HO CHI MINH CITY, Vietnam -- Intel's new billion-dollar factory, which opened Friday and has a clean room the size of five-plus football fields, rises up from former rice paddies like a Walmart on steroids.
"On behalf of Intel's 85,000 employees, I would like to say, 'Hello Vietnam,' '' company CEO Paul Otellini told an auditorium packed with enthusiastic government officials, employees and other dignitaries during a ceremony that featured a dragon dance and women in ao dais, traditional Vietnamese gowns. The Santa Clara chip giant's arrival in the Southeast Asian country put it "on the map for high-tech investment and helped the country attract significant investments from several leading global technology firms, including Foxconn and Compal," he added.
Although China's role as the assembly line for iPhones and PCs remains unchallenged, countries like Vietnam hope to peel away a significant amount of tech business to become global subsidiaries of the world's factory floor. Intel's decision to build the plant in 2006 in a country without a single world-class university and instead of in countries like India and China jolted the global tech world.
"This is exactly what China doesn't want to lose," said Gene Tyndall, a global supply chain expert at consultant Tompkins Associates. "They don't care much about low-end stuff. But there is a big push by the central government to keep what they have and get more in high tech."
At full capacity,
"Companies in China have been looking for an alternative," said Lam Nguyen, IDC's Vietnam analyst. "Labor costs are rising in China. The cost of doing business in China is rising. Vietnam is the right alternative."
The massive factory, located in the city's more remote District 9, underscores the complex strategic bets Intel makes years ahead of its moves. The process of choosing Vietnam began with secret meetings in Santa Clara between company executives and high-ranking government leaders from Hanoi so as not to trigger protests from anti-communist Vietnamese-American groups in Silicon Valley. Nearly a decade in the making, the 500,000-square-foot factory -- twice the size of the company's next largest plant in Malaysia -- had to be built on top of 8,800 stilts that burrow six stories down through unstable sandy soil to reach bedrock.
Intel has also faced a dearth of qualified job candidates. Although Vietnamese workers are known to be smart and hardworking, the country's school system focuses more on theory than practical learning. About two years ago, the company tested 2,000 graduating Vietnamese students. Only 90 were able to score at least 60 percent on the standard exam, and half of those failed an English competency review. The company is supporting various education initiatives and has helped to train 87,000 teachers in the country.
Increasingly, supply chain experts say, multinationals will be looking at diverse regions to plant their new plants.
"I think the era of, 'We are going to move everything to India' -- a single place -- is over," said Jennifer Daniell Bélissent, a Forrester Research analyst. "Now that the economy is becoming more global, people are comfortable with having a portfolio of geographies in their supply chain. We will see more diversification."
Vietnam is one country that is benefiting from this shift.
Hewlett-Packard recently started soliciting for software engineers to staff a new outsourcing operation in Ho Chi Minh City, an investment reported to be $18 million. And Vietnam-based software outsourcing companies say they are experiencing more interest from companies thinking of moving some of their projects away from higher-cost India and China.
"I've met with a handful of outsourcers who are in China, India -- or both -- that are now looking at Vietnam," said Rick Yvanovich, founder and CEO of Ho Chi Minh City-based software company TRG International.
Vietnam is cheap and hungry for tech companies like Intel. The country's estimated per capita income of $2,900 is less than half that of China's. Vietnam gave Intel a virtual hot line to top government officials. Rick Howarth, Intel's general manager of the 115-acre site in the new Saigon Hi-Tech Park, has an open invitation to visit the country's top leaders any time he is in the nation's capital of Hanoi.
"Vietnam is obviously pro business and they are doing their best to attract high tech," Tyndall said. "I'm sure they've got some nice tax benefits."
Still, China, with its booming economy, growing middle class and abundance of component makers is virtually impossible to replicate, experts say.
"There is no rival to the infrastructure in China," said Roger Kay, president of Endpoint Technologies Associates.
Companies will spread operations around to hedge against environmental disasters, such as earthquakes, or even political ruptures between governments, said Al Kwok, a Silicon Valley entrepreneur in the semiconductor industry who splits his time between San Jose and Suzhou, China. But, he added, "I don't see anyone closing down operations in China. That would be madness. You have a huge customer base in China. Intel has to have a big presence in China."
Indeed, a few days before Intel flipped the switch on its Vietnam factory, which will eventually employ about 4,000 workers, it fired up its $2.5 billion wafer fabrication facility in the northeastern Chinese city of Dalian. The complex is the size of about 23 football fields.
"Vietnam has the potential to be a small China in tech manufacturing," said Intel's former country manager in Vietnam, Than Trong Phuc.
Intel on Friday officially opened its largest semiconductor manufacturing plant in Ho Chi Minh City, Vietnam.
Cost to build: $1 billion
Size: More than five football fields
Purpose: To make chipsets for mobile devices and laptops with the capability to produce microprocessors in the future.
Employees: The first-wave of 400 hires will eventually grow to about 4,000 once the plant expands to full capacity.
Impact on the Intel universe: The factory doubles the company's testing and assembly capabilities.