A tale of two cities – Doing business in Vietnam

- December 6, 2017 4 MIN READ

In making my TV show, The Airport Economist, I must have been to over 60 economies in the past 6 years. And one country that always stands out to me is the enchanting land of Vietnam, one of the emerging ‘second generation’ tiger economies of Asia.

Vietnam has a young population, is the new poster child for attracting foreign investment and is starting to deliver much needed infrastructure to get the developing economy moving. And there really is a buzz on the streets of Ho Chi Minh City – at least from the numerous motorcycles that zoom around – as Vietnam makes its careful preparations for APEC.

Why is Vietnam becoming attractive to foreign investors?

Let’s first have a look at ‘The Big Picture’ in terms of the Vietnamese economy.  

Vietnam is considered to be a ‘transition tiger’ economy moving from a planned economy to become more open and market orientated. Despite healthy growth rates above 5 per cent per annum on average over the past decade it’s still a relatively poor economy – ranking in the top 50th  in the world in terms of GDP but just outside the top 150th in terms of GDP per capita. Inflation and unemployment are both low at just over 2 per cent but there is still a lot of underemployment and rural poverty outside the bigger towns and cities – where 3/4 of the Vietnamese population still live. This is reflected in per capita income too where people rural areas earn half of their counterpart in Hanoi and only 1/3 of what they’d make in Ho Chi Minh City. It’s no wonder most young Vietnamese get on their motorcycles and move to the bright lights of the big city.

Since joining the World Trading Organisation in 2007 Vietnam is becoming a fully-fledged trading nation. Vietnam’s main export destinations are the USA, China and Japan and they import most heavily from their North East Asian China, Korea and Japan.

So how did it happen? Let’s take a look at Vietnam’s history.

Vietnam has a proud history of defeating foreign colonists. In AD 939 it broke off from Imperial China who had ruled Vietnam for a millennium. Almost 1000 years later, it defeated its French colonisers in 1954, after Japanese occupation in World War 2. This was significant as the French had ruled Indo-China since the 19th century. After expelling the French, Vietnam was split into the North and South, culminating in the Vietnam War that preoccupied the United States in the 1960s and early 1970s. The war ended in 1975 and Vietnam was reunified with Hanoi in the North as the capital.

Vietnam was largely isolated and poor after the war ended but in 1986, the government initiated a series of market based reforms known as ‘doi moi’ or ‘renewal’. As a result, Vietnam enjoyed one of the fastest rates of economic growth in the world. It joined ASEAN and the WTO and established diplomatic relations with all nations including the United States. It still has its difficulties in terms of infrastructure and institutions, and the small task of looking after over 90 million people – Vietnam is the 8th most populous Asian nation and the world’s 14th – but it’s economic story in the 21st century has by and large been a good one.

What makes Vietnam an attractive market today?

Firstly, Vietnam has a young population and a thriving consumer culture. Unlike Japan, South Korea and now even China, Vietnam’s demographics are helping to drive a strong youth market for consumer goods and services like higher education.

Secondly, the ‘Viet Q’ – Vietnamese living abroad – have formed vibrant communities in Australia, Canada, the USA and elsewhere. One famous Viet Q is the Governor of South Australia, my home state, Hieu Van Le who went from arriving as a refugee forty years ago to residing in Government House in Adelaide today. A leading academic and successful business figure in his own right before becoming Governor, Hieu Van Le leads many South Australian trade missions into South East Asia.

Thirdly, Vietnam is a proud trading nation and an important member of ASEAN and APEC. Vietnam was pushing hard for the TPP, but with the Trump administration not favourable to trade deals the RCEP could be a viable alternative with Vietnam at the forefront.

In conclusion, on the eve of APEC, there are bright lights ahead for Vietnam, but not just in Ho Chi Minh City but in Hanoi, Da Nang and the countryside as well. Vietnam is opening up its economy but has lots of work to do in terms of improving corporate governance, business regulation and investment in human capital. But as we know from history, Vietnam has been underestimated in it’s past, and economically, it’s likely to make special efforts at APEC to showcase itself as a modern, open, trading nation.

Tim’s tips for doing business in Vietnam:

  1. It’s a tale of two cities so note that doing business in Hanoi is very different from here in Ho Chi Minh City.
  2. As in China, and many other places in Asia, you do need the Government badge supporting you in Vietnam so work with your Embassy
  3. Join a chamber of commerce like Amcham or Auscham which has a number of useful supportive networks for business and has a lively social scene too
  4. Support your business partners interest in education which is very important in Vietnam
  5. Always be respectful about Ho Chi Minh who is very much revered in Vietnam especially in Hanoi as the father of the nation.

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