EmergingMarket Potential in VietnamDespite a historyplagued with economic challenges including wars and a communist party, Vietnamhas become one of Asia’sbest-performing economies behind China. Vietnam is a small country located insouth eastern Asia, but doesn’t let their size hinder their trade relations. Infact, even with the currency crisis that gripped Southeast Asia in the late1990s, Vietnam’s economic growth rate has yet to drop below 4.8 percent.
Evenmore promising, Vietnam has grown nearly 8 percent a year over the past decade andshows little sign of slowing down. Currently, Vietnam is enjoying two boomingindustries, manufacturing and tourism, and has potential to be an emergingmarket in today’s economy. Due to its troubled history, many people findit difficult to imagine Vietnam as an economic force in the market. However, thereare many reasons that provide optimism as a potential emerging market.
The Vietnameseeconomy is strong and diversified, the population is young, the labor is lowcost, and trade is free as part of the World Trade Organization. Afterimplementing a doi moi almost twenty years ago, the “renewal” policyinitiated free-market reforms while preserving a communist politicalsystem. The existence of a literate andlow-wage workforce act as a powerful magnet for international companies. QUESTION1: What, ifanything, can Western countries do to help improve the political climate fordoing business in Vietnam? The political climate inVietnam can be improved for doing business with the help of several differentWestern countries. The former economy has been greatly hindered with theabsence of trade and diplomatic relations between the United States andVietnam.
Once the U.S. government lifted the trade embargo with Vietnam, theywere able to pave the way for a host of U.S. companies to pursue opportunitiesin Vietnam.
By developing these closer ties with the government, they canprovide aid for infrastructure improvements and help the government tostreamline the bureaucracy. It can reform state owned subsidiaries and willensure a level playing field in all sectors of the economy.Itwasn’t until late 2001, that Vietnam and the United States signed a trade deal togive Vietnam normal trade status with the United States. This proved beneficialfor both countries as it meant that Vietnam could ship goods to the U.S.
marketat the lowest possible tariff rates, and U.S. companies could gain continuallygreater access to Vietnam. As a result, Vietnam’s export activity (worth around$20 billion in 2003) is thriving, mostly due to its cheap, capable workforceand growing foreign investment. Vietnam’s exports to the United States aredoubling each year. The diversified nature of the country’s exports—includingcommodities, agricultural products, and manufactured goods—means it is somewhatimmune to large swings in the price of any one export. With abundant naturalresources, Vietnam is one of the largest exporters of rice in the world. Vietnamis now the world’s largest exporter of pepper, it may soon overtake Thailand inrice exports, and it even exports tea to India.
Additionally, Westerncountries can provide support by decreasing tariffs for trade, to lower thecost for exports into the U.S. This will increase Vietnam’s revenue andeconomy. Thus, increasing their wealth, so that when a firm tries to develop inVietnam that it would be more profitable.
Another improvement can improve thestandard of living of Vietnam, if Western countries can also help improve theeducational country of Vietnam they could create more skilled labor in thecountry. Companies could also try to lobby for favorable business policies,which would make it easier to conduct business in Vietnam. However, beyond this,Vietnam itself and its people must want to become more open to investment fromWestern companies. Without a change in the mindset of the nation’s governmentand its people, Vietnam is not likely to experience rapid progress.QUESTION2: What problemsmight a company encounter while conducting market research in Vietnam? Explainyour answer.A company may encounterseveral problems when attempting to conduct market research in Vietnam. One ofthe problems is a drastic cultural difference.
In Vietnam over half ofthe people live in rural regions, and since most of the market study performedby corporation only focus on urban areas of Vietnam, the results may be variedwith a larger margin for error. Although the country is relatively small inland mass, it would be very time consuming and expensive to conduct any sort ofdoo-to-door research. To further complicate any research, more than half ofinternet consumers in Vietnam are under 25, which would limit any sort ofonline analysis as it wouldn’t reach the older generations. Anothermajor challenge that a company can encounter in Vietnam, is the very simplefact that many of the people there are really poor. Although the country isworking on improving the poverty, the World Bank labeled about 20 percent ofthe population as poor in 2008 whereas as much as 70 percent of the populationpoor in the 1980s. The government has not been able to regulate all commercehappening in the country, with a large black market and underground trade limitingthe economic potential every day. Do Duc Dinh of the Institute on the WorldEconomy says, “There is a huge unofficial economy.
