Danang Hi-tech Park: Attracting investment into Danang Hi-tech Park
The development of Hi-tech parks around the world
The outstanding success of Hi-tech Park development policy in attracting FDI and establishing hi-tech industrial clusters has motivated many countries around the world to utilize this policy during their economic development. The concept of a hi-tech park was started at the end of 1950s and was speculated to initiate at the research area near Stanford University, USA, and after that, this model spread around the USA and all over the world. The initial idea of this model is to provide technical infrastructure, modern technologies, logistics, management, and other financial and business supporting services for businesses to develop their products, incubate new technologies, gradually creating a hi-tech business cluster, giving incentives to the region’s/ city’s development. The hi-tech park was also expected to encourage start-ups and nurture new business ideas by connecting, training and providing consultancy to entrepreneurs, and helping businesses to save costs, reduce risks, and build the businesses’ image. The success models of such Hi-tech Parks as Silicon Valley in California (USA), Route 128 in Massachusetts (USA), Bangalore (India), Hsinchu (Taiwan)… have become benchmark for other newly-established Hi-tech park to learn from and call for suitable supports from the local and central government.
The establishment of Hi-tech Parks in Vietnam
In the past recent years, as Vietnam actively joined the multilateral/ bilateral free trade agreements, Vietnam economy has advanced exceptionally to become a part of the global economy with total GDP of USD 512 billion in 2014, ranking 38th in the world.According to the statistics of World Bank, Vietnam has moved from being a low income country to being a low-middle income country with GDP per capita of USD 2,052(2014). With accelerating industrialization and modernization, heightened environmental awareness, and rising labor costs, in the near future, Vietnam will no longer have comparative advantages in attracting low-tech, labor intensive companies. Therefore, Vietnam government should soon develop the country’s high-technology industries or high-quality services to improve Vietnam’s position in the global supply chain, creating new comparative advantage in the era of integration and globalization.
Understanding the importance of incubating high-technology businesses and creating favorable conditions for attracting investment into high-technology sectors, especially transnational corporations, in January 1996, the Vietnamese government initiated the planning of Hoa Lac Hi-tech Park, which operates as a science and technology hub, a smart and environmentally friendly area with an area of 1,586ha. In 2002, Ho Chi Minh Hi-tech Park was also established with a total area of 913 ha as a technology and economic hub, attracting both foreign and domestic high-technology resources. In addition, Danang Hi-tech Park was established on October, 28th, 2010 based on the Prime Minister’s Decision.
Moreover, in accordance with Decision No. 792/QD-TTg dated June 8th, 2015 by the Prime Minister approving the master plan of Hi-tech Parks towards 2020 with a vision towards 2030, besides three national Hi-tech Parks mentioned above, three more hi-tech parks will be established in Hanoi, Dong Nai and Binh Duong in the coming time. If other provinces meet the requirements and wish to develop a hi-tech park in their areas, they can submit a proposal to seek for the approval of the Central government. Furthermore, Decree No. 118/2015/ND-CP dated November 12th, 2015 providing guidance on a number of articles in the Law on Investment allows Hi-tech Parks to enjoy incentives as those of the regions with especially difficult economic conditions. Accordingly, companies set up in Hi-tech Parks can benefit from low tax rates, reduced land rentals, and infrastructure fee, etc. These policies demonstrate the special interest of Vietnamese government in speeding up the development of Hi-tech parks on the national scale.
Initial success of Hi-tech Parks in Vietnam
So far, Hi-tech Park is still a very new model in Vietnam; therefore, and the Vietnamese government faces the challenges of finding the suitable legal framework, management and operation model, and it finds it difficult to attract investment into Hi-tech Parks. Established in 1998 as the very first Hi-tech Park in Vietnam, Hoa Lac Hi-tech Park had trouble in determining the development model and incentive mechanisms. It also had problems in site clearance, mobilizing and disbursing fund, and management overlapping (Hoa Lac Hi-tech Park Management Board is under the guidance of the Ministry of Science and Technology; while the Hi-tech Park is under the management of Hanoi People’s Committee). Ho Chi Minh Hi-tech Park was built later in a more prosperous economic period and learnt many valuable lessons from Hoa Lac Hi-tech Park in designing its development plan. Besides, leaders of Ho Chi Minh City also persevered in pursuing and successfully persuading some leading transnational corporations to invest in Ho Chi Minh Hi-tech Park such as Intel (USA), Nidec (Japan) and most recently Samsung (South Korea). These first movers help to acquire reputation and brand name for Ho Chi Minh Hi-tech Park. Also, Ho Chi Minh Hi-tech Park is known for having high productivity due to using advanced technologies, rapid mechanization. Moreover, with dynamic working environment and competitive salary offers, Ho Chi Minh Hi-tech Park is able to attract skilled and qualified labor.
