Tag Archives: US-Vietnam relations

Vietnam’s Stark Choice: East or West

For decades, Vietnam has walked a tightrope between East and West, as Communist Party factions jostled over whether to align more with China or more with the US.  China’s latest aggression in the East/South China Sea escalates the skill challenge — and may even threaten the survival of Vietnam’s ruling acrobats.

Although Vietnam has an ugly history with both countries, the pro-China faction has generally prevailed in Vietnam’s government.  Vietnam has evolved as a Chinese-style state-controlled capitalistic autocracy.  China has been allowed to exploit Vietnamese natural resources.  China dominates trade between the two countries.  And China even gets favorable treatment in Vietnam’s schools that teach about the horrors of the American War but gloss over (or don’t mention) the more recent border war of Chinese aggression.

But there’s evidence this week that the dynamic may be changing.  The Chinese embassy in Hanoi was the setting for the largest anti-China protests in recent history, and the Vietnamese government permitted it.  Vietnamese officials worldwide have been loudly protesting China’s contention that it owns the South China and all the resources within it — and Vietnam’s diplomats have been working overtime to line up supporters, including the US.

Meanwhile, China may not be the biggest problem the ruling party faces in Vietnam.  A bigger problem may be its own citizenry: nearly 100 million mostly young, restless, entrepreneurial people who are increasingly enamored of Western culture, products, and political ideas.  Many of them are highly educated, blogging, Facebook-users who are watching closely to see whether their government is capable of handling China.

 

 

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Conquering Health-Conscious Vietnam

Vietnam is quietly emerging as a center of health-conscious consumption — with surging marketing and manufacture of so-called functional foods: products intended to provide both nutritional and health benefits.

Local media report 1,800 functional food makers and distributors — including American companies Amway, NuSkin, Unicity and Herbalife — are selling 10,000 products in Vietnam, and business is booming.

Herbalife says the Vietnamese market contributed significantly to its $4.8 billion in global sales last year.  Unicity reports its success in Vietnam is above expectations.  NuSkin reported 30% growth last year in Vietnam and projects 33% this year by conquering the central Danang market.

Amway’s second factory in Vietnam is expected to produce 24,000 products valued at $200 million starting early next year.  The company began cultivating the Vietnam market in 2008 and last year generated $90 million in revenue, a one-year increase of 14%.

Vietnam is a lucrative and growing market for functional food because its consumers tend to be educated, health conscious, and concerned about obesity, cardiovascular health and physical beauty.  The Vietnam Supplement Food Association reports 56% of Hanoi residents and 48% in Ho Chi Minh City use functional food.

Even more important to American companies, the ASEAN free trade agreement that takes effect next year will facilitate the export of products they make in Vietnam to Southeast Asia’s 600 million consumers.

Vietnam’s Hard Line on Soft Drinks

Vietnam isn’t being very hospitable to two of its most prominent American multi-nationals.  Starting next July, the finance ministry wants to impose a 10%  tax on carbonated soft drinks — which is to say Coke and Pepsi.

The rationale is these beverages are harmful to public health, just like other products consumers want — but which health officials don’t want them to have — like  cigarettes and alcohol.

The new tax is getting criticism from foreigners who are thinking more about profits than health.  A consultancy that focuses on global interests in Vietnam says the tax will hurt consumers and the local sugar industry, retail distribution system and retailers.

The American Chamber of Commerce, whose members include Coke, Pepsi, Miller beer, Philip Morris tobacco, Dow chemical and other companies that give Vietnamese health officials pause, calls the proposed tax unfair to consumers.

Meanwhile, Vietnamese officials aren’t in agreement with each other.  The Viet Nam Tax Consultancy Association favors the tax, but the Central Institute for Economic Management suggests it would be counterproductive — bringing in $8.4 million tax revenue but costing the beverage industry $41 million and Vietnam’s economy $12 million because demand for soft drinks would decline 28%.

The proposed tax is testing Vietnam’s Communist Party ideal of creating an enduring socially responsible free enterprise economy.  That won’t be easy to do as the country opens its door ever wider to the global marketplace.

Will Vietnam Achieve 14% Annual Growth?

Vietnam’s economy has grown 5% this quarter, slightly faster than the first quarter in 2012 and 2013, with a $1 billion trade surplus and growth especially robust in the Saigon region.  But the striking economic news in a country that was experiencing runaway inflation in recent years:  Vietnam’s consumer price index declined in 0.4% in March and now is below an annual rate of 5%.

The data suggest Vietnam is on an economic path toward reaching its long-term potential.  But what is its potential?  Some economists think Vietnam is headed toward the middle-income trap that stalls many developing countries, such as the Philippines, Indonesia, and Thailand.  Others see Vietnam as the Japan (or South Korea) of the 21st Century.

