This is the first part of a two-part series for entrepreneurs and businessmen planning to expand to Vietnam. The advice presented is based on the author’s experience with a long-term stay in the country. The article corrects some of the widespread misconceptions about business in the SRV and summarizes Vietnam's potential in terms of trade and tourism.
Vietnam with its 77 million people has had a GDP growth of about 7% for the fourth consecutive year, industry growth of about 14% on average and a strong upward trend in exports thanks to new access to developed markets (especially the US market after conclusion of a bilateral trade agreement) – so far this year (2003) around 30%!
Given the imminent full integration of Vietnam into the world (WTO in 2005 or 2006) and especially the regional economic structures (full membership of AFTA = reduction of import tariffs for member countries to max. 5% in 2005), the Vietnamese economy and in particular its lagging state sector nowadays faces the need for immediate and effective restructuring to increase its production efficiency. Otherwise, more efficient Asian tigers (China, Korea, Taiwan, Japan, and Singapore) might “take over” not only the Vietnamese export markets but also its domestic market. This results in a process of genuine opening of the Vietnamese economy and in particular the increase in imports of necessary technologies. This year, the growth rate of imports reached a massive value of 38% (01–06/2003 / 01–06/2002). It therefore seems to be a good time to start seriously thinking about the Vietnamese market.
Myths and reality
Due to the little experience with this territory, there are often some prejudices and half-truths in relation to Vietnam that are shared among Czech entrepreneurs.
1. It is possible to agree with a certain newspaper article statement that Vietnam really is not a land of “reeds and stallholders”; the country is in a phase of transformation from a backward and directively controlled agrarian state into a relatively modern market economy, the growth of which is nowadays generated mainly by the light industry. In order to objectively assess the capacity of this new market, several additional figures should be mentioned besides the above-mentioned GDP growth:
according to unpublished statistics, the average monthly income in 2002 was just 626,000 VND (about 42 USD) in towns and 276,000 VND (about 18 USD) in rural areas;
over 70% of the population lives in the rural areas (according to different sources);
according to the latest data, about 29% of the population lives below poverty line.
These figures are not very optimistic for those interested in exporting regular consumer goods to Vietnam. On the other hand however, a different and strongly positive aspect needs to be noted. The private sector is rapidly developing in the country and that is considerably promising in terms of importing means of production (food processing and packaging, mini-breweries, textile and shoemaking establishments, etc.).
2. “Many Vietnamese have studied in the Czech Republic and the former Czechoslovakia; they are now in management positions and can help to prioritize Czech supplies.”Although this claim is partially true, the following must be added: many more Vietnamese have studied in the former USSR and the GDR and for about ten past years, many Vietnamese have been studying at European, American, Australian and Asian universities. Those who have studied in the former Eastern Bloc are still relatively heavily represented in the highest political positions, however, in the economic sphere, managers with Western education already begin to prevail. While a socialist attribute is still present in the name of the country, the main feature of its economic sphere is pragmatism (and unfortunately also corruption).When deciding on contracts (or even “just” about information), the “former Czech students” aspect has very little practical importance.
3. The Czech Republic is constantly providing development aid to Vietnam; therefore Czech supplies should be supported and preferred by the Vietnamese authorities.Indeed, the Czech Republic, even under the new economic circumstances, has been the only country of the former Eastern Bloc consistently providing Vietnam with aid both in the form of irregular humanitarian aid after natural disasters and in the form of so-called development projects. This fact is positively perceived by the Vietnamese partners and it creates good base for example for the admission of Czech companies by the Vietnamese state institutions (which is not negligible). On the other hand, the volume of the Czech development aid is quite incomparable with the volume of development aid provided for example by Japan (mostly in the form of preferential loans with state support) or other strong economies. The Czech development aid provided to Vietnam is therefore mainly symbolic and it is certainly not possible to expect “reciprocal awarding of contracts” to Czech companies, as some Czech traders mistakenly imagine.
Potential of the country in terms of trade and tourism
Summarizing the above-mentioned basic information about Vietnam, it can be said that it is a typical emerging market with all the usual attributes. On one hand there is a promising potential for growth and on the other hand, there is a low price level, tremendous pressure of international (especially Asian) competition which is well aware of the potential of the new market and a certain absence of stable distribution systems and a standard legislative environment. Results can therefore be achieved only through a careful marketing work (not by correspondence) and by choosing a reliable local partner. There is no universal approach but it is definitely necessary to have patience and sufficient time and financial possibilities to work directly in the country.
From the point of view of tourism, Vietnam may still be considered one of the last East Asian countries with original, genuine “folklore” – even though it is quickly disappearing. Mainly the mountainous parts of central and northern Vietnam inhabited by members of national minorities are very interesting. However, with the development of infrastructure (roads, power lines) these initially isolated and remote areas are being rapidly populated and an assimilation of the mountain tribes with the majority Vietnamese population is taking place.
