Vietnam Weighs Japanese Influence

Hanoi grows wary as outside carmakers push plans to develop Vietnamese auto industry

A LANKY, Lincolnesque entrepreneur named James Rockwell saw himself as a pioneer when he became the first American licensed to do business in Vietnam this year.

But after hanging out his shingle for his consulting company, Vatico, on a Hanoi townhouse, he soon discovered that the real pioneers in Vietnam were Japanese.

Not only had they already lined up business deals years ago, the Japanese were helping Vietnam to write the rules that could lock out latecomers, especially non-Japanese firms.

Mr. Rockwell quickly caught on. As the representative for Chrysler Corporation, he alerted Vietnamese officials that they had fallen into a trap by taking advice from Japan on how to set up a car industry for this nation of 70 million budding consumers.

Mitibushi Motor Corporation submitted a "master plan" to Vietnam last year on how to set up vehicle-assembly factories and auto-parts companies for the next 20 years. The 104-page report recommended vehicle models and listed many partsmakers affiliated with Mitsubishi's family of companies. The plan would limit production to achieve "economies of scale" - or, skeptics say, keep prices high.

"It was really the brainchild of Japanese bureaucrats," Rockwell says. Tokyo officials often talk of Japan as the leader of Asia's industries, setting standards for a vertical division of labor, with Japan at the top.

For example, Rockwell notes that the Mitsubishi plan calls for vehicle frames to be made in two separate parts, Japanese-style, rather than with the "unibody" frames used by American carmakers. That standard of manufacturing would give a decisive edge to Japanese companies. Strategic standards

Such strategic standard-setting has been effective for Japan in helping its car companies dominate other Asian nations, such as Thailand and Malaysia. "Direct investment from Japan to [other parts of] Asia has helped to foster and shape the structure of industry and foreign trade in the region," says Takeru Ishikawa, chairman of Mitsui Marine and Fire Insurance Company.

East Asia, in particular, is seen as a "production center for the world," says Shoichiro Toyoda, chairman of Toyota Motor Corporation. For more than a decade, Japan has guided many Southeast Asian nations toward the goal of a regional industry that would manufacture vehicles and parts complementing each other along Japanese design.

"Those arrangements provide for cross-border division of labor and for mutual supply arrangement in automotive parts," Dr. Toyoda said in a speech May 14.

"Japanese automakers like Toyota and Mitsubishi Motors are actively involved in the complementation arrangements," he said. "We understand that nations have their own perspectives on those arrangements."

Vietnam, which expects sales of 80,000 cars annually by 2005, may be one of those countries with its own perspective, thanks to Rockwell's tip-off.

After first welcoming Mitsubishi's plan, "we became aware that the plan may be based on their own interests," says Tran Minh Huan, deputy director of Vietnam's Ministry of Heavy Industry. "Mitsubishi told us, `If you accept our master plan, then we want exclusive rights to the car industry in Vietnam.' "

Rather than accept Mitsubishi's plan, Vietnam decided to invite other car companies, including General Motors, Renault, Fiat, and Chrysler, to offer their ideas on the future of Vietnam's car industry. A new master plan should be ready by the end of the year, Dr. Huan says. "We want diversity in our automobile industry. For the first three years, we will need to import autos parts. But after that, at least 20 percent of the parts must be produced in Vietnam. And after 10 years, we expect 40 to 50 percent ."

Vietnam already has two small vehicle-assembly factories, but their production is below 10,000 units a year. One is the Mekong Corporation, a Vietnamese-Japanese-South Korean joint venture that puts together Isuzu-like vehicles from imported kits. The other is Vietnam Motor Corporation, a joint venture between the government and Columbian Motor Corporation of the Philippines. That plant pieces together parts from Mazda and Kia.

Many of the cars on the roads, however, are old American cars, such as 1960s Chevrolets, or Russian cars. With Vietnam's per capita income only a few hundred dollars a year, few people can afford anything but motorcycles (almost all Japanese imports). Latecomer to growth

As a latecomer itself to Asia's dynamic economic growth, Vietnam is trying to learn from other countries' mistakes, such as those who have become overly dependent on Japan for loans, investment, parts, and technology.

But Vietnam, as a country rapidly emerging from a communist-run command economy to a free market, finds it hard to avoid Japan's strong economic embrace.

For one thing, the United States has only partially lifted its 29-year-long economic embargo against Hanoi. It now only allows American firms to set up offices and sign deals but not to implement them. Washington wants Vietnam to cooperate more in accounting for American soldiers lost in the war. The US law enforcing the embargo runs out in September, and President Clinton may decide not to renew it.

Another reason why Vietnam may be tempted to depend on Japan is because of the quality and low price (at least initially) of its goods.

But what sways Vietnam toward Western companies is that they offer to transfer technology, thereby helping this country build up its industry in the long run.

"Japanese companies never give us technology," says Huan.

Hanoi officials, eager for foreign investment and infrastructure loans, are putting together codes and standards that could favor or disfavor certain countries. From light bulbs to lightning rods, Vietnam is laying down the specs for investors.

"Those codes are not going to be American," Rockwell laments. "By next year, American companies won't be able to meet the specs for buildings. The damage will be done."

"We have a history in Vietnam that would allow us to be big players, but we are not here yet," Rockwell adds. "We've allowed our competitors to build the structures of Vietnam's economy without American involvement. And the strange part is that Vietnam wants us to be the dominant player."

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