The latter viewpoint got a boost in a forum in Hanoi this week that featured Harvard’s Robert Lawrence, who forecast 13.5% economic growth for Vietnam in 2025.  That’s assuming implementation of the Trans-Pacific Partnership (TPP) agreement that is expected to dramatically increase Vietnam’s global trade.

Lawrence projected many other TPP partners (the US, Canada, Mexico, Peru, Chile, New Zealand, Australia, Singapore, Malaysia, Brunei, and Japan) would experience significantly slower growth.  His numbers suggested Vietnam’s exports would increase 37%, compared to 14% for Japan and 12% for Malaysia, and 4% for the US.

The TPP has yet to be completed, so Vietnamese officials were quick to point out their country would not necessarily benefit the most from it — because its economy is starting far behind the other partners.

 

 

The Americanization of Vietnam’s Food

McDonald’s has been in business for one month in Vietnam, and it’s already clear the culinary culture of this leading producer of rice and seafood has changed forever.  Just one restaurant served 400,000 customers in the month after the grand opening on Feb. 8.

So far, the Saigon McDonald’s served 61,980 Big Macs for $2.84 apiece, well above the daily income of a typical Vietnamese rice farming family.

This is just the beginning.  McDonald’s is the latest chain to join the fast-food reformation of Vietnam’s diet, but it should have no problem surpassing Burger King, Domino’s Pizza, Popeye’s Louisiana Kitchen,  KFC, Subway, and others.

In part, that’s because the owner of the McDonald’s franchise has the political clout to get things done; he’s the prime minister’s son-in-law who, like McDonald’s itself, is a Chicago native.

McDonald’s Vietnam owner Henry Nguyen spent two summers as a teenager working at McDonald’s in Chicago before moving to Ho Chi Minh City a decade ago and ultimately impressing McDonald’s as “the ideal mix of business acumen, proven record, passion, and ability.”

Similarly, Vietnam’s hunger for American products and culture makes it an ideal market for McDonald’s — as it is for American soft drink, alcohol, tobacco, and other brands that are contending with legions of skeptical consumers at home.

The Cost of Living with Big Macs in Vietnam

Now that McDonalds opened its first restaurant in Vietnam this month, it will take a while to measure the effect on Vietnamese consumers — hungry for all things American but leery of the potential health consequences.  But the fast food giant already has made a significant contribution to anyone considering living in or visiting Vietnam — thanks to Big Macs.

The entry of the company’s trademark oversized hamburgers on the streets of Saigon has immediately made Vietnam a member of The Economist’s Big Mac Index.  The index is an elegant (though obviously imprecise) measurement of purchasing power in countries where McDonalds sells Big Macs.

So now we know that the Big Mac sells for the equivalent of $2.84 in Ho Chi Minh City, considerably less than the $4.62 price in the US.  By comparison, the extremes in Big Mac pricing are $7.80 in Norway and $1.54 in India.  The Economist arrives at those numbers by dividing the price charged at McDonald’s by the official exchange rate of the country; In Vietnam, consumers pay 60,000 Vietnamese dong for a Big Mac, and the Economist used 21,090 as the exchange rate.

What’s interesting about this is that the index indicates the actual cost of living in Vietnam — as opposed to the implied cost you get from the official exchange rate.  In this case, it suggests Vietnam is much cheaper than you’d expect.  In fact, if a Big Mac (and presumably everything else) cost as much in Vietnam as in the US, we’d be getting 12,975 VND for our dollar rather than the 21,090 the bank offers.

Purchasing Power Parity is a relatively good way of understanding the true cost of living in a foreign country, but it is tends to be subject to the biases of whoever calculates it.  The Big Mac Index is a convenient way to demonstrate that Vietnam is an inexpensive place to live — at least until McDonald’s raises its prices there.

Vietnam’s Most Treasured Import: Cash

More than five million Vietnamese people do not live in Vietnam.  They migrated to 100 nations around the globe, and include 500,000 Vietnamese guest workers in other countries.  Together, at year’s end, they will have sent $11 billion in cash back to relatives in their native country.  That includes nearly $5 billion sent to Ho Chi Minh City alone.

Most of the money comes from the West — especially Europe and the US, top_site_international_businesshome to 1.5 million Vietnamese Americans, many of whom are affluent.  The cash is transferred through banks, such as Dong A Money Transfer (that received $1.5 billion in 2013) and Sacomrex, which expects the total to be $1.7 billion, (15% more than it had expected).

World Bank says Vietnam is one of the top ten countries receiving remittances from overseas.  Others include India ($71 billion), China ($60 billion), and the Philippines ($26 billion).

The cash remittances are a cultural statement about the intensity of Vietnamese family connections.  The money significantly raises the standard of living of relatives in Vietnam.  And it helps build Vietnam’s social infrastructure — such as access to education and health — family by family.

The $11 billion inflow represents nearly 8% of Vietnam’s GDP.  It strengthens and widens the bridge between Vietnam and the US.  It helps explain the warm reception that often surprises first-time American visitors to Vietnam.