Regarding investment attractions, as of December 2015, Ho Chi Minh Hi-tech Park attracted 93 projects with a total registered capital of USD 5.3 billion (among which, more than 58% of the projects are domestic projects). In the first 8 months of 2015, the total export value of companies in Ho Chi Minh Hi-tech Park was estimated to be USD 2.93 billion, up 68% compared to that of the same period in 2014. Hoa Lac Hi-tech Park attracted 67 projects with 33/67 projects in operation. Danang Hi-tech Park attracted 03 projects: 02 projects from Japanese investors with a total registered capital of USD 70 million, and 01 domestic project with a total registered capital of USD 450 thousand.
2. Attracting investment into Danang Hi-tech Park: Current situation
2.1 Danang Hi-tech Park Comparative advantages
Danang Hi-tech Park is the first hi-tech park in the Central region and is the third national hi-tech park, establishing in accordance with the Decision No. 1979/QĐ-TTg dated October 28th, 2010 of Prime Minister with a total planned area of 1,129ha (the 7 functional areas have a total area of 673ha). The objectives of Danang Hi-tech Park are attracting domestic and foreign investments, motivating hi-tech industries in the city, linking research, education – training and production, accelerating technology transfer and innovation, incubating hi-tech companies, and developing a market for high-technology and science. At present, there are six main encouraged sectors calling for investment in to Danang Hi-tech Park: bio-tech applied for agriculture, aquaculture, and healthcare; information and communication; microelectronic and opto-electronics; new energies, new materials and nano technologies; automation and precision mechanics; environmental technologies and other special industries. Over time, Danang hopes that the Hi-tech Park can help the city to incubate its own hi-tech sectors, improving production efficiency and increasing the competitiveness of the products and services of Danang and the Central and Western Highlands region.
Danang Hi-tech Park has several competitive advantages, including:
Danang Hi-tech Park has a very favorable economic location in Hoa Vang Commune, Danang, along the Danang – Dung Quat Expressway, connecting it with other key economic zones in the Central region. Danang Hi-tech Park is situated 22km from the city center, 17km from Danang International Airport, and 25 km from Tien Sa Port. The planned area for the hi-tech park is on high ground, not prone to any flood during rainy season.
Currently, Danang Hi-tech Park has 150ha land available with complete infrastructure. The first-stage of 300ha – site clearance and ground leveling has almost completed. The main 51m – Central road has been constructed since January, 2013 and other brand roads are being completed. The 22kV electricity line runs across the Hi-tech Park, ready to serve businesses. Water supply is sufficient, and the ICT infrastructure has also been completed.
Projects investing in Danang Hi-tech Parks can enjoy various incentives in accordance with Decision No. 36/2013/QD-UBND dated November 13th, 2013 of Danang People’s Committee and Decree No. 118/2015/ND-CP dated November 12th, 2015 by the government. Hence, they can have preferential corporate tax rates, import – export tax rates, lower rent and reduced fees. Projects that are especially encouraged such as hi-tech business incubation, human resource training, etc. are subject to even higher incentives.
Qualified human resources
Danang has a fairly comprehensive educational system with 24 universities and colleges, 19 professional secondary schools, and 60 vocational centers. Danang Polytechnical University and Danang College of Technology are considered the center for science – technology development in Central Region and Western Highlands, providing human resource training in such fields as mechanics, electronics, automation, environmental engineer, ICT and so on.
