casebasis,

and

can

be

changes

to

be

kept

in

accordancewiththe particular conditions and requirements of each project.
As a constitution is necessary for the legislation and administration of justice in a country,
a master plan for national, and master plans for regional industrial development are very
crucial to form industrial clusters efficiently.
1.

Master plans for regional industrial development
Canon cluster started its formation with the construction of TLIP in 1998, but we cannot

tell the story of Canon Vietnam without mentioning the role of the Master Plan for (National)
Industrial

Development

which

was

proposedby Mitsui

Corporation

with

the

initiative of a Vietnamese government official. Without this Master Plan, it might havebeen harder for the government to seek a way to attract foreign investment to nurturenational industries.

We can think the same way about regional industrial development: regional
industrial master plans are imperative in developing regions’ industries. A master plan
helps lead the way of which way to go, what to do and focus on, who to ask for support andto put in charge, etc, which ensures the efficiency of industrial development process. This isespecially important to developing countries where resources are limited and scarce.
26

Dong Anh district in Hanoi has adopted a new plan for its industrial zone development
in October 2006.

The

districtwill

construct5

moreconcentrated

IZs

to

create dozens of thousands of more jobs, aiming at a 17.65% average annual industrial
value index.
2.

Smart and efficient usage of ODA in infrastructure building
We have learned that Japan ODA helped construct and restore a lot of roads, sea ports,

power stations which were crucial factors for Canon to make up their mind on moving
into TLIP.
A good infrastructure system helps companies save time and money on transport, enjoy agood and smooth low-cost business environment. Without good conditions in infrastructure,
it is hard for a region to invite foreign investors, especially in terms of
manufacturing industries.
In general, ODA plays an important role in facilitating the following conditions of a region:•

Infrastructure: make a list of infrastructure items of high-priorities and try to distribute
ODA to these items first. Once these items are accomplished and foreign investors areinvesting into the region, that will bring prosperity and we will have all the resource tocover the items of lower-priorities.

•

Institution: the joint project of Japanese and Vietnamese governments “Japan-Vietnam
joint initiative to improve investment environment of Vietnam” was a good testimonial.
ODA can be used for improving tax systems, trade regulations, the transparency andsimplicity of the administrative system to ensure foreign investors a smooth process ofinvesting in Vietnam. From now on, Vietnam should use ODA to keep improving thelegislative system and create incentives and a fair playground for foreign investors.

•

Education, human resources: JASSO, JICA, etc has made great efforts to enhance thequality of human resources of Vietnam. JASSO and JICA have programs to send
Vietnamese young talents to Japan for undergraduate and graduate studies. To name27

a few: the MEXT program which allows Vietnamese students and government officials
come to Japanese universities under Monbusho scholarships; JICA also brings some
non-government-official Vietnamese who already have working experience to Japanfor graduate studies every year.

JICA and JBIC also help universities and schools in Vietnam with their Japanese
education and educational, vocational facilities, and research institutes. Japanese
speakers

areneededforJapanese

investment

projects

and

with

the

ongoing 2nd Vietnam investment boom today, it is predicted that salary of Japaneseinterpreters will rise in the future.
Using

ODA

capital,improve education
toits

quality

Vietnamofshoulduniversities

open

more

in

plannedthevocational
regionfacilities,
accordingindustrial development plan. ODA can hardly fill the lack of middle-classmanagement since this can

only

be

solvedbyinviting

middle-classmanagement from Japan, or sending Vietnamese staff to Japan to educate fromthe beginning.
• Living conditions: Japan ODA has been distributed to Bach Mai hospital in Hanoi, Cho
Ray hospital in HCMC, garbage classification education program in some major cities
in Vietnam, etc. Vietnam should make advantage of ODA to improve living
conditions not only in big cities but also small towns and countryside regions where
foreign investors might be interested in investing into.
…
3.

