Lesson for Taiwan Firms After Vietnam’s Anti-Chinese Riots: Go Local

Smoke billowing from a Taiwanese furniture factory in Binh Duong.

Agence France-Presse/Getty Images

For the Taiwanese companies whose factories were destroyed in the recent riots in Vietnam, advice from analysts all carries the same tune: think globally, act locally.
Earlier this month, Taiwanese manufacturers became collateral damage when an anti-China protest sparked by Beijing’s placement of an oil rig in a part of the South China Sea in which Vietnam also claims ownership resulted in the destruction of scores of foreign-owned plants. Taiwanese manufacturers suffered the heaviest blow. According to the island’s government, more than 200 Taiwanese factories were damaged and at least 18 were set on fire.
While the underpinning cause of the riots is still under investigation, one theory is that the rioters may have mistaken Taiwanese factories as Chinese ones. Others suspect that Vietnamese workers at the Taiwanese plants may have been angry with their managers, many of whom are Chinese.
For many analysts, the take-home message for the damaged firms isn’t to beef up security or do more to distinguish themselves from the their Chinese counterparts; rather, they should create an atmosphere of collective responsibility by localizing their management team, said Winston Yu, chairman of accounting and consulting firm KPMG Taiwan.
Since around 2000, a number of Taiwanese companies have moved their operations from China to Vietnam as Chinese wages rise. And while the firms brought job opportunities for Vietnamese workers, many also brought their management staff from China.
The Chinese staff at the Taiwanese factories in Vietnam are far fewer in number but have greater authority and much higher pay compared with the Vietnamese workers.
According to James Wang, country manager of Ernst and Young Taiwan, a Vietnamese supervisor or department manager in a Taiwanese-owned factory makes $500 a month on average, while local, low-level staff earn around $150-$200 a month. A Chinese manager at the same plant who assumes a more senior role, makes $1,300-$1,500, compared with around $2,000 for a Taiwanese manager.

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“The riots rattled Taiwanese investors’ confidence in Vietnam, but given the country’s affordability, close proximity to the China market, and a burgeoning domestic demand, pulling out is not an option,” said Mr. Wang.
Because the geopolitical tensions are expected to linger and leaving isn’t in the cards, to minimize tension inside the company Taiwanese companies should restructure their operation style, starting with becoming more localized, he said.
The benefits of localization goes beyond cost-saving, it also “creates a sense of stewardship and fosters synergy among the local hires,” said Mr. Yu.
Feng Tay Group, a major Taiwanese shoe maker whose clients include Nike, Bauer and Clarks, said it believes its efforts to localize staff helped its plant in Binh Duong—where two other Taiwanese factories were burned down—to escape rioters’ wrath. Feng Tay’s plant has one Vietnamese general manger, several Vietnamese supervisors, and no Chinese staff.
“Localization has been a top priority for us because we believe it’s a way to boost morale among the local workers,” said Amy Chen, the company’s spokeswoman. “Besides, they are usually quite good at their jobs.
– Jenny W. Hsu. Follow her on Twitter @jen1113