SHOULD THE FACTORY BE LOCATED IN AN INDUSTRIAL ZONE OR AN EXPORT PROCESSING ZONE?

SHOULD THE FACTORY BE LOCATED IN AN INDUSTRIAL ZONE OR AN EXPORT PROCESSING ZONE?

Establishing a manufacturing facility is an important decision for businesses, especially in an increasingly competitive business environment. The aim of this article is to analyze the differences between industrial zones and export processing zones, helping companies better understand these two options and make informed decisions about where to locate their factories.

Concepts and characteristics of industrial zones and export processing zones

In general, both export processing zones and industrial zones in Vietnam are areas with clearly defined geographical boundaries, separated from other regions. A notable feature of these zones is the absence of residential populations; instead, they are dedicated solely to production activities and related support functions. Both models are established and managed under the regulations of the Vietnamese government, adhering to a distinct regulatory framework to ensure effective operations and sustainable development.

However, the nature of these two types of zones is not entirely the same.

Industrial zones

An industrial zone is an area planned and built to concentrate industrial and manufacturing activities. The goal of an industrial zone is to create a favorable environment for the production of goods, thereby promoting economic development in the region. Common characteristics of industrial zones include robust infrastructure, a diverse range of industries, and a concentration of businesses within the same sector.

Export processing zones

An export processing zone is also a type of industrial zone, but it specifically focuses on the production of export goods. The primary goal of an export processing zone is to facilitate the manufacturing of high-quality products that meet international market demands. A unique characteristic of these zones is their emphasis on enhancing product quality and adhering to international standards.

Should you rent or establish a factory in an industrial zone or export processing zone?

In the process of economic development, renting or establishing a factory for manufacturing and business activities has become an essential part for enterprises. When choosing a location for their facilities, two common options are typically considered: export processing zones and industrial zones. However, the differences between them can significantly impact the company’s decision. Here are some notable distinctions to consider when deciding where to set up a factory.

 

Objectives of establishment

Industrial zones are often established with the goal of attracting both domestic and foreign businesses, focusing on a diverse range of manufacturing activities. In contrast, export processing zones specifically aim to attract foreign enterprises and are generally associated with export activities.

Nature of geographical boundaries

The geographical boundaries of export processing zones and industrial zones are clearly different. Industrial zones usually have easily defined geographical boundaries through fencing and internal security measures. In contrast, the geographical boundaries of export processing zones are often determined by customs and tariff borders of a country. This creates an important boundary for business operations and promotes the autonomy of the export processing zone.

Incentive policies

Incentive policies are also a crucial aspect when evaluating the choice between these two types of zones. Industrial zones typically receive basic incentives such as tax reductions and support for essential infrastructure. However, businesses in export processing zones often benefit from more special incentives. This includes the freedom to import raw materials, exemptions from sales and export taxes, as well as expedited customs procedures.

Major export processing zones in Vietnam

Export processing zones in Vietnam are concentrated in strategically advantageous locations and are key to regional development, particularly in cities like Ho Chi Minh City, Hanoi, and Ha Nam. Below are some of the large-scale export processing zones currently operating in Southern Vietnam, especially in Ho Chi Minh City:

Linh Trung I export processing zone

Linh Trung I is one of the leading export processing zones in Vietnam, thanks to its prime location and standard infrastructure. Established in 1992, it spans an industrial area of 62 hectares. Located next to National Highway 1A and close to Cat Lai Port and Tan Son Nhat International Airport, Linh Trung I attracts numerous enterprises from countries such as Japan, China, Taiwan, and South Korea. These companies primarily focus on light industries, such as the manufacturing of machinery and equipment.

Linh Trung II export processing zone

Following the success of Linh Trung I, the Linh Trung Joint Venture Company established Linh Trung II Export Processing Zone in 1997, covering an area of 61.7 hectares. This zone is situated in the same district (Thu Duc) and is approximately 7 kilometers from Linh Trung I. As of now, Linh Trung II has developed significantly, offering a large number of factory spaces compared to Linh Trung I. The total investment for this project exceeds 209 million USD, coming from over 37 investors who lease land and factories for production activities, creating significant job opportunities for thousands of local workers.

Linh Trung III export processing zone

Linh Trung III is the result of a joint venture between China and Vietnam, located in An Tinh commune, Trang Bang district, Tay Ninh province. Considered one of the top five export processing zones in Vietnam, it was established in 2004 and is managed by Sepzone – Linh Trung Company, covering an area of 202.67 hectares. This zone is seen as ideal for export processing, with the potential to generate approximately 1 billion USD in export revenue, attract around 120 investors, and provide numerous social benefits while ensuring job opportunities for local workers.

Tan Thuan export processing zone

Tan Thuan is Vietnam’s first export processing zone, established in 1991. It is located in Tan Thuan Dong Ward, District 7, Ho Chi Minh City. Covering about 300 hectares of industrial land, it is situated near VICT Port and approximately 4 kilometers from downtown Ho Chi Minh City, making it one of the top five export processing zones in Vietnam. Designed to attract investors, Tan Thuan offers high-standard services and attractive support within the Pacific region.

Conclusion

The choice between establishing a factory in an export processing zone or an industrial zone depends on the business goals, industry, and specific requirements of the enterprise. The distinctions regarding the founding objectives, geographical boundaries, and incentive policies between these two types of zones should be carefully considered to ensure a sound and optimal decision for the growth of the business.

 

Siglaw Law Firm

Phone: (+84) 961 366 238

Email:

• vphn@siglaw.com.vn
• vphcm@siglaw.com.vn

Headquarters: No.44/A32-NV13, Gleximco A, Le Trong Tan street, An Khanh, Hoai Duc, Ha Noi, Vietnam.

Southern branch: A9.05 BLOCK A, SkyCenter Building, 5B Pho Quang Street, Ward 2, Tan Binh District, Ho Chi Minh City, Vietnam.

Central branch: 177 Trung Nu Vuong, Hai Chau District, Da Nang City

Facebook: https://www.facebook.com/hangluatSiglaw