Active overseas marketing towards foreign investors
In

Vietnam,

as

in

other

developing

countries,

IZs

are

often

constructedspontaneously without serious and careful research on foreign investors’ needs.
This lackofmarketing knowledge and experience causes many failures in the IZ

operating business. In fact, full IZs are almost those built around Hanoi and HCMC areas,28the rest are reported to be almost empty or have only few tenants.
Vietnam (the country as a whole and each region) should go overseas and cooperate withforeign experts to do research on investors’ needs, build IZs according to their needs andVietnam’s development

plans, use every

network (Vietnamese embassies,

city

representative offices, foreign government institutes like JETRO, etc) to promote Vietnam’s
sales points. With China and other ASEAN countries competing, Vietnam should not stayhome and wait for foreigners to come to invest. Every central government top official, MPI
official, local government staff member, embassy staff member, etc must be a salesman toinvite foreigner investors into Vietnam.
Concerning sales points of IZs, we can name a few:
• Location: the golden rule of real estate business works everywhere. Only if an IZ
is located near sea ports, airports, big cities to assure low transport cost,good business/living

conditions

andabundant

human

resources,

it

can

lure

foreign investors to come.
•Infrastructure: in Vietnam since local developers are inexperienced and do not haveenough capital, at the first stage foreign developers should join and help Vietnam toconstruct infrastructure in its IZs and perhaps operate them.
On the other hand, Vietnam should emphasize on its following advantages togain foreign investors’ attention:•

Reasonable and handy labor force: This is a known fact. A Japanese production
manager in Honda Vietnam said that Vietnamese workers can do some work
better than
that

their

counterpartsin

Vietnamese handcrafters

can

Japan
do

or

Thailand.

It’s

even

said

kimonoembroidery

finer

than

their

counterparts in Japan, and Vietnamese workers can put more chips on a print
board within a limited time range than their counterparts in China. However, thesalary level is rising in Vietnam in line with the raise in living expenses.
29

•

Low country risk: Vietnam is relatively safe in terms of living and businessenvironment. There are almost no racial/political/religion conflicts, terrorism, etc andunpredictable changes in foreign exchange rate.

•

Favorable geographical location: Being located between China and other ASEAN
countries, Vietnam is more likely to be picked as an investment host country in theregion.

•Investment incentives:

As analyzed in Chapter 2, Vietnam has many tax andinstitution incentives to attract foreign investment such as CIT rates, tax holiday andremittance tax, compared to other neighboring countries.
•

Free trade commitments: Vietnam-US Bilateral Trade Agreement is a huge possibility
for US market penetration. AFTA might as well facilitate regional division of labor.
Vietnam’s

WTO

affiliation also bringspromisesof policy

consistence

andinternational rule compliance to the country’s business environment.

“JETRO Hanoi Center Survey: Why Canon made its decision and moved in TLIP?”In February 2007, author made a visit to JETRO Hanoi Center to interview Mr. Arakawa
Ken, an investment advisor there, on Vietnam’s invest environment and the motivation ofCanon upon its decision of investing in TLIP.
Arakawa Ken Profile
MA, Vietnam History Major. After graduation, in charge of Vietnamese market at a trading
company, visited Vietnam 50 times. From 1994 in charge of ODA in Hanoi. From 2000
manager of Hanoi Seiyu Supermarket, etc.
Survey OutcomeaVietnam’s Investment Environment (compared to neighboring countries):

Vietnam has advantages in water, power supply, transport, one-door services, de-regulation,
tax incentives, unskilled labor, and country risk. But Vietnam has disadvantages intelecommunication, law and regulations, middle/high-class management and30

professionals.
a

Why Canon chose TLIP:-

Location (near No 5 national road and Hai Phong port, convenient for logistics)-

Tax incentives-

Cheap labor-

Low country risk-

China risk hedge

4.

Workers’ life support measures
Beside accommodation issue mentioned above, workers at IZs also face manyother problems with their everyday life for instance: health care, entertainment and security,
etc.
Here is a proposal for some measures to help workers deal with problems that might arise in
their lives at IZs.
•

Local government should build enough apartments or dorms for workers of each IZ.
Rooms can be shared among 2 – 4 people, wider than 15 square meters,•

Establish in each IZ a consult/community center, to help workers solve problems they
face in everyday life. Most workers are from then countryside, come to town to seek forjobs. In Vietnam there is a big gap between rural and urban lifestyles so they may need
instructions. Centers of this kind also help to teach workers how to comply with local
rules (environment protection, etc), organize some clubs (English, Japanese, cooking,dating, etc) for workers to join and spend their weekend time meaningfully, and offersome extra services such as TV, video, etc (most workers don’t have a TV in their rooms
and thus they are isolated from the outside fast changing dynamic world).

