Intel’s Vietnam Success Begins With Building Paper Towers

Photographer: Le Quang Nhat/AP Photo

Intel Corp.'s assembly and test facility at Saigon High Tech Park, Ho Chi Minh city, Vietnam, on October 29, 2010. Intel Corp. opened its largest chip assembly and testing factory in 2010 as part of a $1 billion investment in Vietnam. Close

Intel Corp.'s assembly and test facility at Saigon High Tech Park, Ho Chi Minh city,... Read More

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Photographer: Le Quang Nhat/AP Photo

Intel Corp.'s assembly and test facility at Saigon High Tech Park, Ho Chi Minh city, Vietnam, on October 29, 2010. Intel Corp. opened its largest chip assembly and testing factory in 2010 as part of a $1 billion investment in Vietnam.

A quiet revolution pushed by Intel Corp. is occurring at a top Ho Chi Minh City engineering school: students clustered in small groups design paper towers while the blackboard goes unused.

“This class is completely different than traditional classes,” said student Luu Bao Ngoc, 21. “We learn how to problem-solve in a new way.”

The class is backed partly by technology companies including Intel, Siemens AG (SIE) and Cadence Design Systems Inc. (CDNS), who struggle to find students to feed their need for talented workers in Vietnam. They are training Vietnam’s next generation of workers and transforming classrooms amid warnings from the World Bank that the country’s “economic miracle” faces the hurdle of not being able to fill advanced technical jobs.

“High-tech investors are most likely to identify Vietnam’s labor quality as a disadvantage to their investment strategy here,” said Adam Sitkoff, executive director of the American Chamber of Commerce in Vietnam. “The risk for Vietnam is if companies that want to invest here can’t find the workforce they need, they will look elsewhere. Human infrastructure is as important as physical infrastructure.”

Vietnam has set a goal to create an advanced tech economy that contributes 8 percent to 10 percent to gross domestic product by 2020 as companies such as Samsung Electronics Co. (005930), Nokia Oyj (NOK1V) and LG Electronics (066570) Inc. spend billions of dollars on new factories in the nation. The country will need a total of 411,000 highly-trained information technology workers through 2018, while producing only 60,000 annually, the official Vietnam News reported in July.

Intel’s Investment

“As a technology company and a long-term investor in Vietnam, Intel’s success relies on the availability of skilled workers,” Sherry Boger, general manager of Intel’s Vietnam factory, said in an e-mail. “We understood from the outset that there would be a need for capacity-building with regard to skills development.”

More than two years before Intel, the world’s largest chipmaker, opened its $1 billion plant in 2010, the company tested 2,000 graduating Vietnamese students. Just 90 passed the exam and only 40 were proficient enough in English to be hired, the Tuoi Tre newspaper reported in April 2008. An Intel representative said at the time it was the worst result it had encountered in any country it invested in, the newspaper said.

“We have seen a significant improvement of the quality of workforce,” Boger said.

Intel shares rose 0.8 percent to $26.72 at open in New York Jan. 15. The stock gained 26 percent last year.

Vietnam’s Potential

Intel, which operates its largest test and assembly plant on former rice fields in Ho Chi Minh City, is taking the lead in the movement by companies to train Vietnam’s emerging tech workforce. It can take a generation to create a highly skilled workforce, according to the World Bank.

The Santa Clara, California-based company has committed to spending $21 million on several programs to develop a high-level workforce in Vietnam.

The potential of Vietnam is attracting companies like Intel. Vietnamese students ranked in the top third of countries in math proficiency in the 2012 Organization For Economic Co-operation & Development’s Programme for International Student Assessment, ahead of countries such as the U.S., France and Russia. It had a literacy rate of 93 percent in 2011, according to the World Bank.

Still, the country’s brightest young minds are subverted by an educational system that lacks innovation and relies on rote learning, Thomas Vallely, former director of the Vietnam Program at Harvard University, said in an interview in Hanoi. “The problem for companies is the pool of talented university graduates is very small in Vietnam,” he said. “Right now Vietnam’s advantage is its pool of workers who are motivated to do low-end assembly work. But there will be other places in the future that will offer more competitive wages.”

Difficult Situation

As a result, companies such as Ho Chi Minh City-based software company TMA Solutions are creating internship programs as part of the curriculum of some universities to better prepare students, said Nguyen Huu Le, TMA chairman. “There is a lot of competition for experienced people,” he said. “It’s a difficult situation.”

Munich-based Siemens, which employs about 300 people in Vietnam, supports the non-profit backed by Intel to change the way university engineering students are taught and provides scholarships.

“We are very proud that nearly 100 percent of our local management is Vietnamese, but like many other global companies operating in Vietnam we’ve also experienced some challenges in recruiting qualified technical sales staff,” Thai-Lai Pham, president and CEO of Siemens Vietnam, said in an e-mail.

Growth Concern

Vietnam’s reliance on capital investment for rapid economic growth is not sustainable, the World Bank said in its 2014 Vietnam Development Report. Vietnam “needs to focus on making its workforce more productive and alleviating skills barriers to labor mobility,” the report said.

The economy grew 5.42 percent in 2013 and it is forecast to expand less than 7 percent for a seventh straight year in 2014. Vietnam received $11.5 billion in disbursed foreign direct investment in 2013, a 10 percent increase from 2012, the General Statistics Office said in December. Pledged FDI was $21.6 billion, a gain of 55 percent from a year earlier, it said.

It won’t be until 2040 or 2050 when Vietnam must depend on “productivity and creativity to grow,” Scott Rozelle, a Stanford University development economist, said in an e-mail.

Intel can’t wait for Vietnam’s education system to produce the kind of practical-thinking graduates it needs. Its 500,000-square-foot clean-room factory will eventually employ several thousand workers to produce chipsets and microprocessors for laptops and mobile devices.

Overseas Training

The lack of qualified workers led the company to pay for 73 students from technical and engineering universities in Vietnam to get bachelor’s degrees at Portland State University.

Intel is giving scholarships to Vietnamese students to get master’s degrees at the Royal Melbourne Institute of Technology in Vietnam and has funded 300 scholarships for female technical students at other institutions to increase workforce diversity. It has also sent Vietnamese engineering professors to the U.S. to change how classes are taught.

“Some day we want to see the highest post in Intel Vietnam held by a Vietnamese engineer,” said Nguyen Thu Trang, Intel’s higher education program manager in Vietnam.

Some things will take time to change in the communist country. As the students at the Ho Chi Minh City University of Technical Education were assembling their towers and spirals of paper on a recent morning, an instructor warned that those wasting paper would be subject to “self-criticism.”

To contact Bloomberg News staff for this story: John Boudreau in Hanoi at jboudreau3@bloomberg.net

To contact the editor responsible for this story: K. Oanh Ha at oha3@bloomberg.net

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