The Central Vietnam coast has hundreds of kilometres of untouched sandy beaches with a minimum of tourists. The well-known seaside resorts such as Nha Trang however, fill up quickly with mostly domestic tourists, especially in the summer months. There are also many historical sites in Central Vietnam, for example, the former Royal City of Hue (resembling a smaller version of the Forbidden City in Beijing) with preserved tombs around the beautiful Perfume River or interesting Cham buildings. On the other hand the coast of Northern Vietnam may be somewhat disappointing due to its considerable pollution, however, a cruise between the rocky islands of the Dragon Bay (Ha Long) turquoise (although upon closer look rather muddy) sea is a unique experience and this area is one of the significant Vietnamese sites protected by UNESCO.
The tourist attractiveness of the capital of Hanoi is questionable. The city has managed to preserve and combine the French colonial architecture with the diversity of narrow streets of Asia and the typical lifestyle of its inhabitants but the tourist must find the courage to plunge into the streets crowded with motorcycles with the endless, smelly, and honking avalanche of motorcycles going on up to late night hours.
The southern part of Vietnam and above all the Ho Chi Minh City (Saigon) will be favoured by tourists who appreciate greater order, wider streets, more modern buildings, and shops. Those interested in modern history should not miss the reconstructed part of the underground tunnels from the American War in the Cu Chi District. Last but not least, we can recommend the Mekong River Delta cruise with its floating villages and markets that remind some of Thailand or Cambodia.
First impressions
Upon arriving in Vietnam, you can expect a lot of fatigue caused by several hours long flight and the time difference. In the summer (from around the beginning of May at least until the end of September), the tropical climate with a hellish combination of heat and humidity (especially in Hanoi) may be a serious problem. You will likely not be able to avoid sweating your clothes through which can pose a significant health risk after returning to the relatively overcooled hotels or cars. It is very hard to deal with these temperature shocks; you might want to ask for the air conditioning to be turned down whenever technically possible (intensive air conditioning is a social status symbol) and bring more clothes (always bring your jacket even though the Vietnamese do not wear them in the summer; it may also be a good idea to have a spare dry shirt in your briefcase).
Judging from the traffic there seems to be a considerable chaos in the streets (and generally in Vietnam). In fact, everything usually works quite well in the given conditions. However, we usually only realize it later. It is therefore better to suppress the urge to criticize and “give advice” based our experience and European standards and instead listen to our Vietnamese hosts more carefully.
If our first impression is that the Vietnamese are polite and friendly people, it is the right impression. Usually, it is not a case of a “business” politeness which is common in other Asian countries but it usually is a genuinely open and friendly relationship.
Soon, you will notice that the Vietnamese are rather too communicative which could be mistakenly seen as being impolite or even rude. The Vietnamese often ask foreigners openly about their age, marital status, how much money they earn, and other purely personal matters considered in the Western world to be inappropriate for social conversation. We can also easily find inappropriate topics on our part; it is necessary to respect the history of Vietnam related to the long-term efforts for freedom and independence from foreign powers and that is far from being only about the war of the North against the South associated with US military activity. Even though not all Vietnamese share an unconditionally positive opinion on their government and political cadres, they usually don’t like to hear any criticism from foreigners. If you feel the need to criticize something, do so indirectly and politely. It is not appropriate to back a Vietnamese “into a corner” – a polite and factual communication usually gets better results than shouting. The most unacceptable topic of criticism or jokes is Ho Chi Minh who is venerated in Vietnam by all without distinction, not as a communist leader but as a national revivalist and a modern unifier of the nation (which, by the way, in the author's opinion, he apparently really was).
Risks
At the beginning of this paragraph, it should be mentioned, that Vietnam is not an exceptionally risky area in any aspect we might have on our mind.
The chaotic and hectic traffic in the streets of big cities is undoubtedly a real danger. However, it is not recommended to drive motor vehicles even outside the cities, and under local regulations, it is not permitted for foreigners staying in Vietnam for a short period of time to drive. In case of an accident, everything has to be paid as nobody relies on any insurance; if a foreigner does not have a Vietnamese driving license, he or she is considered to be the culprit of the accident in all cases. In addition, the culprit pays the fees for medical treatment and Vietnamese medical facilities may charge much higher fees than what their professional and hygienic standards would suggest…
This is related to the second real risk in the territory, namely the health risk. Compared to other territories, it is not a disaster. The AIDS disease is rather widespread (among prostitutes) besides other “common” sexually transmitted diseases. Jaundice is relatively common in Vietnam due to the hygienic standards and the way of fertilizing vegetables, let alone “innocent” diarrhoeal diseases which usually almost every traveller experiences for a few days.
While common injuries and illnesses can be treated without major problems in local hospitals (or rural clinics), more serious cases are handled by transport to the nearest developed city: Bangkok, Hong Kong, or Singapore. In these cases, it is essential for you to have proper travel insurance.
The risk of thefts (pickpockets) is surprisingly higher in the “more developed” southern part of Vietnam (especially in Saigon) as in the northern part of the country it happens only exceptionally. Violent attacks on foreigners are not common in the country unless the traveller himself creates such risk. Overall, the risk of theft is certainly significantly lower than, for example, in Prague.
In the next part, we will briefly mention the prerequisites for successful trade negotiations and we will discuss in detail the specifics and local customs related to negotiations and contracting.
The information stated in this article express the author’s personal opinion and it is not an official statement of the Embassy of the Czech Republic in Hanoi.