Tag Archives: Vietnam development

The Opportunity in Vietnam’s Spat with China

Last week’s anti-China riots in Vietnam spooked investors, rattled the stock exchanges, threatened foreign business deals, and ignited conversation about whether that the political and economic risks in that region outweigh the potential rewards.  But where some see the unraveling of peaceful co-existence in Southeast Asia, others see a golden opportunity.

Are businesses and investors over-reacting?  Consider some of the more encouraging news coming out of Vietnam this month:

  • Samsung is going ahead with expansion of manufacturing in the northern provinces of Thai Nguyen and Bac Ninh.  As a result, about 50% of its smart phones made globally will be made in Vietnam.  Already, Samsung’s factory in Bac Ninh was one of its largest worldwide, and the company accounted for $24 billion in exports from Vietnam.  The Thai Nguyen factory opened in March will employ 16,000 workers and produce eight million units per month.
  • The Saigon port welcomed the largest ship ever docked there,  a 54,000 ton vessel able to navigate the river safely thanks to a mammoth dredging project that will allow ships of this size to save $500,000 a year in transit costs.  The port projects moving 120-150 million tons by 2025.

  • The investment ministry unveiled a proposed law that will cut red tape and streamline foreign investment by eliminating certificates for many projects, simplifying procedures, ending favorable treatment of domestic investors, and improving transparency.

  • Foreign investors have been snapping up stocks that domestic investors are rushing to sell in an over-reaction to last week’s riots.  Foreigners are taking advantage of sharp drop in the VN Index, which peaked at 610 points earlier this year and fell below 530 before climbing back to 544 today.

  • McKinsey released a study concluding that ASEAN, composed of Vietnam and nine other countries, will be the world’s 4th largest economy in 2050.

Business is getting done in Vietnam.  Opportunities abound.  The ugly events of last week are not likely to lead to war in the South China Sea.   More likely, they will turn out to have been an exchange of moves in a chess game of diplomacy that will help clarify the figurative boundaries between two of the world’s fastest growing economies.

Hosting Asia’s Tech Geeks in Hanoi

Vietnam has been selected to host ASOCIO, the trade organization of 10,000 mostly-Asian information and communication technology companies based in 29 countries.  The event, scheduled in Hanoi for late October, is emblematic of Vietnam’s meteoric rise in technology.

The first time Vietnam hosted the annual convention, 11 years ago, the industry barely existed in the country.  In 2003, less than 5% of Vietnamese people had access to the Internet.

Since then, Internet usage has grown to 35%, and Vietnam’s hardware and software industries are experiencing annual growth rates in the 30% to 40% range.

ASOCIO says the organization chose Vietnam because of its rapidly rising capacity and prestige in information and communications technology — and cited Vietnam’s vision, policies and strategies.  Vietnam is positioning itself to become a major global tech center.

Another $100 Billion Pipe Dream for Vietnam

Vietnam’s newspapers are reporting that the Hong Kong-based Dragon Best International has agreed to a partnership with a Vietnamese company, Ho Tram Tourism JSC, that envisions investing in: a $32 billion real estate development in Ho Chi Minh City, an $18 billion eco-tourism project nearby Ba Ria – Vung Tau Province, and a $50 billion economic zone.

On a global scale, these are huge projects.  In Vietnam, they are head-scratching, utopian dreams that make experienced developers and economists skeptical about Vietnam investors’ capacity for realism.

Many international investors believe Vietnam is a promising frontier market, but none of them are going to pour an amount of capital into Vietnam that approaches the country’s annual GDP.  Vietnam’s economy cannot absorb $100 billion in capital; moreover, it could not generate a return on the investment any time soon.

For Vietnam, the problem is that this is not the first pie-in-the-sky project that didn’t materialize.  Last year Dubai investor Global Sphere announced its plans to spent $30 billion on the Hanoi Wall Street — 70 apartment blocks at heights ranging from 40 to 70 stories and housing up to 400,000 people with a 102 story central tower.  Hanoi’s planners hadn’t heard about the project, and it has yet to be registered with the government.

In 2007, the US Eminence Group announced its plan to develop a $30 billion economic zone in Thanh Hoa Province.  However, soon after the group made an enthusiastic presentation on the project, the investor vanished.