For most people, we can liveonly 5 days or 10 days a month on our salary. But people build houses. Wheredoes the money come from? Even in government ministries, there are two sets ofbooks—one for the official money and one for unofficial (Wild &Wild, p. 319).”Vietnamis controlled primarily by the Communist Party, which is a political party thatadvocates the application of the social and economic principles of communismthrough state policy and is currently struggling to adapt to the principles ofa market economy, and the layers of bureaucracy built up over decades ofcommunist rule slow the pace of change. Companies would have to understand theculture and customs of Vietnam, because something normal in the United Stateswith our democratic government, may not be acceptable, even offensive, andcould cost that company a large loss for not understanding their way of doingthings.
For example, the government sometimes still behaves in ways that leave potentialinternational investors confused and disconnected even despite the efforts ofthe State Committee for Cooperation and Investment (Wild &Wild, p. 319).And laws concerning taxes and foreign exchange are in constant flux. It isimperative to find the right business partners to help with business on a locallevel that know more about the ways of the country. These Western companieswould need people who they can depend on in order for that company to besuccessful in Vietnam. Timezones are another factor of consideration. Some American companies may need totravel, and for smaller or entrepreneurial companies this may be a big sacrifice.
Most international projects require collaboration, so it may morning on one sideof the earth and night on the other which makes it difficult to set-upvideoconferencing and other communications. QUESTION3. What would beyour perception of a product with the label “Made in Vietnam”? Do you think thetype of product would play a role in forming your perception? The country image embodies every facet of a nation’sbusiness environment, it is highly relevant to the selection of sites forproduction, manufacturing or assembly.
Because products stamped with a “Made inVietnam” can cause a certain discord with the public. It is also important tonote that a country’s image can also change over time. People’s perception ofwhere a product is made can often make or break a sale. The thought behind the formation of an attitude towardsglobal brands is complex, since it hinges on many different factors. Yet theunderstanding of what the customer perceive is crucial to the success of globalbrands if these brands are to remain competitive in the fastest growing marketsin the world.It depends on thecustomer and the market but certain low-cost products will be unlikely to haveany negative connotation if labeled “Made in Vietnam.” Low-cost products meaningthey will be of average quality in terms of performance and durability because skillsand labor is limited.
In addition, the product will be available at a lowercost since the labor is cheap. Although the labels do not affect all productsto the same degree, they can present important positive or negative images andboost or dampen sales.The opposite is true, ifa customer is in the market for a high-priced luxury or technical product. Justthe fact that it was made in Vietnam would likely discourage buyers from such alabel.
As these products made in more developed countries are evaluated morepositively than products from less developed countries like Vietnam’s currentstate (Wild &Wild, p. 305). However, as Vietnamdevelops economically over time, any negativity of such a label onsophisticated goods would be expected to decline. It is hard to have such a negative connotation of productsmade in Vietnam when so many other products we use every day are made andassembled overseas.CONCLUSIONVietnam’semerging market, although full of potential, is riddled with many challengesfor investors in Vietnam. Everything from the population to the infrastructureand political party is disconcerting. With a population of only 82 million mostof which are very poor, with an annual per capita income of only about $2,500(Wild , p.
319). Without funds, it is no wonder the infrastructure isundeveloped as well. Only 25 percent of roads are paved, electricity sourcesare somewhat unreliable, there is roughly one telephone per 100 people and thebanking system is undeveloped. And although Vietnam holds tremendous long-term potential,it may be two decades before Vietnam reaches the level of economic developmentfound even in Thailand today.Fromthe problems a company could encounter when conducting a market strategy likethe cultural difference, the different time zones, to the poor economy and the unfavorablepolitical party, Vietnam carries many negative preconceptions. Many strideshave been conducted on the home front to find and plan the restoration ofVietnam’s image. But with the help of developed Western countries and an openmind in potential investors, Vietnam has potential to become an emerging marketin the global market.