WILL Thailand’s floods be Vietnam’s gain? That certainly appears to be the view of Ho Chi Minh City’s Gon Tiep Thi newspaper, which recently published a report saying that many Japanese firms are considering moving their Thai operations to Vietnam.

Some local consultancies in Vietnam agree. According to investment consultancy Sao Khue’s chairman Than Thanh Vu: "Many Japanese business delegations have visited Ho Chi Minh City or contacted the Japan External Trade Organisation to ask for locations to build their facilities. Their top priority when consulting about a particular location is whether the place will be affected by floods."

If true, such a trend would mark an important turnaround for Vietnam, which has recently been experiencing a decline in foreign investor interest. Once regarded as the next "Asian Tiger", sentiment on Vietnam has turned increasingly negative in recent years as deep seated problems such as corruption and infrastructure bottlenecks have become more pronounced. Vietnam attracted US$9.9 billion (S$12.7 billion) in new projects in the first nine months of this year, down 16 per cent from the same period last year.

Thang Long Industrial Park, which was built just outside Hanoi by Japanese conglomerate Sumitomo, aptly illustrates the change. Opened in 2000, it was full by 2009, with the mostly Japanese manufacturing companies operating in the park employing around 55,000 workers. Today, however, the park is viewed rather less positively. High inflation has led to strikes by workers demanding wage increases, something that companies operating on thin margins in the park have been reluctant to grant.

But will the recent floods in Thailand, coupled with higher costs in China, really turn things around for the country?

Some investors seem to think so. Japan’s Jesco Holding Inc, which specialises in engineering and infrastructure construction, recently announced a joint venture with Hoa Binh Construction & Real Estate Corporation to develop infrastructure for an industrial park in the southern province of Long An. The Japan International Cooperation Agency is also offering funds to help Vietnamese industrial parks upgrade infrastructure to meet the requirements of Japanese investors.

But while many foreign direct investors may indeed be reassessing their strategies, Vietnam is not necessarily the most likely beneficiary.

Take Thailand’s large automobile industry. Reports say that several companies operating in Thailand such as Honda and Nissan were forced to suspend production because of the floods.

But Vietnam is hardly the most attractive alternative. The country’s domestic automobile market is too small to be of much interest to major players with the means to set up the large-scale operations capable of competing with foreign imports. Moreover, trade agreements with other Asean nations will force Hanoi to slash import tariffs on CBU (completely built units) cars by 50 per cent in 2014. At that time, the foreign automobile assemblers that set up factories in Vietnam during better times will probably begin to move out.

Indonesia, with its huge domestic market and robust economy, is their most likely destination. In recent months, both Toyota and Nissan have announced major new investments in the latter country.

Instead of hoping for windfall gains as a result of calamities in other countries, Vietnam would be better off focusing on getting the basics right. With inflation on a downward trend and exports picking up, there is some evidence that macroeconomic conditions are about to stabilise.

But much more remains to be done. A recent survey of 1,000 enterprises by the government-funded Institute of Labour Science and Social Affairs found that the shortage of skilled workers was a major obstacle discouraging investors from upgrading or expanding their factories. There was also a general lack of management skills.

Commenting on the results, the country’s Korea Chamber of Commerce chairman Lee Chon Kin put it bluntly: "We want to bring modern machinery to Vietnam but cannot recruit a sufficient number of technicians (who) can operate them."

Investors are also increasingly citing infrastructure deficiencies. Yet it seems that many in government are not listening. In June this year, for example, the authorities announced that golf courses would be built on unused land assigned to the nation’s major airports in Hanoi and Ho Chi Minh City.

Ho Chi Minh City’s Tan Son Nhat Airport is the biggest and most important airport in Vietnam. The news that this airport, which is already overcrowded, is to be denied space for expansion, is hardly the sort of thing likely to encourage confidence that the authorities have got their priorities right.

With inflation falling, investors operating in the new industrial parks currently under construction may be able to avoid the labour unrest that has plagued Thang Long this year. But without a major effort to upgrade manpower skills and improve the nation’s infrastructure, it will be an uphill battle convincing investors to enter the country with the same enthusiasm that they had in earlier years.

(C) Singapore Press Holdings Limited, 2011