Simple and transparent investment procedure
The investment certificate grant procedure in Danang Hi-tech Park is simplified and transparent. Danang Hi-tech Park Management Board provides one-stop shop for administrative procedures; helps investors with immigration process, human resource recruitment, fund borrowing, etc. ICT has been applied extensively in administrative process to help investors save time and costs.
Would you consider establishing your project in Danang Hi-tech Park?
2.2 Challenges in attracting investment into Danang Hi-tech Park
Since the establishment, it has still been a challenge to attract investment into Danang Hi-tech Park. There are some reasons as follow:
- Slow implementation of infrastructure completion: Learning from Hoa Lac Hi-tech Park and Ho Chi Minh Hi-tech Park, Danang Hi-tech Park has been constructed much more efficiently and quickly; however, the construction of some items is still much slower than planned. The current general infrastructure still does not satisfy investors’ demand, mainly due to the lack of funding.
- Competition with other Hi-tech Parks: Hoa Lac Hi-tech Parks and Ho Chi Minh Hi-tech Park has been wildly known among domestic and foreign investors, while Danang Hi-tech Park is fairly new and has to compete with these two hi-tech parks to gain investors. Moreover, the incentive policy of Danang Hi-tech Park is similar to that of Hoa Lac Hi-tech Parks and Ho Chi Minh Hi-tech Park, making it hard for Danang Hi-tech Park to compete with the other ones. In fact, some big corporations have visited Danang, but they did not choose to stay.
- Weak supporting industries: There are very few businesses in Danang operating in supporting industry. Most of them are quite small, lack of funding and networking, unable to join the global supply chain of FDI companies.
In addition, projects investing in Danang Hi-tech Park have to meet the criteria specified in the Decision No. 27/2006/QD-BKHCN dated December 18th, 2006 of the Minister of the Ministry of Science and Technology regarding technology standards, committed investment capital, etc. In fact, it took Hoa Lac Hi-tech Park and Ho Chi Minh Hi-tech Park several years to become established and attract their first investors. In addition, from 2011 – 2014, due to the global economic recession, domestic and foreign investors not only did not want to expand their production but also tended to scale down their business to reduce risk. Therefore, it would also take Danang Hi-tech Park more time to finally to reap the results of its investment.
3. Solutions to attract investment into Danang Hi-tech Park
Within the framework of this analysis, the writer would like to suggest some solutions to attract more investment into Danang Hi-tech Park:
3.1. Solutions to develop infrastructure
- Quickly completing the construction of infrastructure in Danang Hi-tech Park to provide working space and production facilities of international standards for investors by taking advantage and mobilizing all types of resources, researching suitable investment forms to call for investment in important technical infrastructure projects.
- Conducting feasibility study to expand Lien Chieu Port to meet logistics demand of Danang in the future;
- Continuing to call for investment to develop the social infrastructure of the city such as building more commercial centers, international hospitals, universities, parks, monuments, etc to improve the living standards for citizens and investors
3.2. Solutions to develop human resources
Human resource, especially high-quality human resource is one of the most important factors in economic development. All development models emphasize that sustainable developments come from the accumulation of capitals, skills and technology. These are factors linking closely to human resource quality.
Therefore, Danang should focus on further developing the human resource of the city. Danang Hi-tech Park Management Board should cooperate with research institutes, universities and businesses to orientate and forecast labor market demand for high-technology. The training centers should also actively work with businesses to understand the skills and knowledge required by businesses and make relevant curriculum and educational programs, bridging the gap between theory and practice. In addition, the city government needs to advise schools and businesses about the city’s development plans and encouraged sectors that the city is calling for investment.
3.3. Solutions to develop supporting industries
In economic literature, supporting industries produce immediate goods or production parts/ components which are then used to produce the final goods. Although products of supporting industries look simple, they often require high levels of skills and technologies. For many companies, the existence of supporting industries is of critical importance. For example, for an automobile-manufacturing company, it cannot produce every single part of the car, and has to rely on other companies to provide the parts. If a location has strong clusters of industries, it can help companies to save manufacturing costs and consequently enhance its competitiveness.
