For manufacturers, the No. 1 rule-of-thumb when it comes to strategic sourcing in an up-and-coming region of the world: Get there before everyone else does. Timing is a significant factor since it advances exponentially in global hot spots. Put down some roots while these regions are still in the process of building their infrastructure and hammering out tax issues, regulations and business arrangements. Why? Because that's when the talent is available and hungry to work for you. As the market matures and more companies enter, wages will go up and key managers will start to jump ship. And the nature of global sourcing will take a different turn.
The level of talent often determines the type of manufacturing a particular country pursues. For example, Kenya has a well-educated, sophisticated workforce, according to analyst Peter Ryan of Datamonitor, and it wants to be thought of as a value-added country. "Kenya will take the low-cost manufacturing plants, but only as a loss leader," Ryan explains. "Kenya wants the innovative work."
Then there are countries like Vietnam that have a larger reach. "I call Vietnam the new tiger on the horizon," says Mark Minevich, CEO of Going Global Ventures Inc. "It has the ability to spread across all sectors -- from pure manufacturing to performing R&D for some of the largest companies in the world."
Notes Alex Bryant, president of East West Associates, "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."
To attract business, Vietnam has an aggressive program of corporate income tax incentives, Bryant notes. "This program involves up to four years of tax holiday following the first year of ‘carried forward' profitability. Thereafter, the tax rate is half of the nominal tax rate for a period of up to seven 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%."
Building up its infrastructure is a key goal for Vietnam, which has invested 10% of its GDP into electricity, water supply, seaport services and telecom, says Bryant.
Infrastructure improvements also include the "software," which is how David Ross, regional vice president, FedEx Corp., South Pacific, describes the rules and regulations, as well as the organizations themselves that are responsible for utilizing infrastructure assets and the rules of trade. "A key area of this ‘software' is customs clearance," Ross points out. "Efficient customs clearance is vital to a functioning supply chain. Manufacturers can often get a product or component to the airport or the docks. However, if it sits in customs for days on end, supply chain management turns into a guessing game."
To help the Vietnamese government, FedEx is participating in a project called the e-Manifest Pilot Project. "This project shows how customs can use an electronic manifest instead of a paper manifest to eliminate bottlenecks in customs and have a positive impact on thousands of express shipments every day," Ross says. "This project will bring significant benefits to Vietnam by increasing controls and security while speeding up the flow of commerce across Vietnam's borders."
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