Ultimately, the investors who will be successful in Vietnam are those patient and disciplined enough to develop realistic, credible plans — not pipe dreams.

 

Is Vietnam’s Economy Doomed?

Japanese economist Kenishi Ohno says Vietnam has fallen into the feared middle income trap — perpetual stagnation after stalling on the past to prosperity.
He says the country faces a social crisis because it failed to heed warnings six years ago.  Vietnam now faces:

  • Slowing economic growth
  • Low investment efficiency
  • Rising production costs
  • Little improvement in competitiveness

Ohno says productivity has grown 3% annually while wages rose 26%.  Competitiveness has dropped at an annual rate of 23%.

Vietnamese economist Nguyen Minh Phong says it’s too soon to conclude his country has fallen into the middle income trap.  He contends the government deliberately slowed Vietnam’s growth to enable economic restructuring to take place.

To stay out of the middle income trap, Phong says Vietnam needs to:

  • Prioritize development of information technology
  • Reduce exports of natural-resources
  • Support enterprises with market research
  • Explore niche markets
  • Help small enterprises get loans
  • Expand bilateral trade agreements
  • Reform education and training

Vietnam also needs to follow the examples of Japan, Taiwan, Singapore, and South Korea — all of which cultivated the private sector on their way to full economic development.

For several years, it has become increasingly obvious that Vietnam’s escape from economic mediocrity depends on the capacity of its own government to surrender control and permit the private sector to flourish.

 

 

 

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 Race to Satisfy Vietnam’s Hi Tech Hunger

Vietnam’s science ministry reports four technology exchanges accounted for 5,482 service and equipment transactions worth $129 million last year — 34% more than a previous year, and far exceeding expectations.

In Haiphong alone, 40,000 people exchanged scientific views and searched for  technologies.  The Danang exchange has recorded 5,321 domestic businesses and 153 foreign companies registering 7,754 technology transactions over the past five years. 

These are signs that Vietnam is serious about being a global technology leader and consumer.   The government projects a 15% annual increase in technological product and service sales through 2020 as exchange projects expand countrywide and universities grow the country’s tech expertise.  

 These developments have generated a growing awareness among global technology leaders about Vietnam’s potential.  This week’s examples:

  • On Thursday the Vietnamese and Finnish governments signed a $14 million agreement to implement the second phase of their joint innovation partnership to enhance the capacity of Vietnam’s information technology system and increase activities in scientific research and technology development.
  • On Friday Microsoft formally agreed to a long-term partnership with Vietnam to focus on four technologies (1) IT infrastructure, (2) cyber security, (3) cloud apps development and (4) IT human resources.

The race is on to capitalize on hi tech hunger in a promising frontier market of nearly 100 million people.  

Will Vietnam Become China’s Las Vegas?

China reports nearly 100 million of its people traveled last year to foreign countries, where they spent $100 billion.  That’s a 17% increase — and another sign of opportunity for one of China’s most convenient and accessible tourism destinations: Vietnam.   

Moreover, China’s rapidly growing middle class is just beginning to impact the world’s tourism industry.  The average Chinese now spends $75 a year to travel abroad, only about one-fourth the average for Americans and well under 10% of the per capita foreign travel expense for Germans, Canadians and Australians. 

In 2014, Vietnam was the destination for just 2% of China’s foreign travelers, but that was 35% more than in 2013.  And the increase in traffic from China to Vietnam for investment purposes is far bigger — with Chinese foreign investment in Vietnam up six-fold last year to $2.3 billion.

Partly because of the coming inundation or tourist from China, some of those investors believe 2014 is the right time to commit to restaurants, hotels, entertainment services, and … casinos.

This may be the year Vietnam overcomes its historic reluctance to bring Las Vegas to provinces up and down the coast.  Among the sites were Casino projects are underway or nearing approval are Lang Son and Quang Ninh Provinces on the China border; Danang and Quang Nam Provinces on the central coast;  Phu Yen Province on the south central coast; Phu Quoc Island in the Gulf of Thailand; and Vung Tau near Saigon.

All of them will be awaiting the influx of Chinese travelers who are expected to be the world’s dominant casino consumers by the start of the next decade.