•

Increase the number of policemen in the community and enhance people’s awarenessto prevent thieves and robberies.

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5.

Environment protection measures
In Vietnam there is a big gap of lifestyle between rural and urban regions and environment

awareness of people is not high. Most workers tend to come from rural areas
where education level and environment awareness level are of the lowest in
the country. As a result, workers tend to throw garbage somewhere in their residence
area without thinking about protecting living environment. It gets even worse when there isno trash dealer in the area, which can be explained by the fast proliferation of populationand the weak community capacity to deal with the problem.
There are some measures against this issue:•

Have commune/village/town leader and representatives come to each household topersuade and educate workers and local people of environment protection responsibility.

•

Contract with a trash dealer and collect a small sum of money from each household to
pay this dealer.

•

Weekendothervoluntarycommunity

cleaner

program:workersandsome

local residents may be free during weekend and it’s a good chance for themto meet, get to know each other while doing something meaningful for the community.

6.

Local supporting industry development plan
As of 2003, localization ratio of Japanese makers in Vietnam was 22.6%,

very low compared to higher than 44% in Malaysia and Thailand. Vietnam’s supporting
industry is weak and underdeveloped (GRIPS report). In the case of Canon, there is no
local parts supplier to be known of.
Vietnam has a Master Plan for Supporting Industries Development but it is advised that
Vietnam has a plan for each supporting industry. Without strong supporting industries, itcannot achieve sustainable, independent and stable development. These are somemeasures to develop supporting industries in the country:
Promote industrial human resources: Vietnam should establish more modern training
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centers, apply meister system, conduct curriculum reform at industrial universities &colleges, overseas education & training, form incentives for brain return, etc.
Promote supporting industries:

Vietnamshould

work

on

SME

promotion(HRD, technology, finance), invite FDI parts makers, form industrial standards, quality
standards, adopt local-FDI matching services, promote SME networking, conduct trade
fairs & reverse trade fairs, construct database relating supporting industries, takeadvantage of JETRO services.

These measures are well known and have been highly efficient for a long time in ASEAN.

However the real question is not what to do, but how effectively you do it.

33Conclusions
The flowchart approach to industrial cluster policy is an action plan for arranging andprioritizing policy measures in a time-ordered series. This paper dared to make a review on
this flowchart approach by Kuchiki and then make a further step to apply the model to Hanoi’s
Canon printer cluster from 2001 to 2007.
We can obtain the following conclusions and these are also my contribution to Kuchiki’s
flowchart approach model:•Firstly, I examined both negative and positive effects of Canon on its agglomeration in
Hanoi. From this result, we can know how to increase or maximize positive effects while
controlling negative ones.

•

Secondly, it is assuredly confirmed that the flowchart approach model works in the caseof Canon as well. Knowing this we can think of ways to apply this model to more clusters
in other regions in Vietnam.

•

Finally, it is clearly realized that ODA and local governments play crucial roles in the
success of industrial cluster policy. Also, in the case of Vietnam a national master plan forindustrial development was necessary, and from now on various master plans forrespective supporting industries are highly in need. Yet without the big boss’ okay local
governments can do nothing to help foreign investors. It is apparent that the collaborationand harmony between central and local governments are imperative.

34

Bibliography

A. Kuchiki, “The Flowchart Approach to Industrial Cluster Policy: Guangzhou’s Automobile
Industry Cluster”, 2005
A. Kuchiki, “Agglomeration of Exporting Firms in Industrial Zones in Northern Vietnam”,
Industrial Agglomeration Eds M. Kagami and M. Tsuji, Institute of Developing Economies –JETRO, 2003
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Vietnam’s Competitiveness Report, Japan Embassy in Hanoi, 2003
Takahisa Tomoda, Souichi Takeda, “About the participation of Mitsui Corporation into Vietnam
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http://vnexpress.net/-

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