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| Vietnam has a lot to invest
in: A busy street in Hanoi’s historic quarter. |
| Photo by Thomas Jandl |
A number of the first U.S. investors to rush into
Vietnam after the end of the embargo left as fast
as they came. Many of them now regret it.
The climate has changed since the early days, and
so have investors’ expectations. Americans still
tend to go places for the domestic opportunities,
and Vietnam is more of a future than a present market
for many American firms. Although it has doubled over
the last five years, the average income still stands
at $440 per year – not enough to sell high-end
products. But today, those who did not leave after
an initial infatuation with this fast-growing market
of 80 million take a longer view, and are successful.
Ford, for example, produces cars near Hanoi for a
still very small domestic market. Yet the factory
is one of the most successful Ford operations anywhere
in the world, turning a profit after only a couple
of years in the country.
Consumer products makers tend to be very successful
as well. Made in USA is almost a guarantee of success
in a country where American products have a long history
and a lot of glamour. Many consumer goods as basic
as washing powder or baby formula used to be available
only through returning Vietnamese Americans, who brought
them along on visits, together with the image of prosperity
and success that – often falsely – was attached
to the cousin in America, says Vaidyanath Swamy, Procter
& Gamble’s country manager.
And the top information technology companies, such
as Cisco Systems, IBM and Intel are also increasing
their presence in this enthusiastic, yet still rather
under-tapped market.
The government, however, is not satisfied yet with
the level of U.S. presence. U.S. investment in Vietnam
is not as substantial as it could be, says Lai Quang
Thuc, the Vice Minister for Planning and Investment.
His ministry oversees foreign direct investment (FDI)
in the country.
As of April 2003, the United States ranked only 12th
among 60 foreign investors in Vietnam, according to
the ministry’s statistics, although these numbers
do not take into account investments made through
Asian subsidiaries of U.S. companies, nor the substantial
investments made by Asian companies in order to sell
to the U.S. market since the signing of the Bilateral
Trade Agreement.
Thuc blames a lack of knowledge of Vietnam for the
relatively low level of American FDI. “To improve
the situation, both sides have to work harder in learning
more about each other,” he says.
The disappointment about U.S. investment in Vietnam
has to be seen in context, though. While expectations
may have been higher, American investment is not insignificant,
either. A total of 160 projects are registered with
the Planning and Investment Ministry, with $1.26 billion
of capitalization. Of these, 109 are in the energy
sector (capitalization $669 million), indicating opportunities
for U.S. firms in other sectors where American products
are doing exceedingly well but are not widely represented
yet.
Thuc sees huge potential for American companies in
sectors where they are traditionally strong and where
quality is the main driver for consumer behavior,
the high-tech sector. But American FDI in the information
technology sector is only $22 million, paltry compared
to its potential and the expected market in this country
of 80 million that has just discovered the Internet
and loves it.
Active suitor
The wave of departures of investors after the early
years has taught the government a lesson, and to its
credit, it has learned it well. In short, Vietnam’s
leadership learned that FDI will not come just because
Vietnam wants it – it has to be earned.
Where the government used to decree location, business
partners, form of ownership, contracts and the amendments
thereof, and then demanded that investors build their
own roads and on-site infrastructure, post-boom Vietnam
works hard to lure international businesses. Many
businesspeople today are adamant in asserting that
the conditions in Vietnam are better than anywhere
else in the region, including China.
Tax rates and holidays are first class for investors,
and get even better for those who produce for export.
And with a quasi-domestic market of 500 million throughout
the Asian Free Trade Area, economies of scale are
easily achieved.
Infrastructure is rapidly being improved, the skylines
of Vietnam’s major cities are dominated by cranes,
and roads and ports are being upgraded or newly built
all across the country and even throughout SE Asia.
Telecom prices are coming down, licensing is accelerated
and getting less cumbersome. In short, the government
has begun to understand that foreign investors are
not to be taken for granted, and does its best to
make them feel welcome.
Foreign companies are provided with the tools to make
it work and left to do as they see fit within the
confines of the law. While American companies started
out as joint venture partners with Vietnamese firms,
they now prefer to set up 100%-owned companies. This
indicates that they are more comfortable with the
business environment, says Vice Minister Thuc. A local
partner’s knowledge of the business environment
and regulatory system has lost its importance as an
asset. The system has become more transparent, more
international advisors are active in Vietnam, and
companies feel confident enough to go it alone.
“But we are not concerned about that development,”
says Thuc. How to set up shop under the law “is
every company’s choice.”
Coming home
In recent years, the government has recognized the
immense potential of yet another group that has been
neglected in the past – the overseas Vietnamese.
Combining knowledge of local business culture and
language with skills learned abroad and considerable
capital, the Viet kieu have become a force to be reckoned
with in the Vietnamese economy.
Driven underground for a long time through discriminatory
legislation, legal changes have made it easier for
Viet kieu to return and invest their money in their
ancestral lands. More and more do, fueling a housing
as well as a small business boom, especially in the
South, from where most of them emigrated after the
defeat of the Southern regime in 1975.
According to estimates, $3 billion enter the Vietnamese
economy every year from the overseas Vietnamese community.
Flowing through family channels, most of the money
goes directly into housing and small businesses, the
number of which has skyrocketed, particularly after
passage of the New Enterprise Law in 1997.
It is these family investments outside official statistics
that fuel, more than corporate money, a consumer boom
in Vietnam significantly beyond what the official
average per-capita income of $440 per year would make
possible. The fact that the Viet kieu, who tend to
have the most polarized memory of the past, return
and bring their hard-earned dollars with them is the
strongest indicator that the government has gotten
the incentives right.
Find Vietnam’s products,
brands and partnering opportunities on the new Vietnam
Trade Office web site at www.vietnam-ustrade.org
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