Understanding the importance of supporting industries to the city development, in its industrial development planning over the period from 2011 to 2020, Danang pays special attention to supporting industries. The city government issued Decision regulating incentives for projects investing in high-technology or supporting industries when investing in the city’s Hi-tech Park. Accordingly, these projects would receive reduced rent, and up to 50% infrastructure fee waivers for 2 years. Besides these solutions, in order to strengthen the city’s supporting industries, Danang should implement other solutions as follow:
- Based on Danang Hi-tech Park’s published list of encouraged sectors, the city should prioritize the groups of supporting products that the city needs in the future, and adopt suitable laws and solutions to call for domestic and foreign investments into these sectors.
- Danang should efficiently implement incentive policies for the city’s supporting industries such as helping supporting businesses to raise fund, training human resources, providing technologies and networking opportunities.
- In the era of globalization, cooperating among firms to create value and competitive advantages has become the most important factor to improve the competitiveness of businesses. Therefore, the city should facilitate business cooperation by organizing business networking and matching events, creating supporting industry database, building platforms such as website, social media to quickly address business’s concerns and questions…
3.4. Investment Promotion solutions
According to a study by Henry Loewendahl, investment promotion activities can be classified into 4 big categories as follow:
- Strategy and Organization: Establish the national macro-economic strategy to promote political and economic stability, laying the foundations for the regional and local development strategy and setting specific objectives to arrange suitable investment promotion activities. From that common framework, identify the key sectors that the city encourages to develop based on its comparative advantages.
- Image, Brand Awareness: Discuss and establish the city’s image and the message it want to send to investors. Set up objectives, policies and methods to promote the city’s image to investors. Provide quick feedback to investors’ inquiries and concerns.
- Facilitation: including such activities as providing information, organizing field trips, consulting and evaluating project feasibilities, speeding up the investment certificate granting process, and reducing bureaucracy
- Investment services: providing after-care services and other product development services and encouraging investors to cooperate with the city in long term.
To affirm Danang Hi-tech Park position and increase its competitiveness, first and foremost, Danang Hi-tech Park Management Board should conduct some research and develop a long-term investment promotion strategy. Currently, since it hasn’t figured out either its brand name or target market, its investment promotion activities are not very effective due to the lack of strategic planning and market positioning.
In reality, most successful Hi-tech parks in the world focus on accommodating a few spearheading sectors and incubating the best national/ international businesses in those fields. Consequently, their reputation will also connect with those sectors. For example, the Silicon Valley in the US specializes in electronics and IT development, and its name attaches to big corporations such as Apple, Google, Facebook, Yahoo, Cisco…Taiwan’s Hsinchu Hi-tech Park is home to 500 companies operating in semi-conductor production and electronic components for ICT companies. Similarly, Cambridge Science Park in the UK concentrated on doing research in bio-tech and fundamental science.
The 6 sectors that Danang Hi-tech Park is calling for investment are too broad, making it hard to promote. Therefore, Danang Hi-tech Park should identify its own brand name based on the current human resources, technology, market and the city’s development orientation and set up a timeline for achieving a certain goal. For example, for the time being, it is probably best to focus its resources to develop the precision mechanics and ICT sectors.
Some specific investment promotion activities Danang government and Danang Hi-tech Park Management Board should focus on including:
- Strengthening collaboration with international consultancy companies, international financial organizations and experts to conduct research on current investment trends and strategies to approach and work with potential multi-national corporate to invite them to learn about the opportunities and make investment in Danang Hi-tech Park;
- Preparing Project profiles with detailed information for specific projects that Danang Hi-tech Park wishes to call for investment;
- Convincing the city leaders to actively meet and communicate with potential investors and partners to promote key projects;
- Actively supporting existing investors to implement their projects in time; helping them to solve their problems; creating favorable conditions for businesses to expand their production;
- Collaborating closely among Danang Hi-tech Park Management Board, city departments, local and international investment promotion agencies and private enterprises to launch effective advertising campaigns to promote Danang and Danang Hi-tech Park as attractive investment destinations
- Training the current human resources and creating an active and professional working environment in the city to meet the demands of foreign companies./.
Danang Hi-tech Park general introduction
(2) CIA World Factbook, https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html
(4) Loewendahl, Henry; “A Framework for FDI Promotion”, Transnational Corporations, vol. 10, no. 1 (April 2001)