On the 3rd day of our study abroad program with Loyola University in Southeast Asia, my fellow students and I had the opportunity to spend a day really immersing ourselves in lessons about the opportunities and challenges of doing business in Vietnam. If you are at all interested in the economic opportunity found in this area of the world, read on (if not, this could bore you to tears 🙂 )
Vietnam is an extraordinarily beautiful and complex country; we were reminded constantly that Vietnam is a country, not a war, however it has taken decades for the country to pull itself out of the post-war challenges to get to the degree of rapid economic growth it has seen in recent years. Starting in 1986, market reforms were introduced to the country during the “doi moi” period, and from 1994 to 2000 Vietnam joined the ASEAN, World Bank, IMF and ADB. An enterprise law passed in 2000 made it much easier for U.S. companies to do business in Vietnam and in 2007, Vietnam joined the World Trade Organization.
Despite all these positive moves, the country still needs systematic financial reform. Banks are state-owned and the private sector cannot get access to the capital it needs. The country also has a relatively feeble infrastructure and with a higher education system that focuses on rote memorization, soft skills in the workforce are left undervalued. The education system, as it now stands, results in underemployed graduates, high rates of long-term job vacancies, high turnover rates and low productivity compared to neighboring Asian countries. More than 50% of new employees have to be retrained after hired.
Global Integration Business Consultants, consisting of Dr. Gulio Julietti, Michael Modler, Koy Nguyen, and Que Nguyen, really did a great job of painting the broad picture of opportunity found in Vietnam. The currently strong economic base is a result of several factors, including, but not limited to: a strategic location with 50% of the 90 million or so Vietnamese under the age of 30, good basic literacy rate, rich in natural resources, high political & social stability (an outbreak of major unrest or terrorism is seen as highly unlikely). Many of these factors have resulted in Vietnam being the fastest growing economy in SEA over the past decade.
After they painted a picture for my classmates and I of both the recent difficulties and indicators of increased business opportunity, Yoann Painbeni of Nielsen Consulting presented some insight into the Vietnamese consumer base, all important to understand if trying to enter into this market. The Vietnamese will always find ways to make money, he told us, which shows in the low unemployment rate in the country (and just from walking around and observing workers in the city I know this to be true). Vietnamese consumers are highly aware of price (the impression I got from our discussion with Saigon Cosmetics the day before) and stay fairly loyal to their favorite brands, but are heavily attracted to in-store promotions, new items and counterfeit goods. Only 11% of consumers change stores, but there are not that many stores to choose from. To give you an idea, Mc Donald’s doesn’t even have any restaurants in the country (and they are pretty much EVERYWHERE as the 4th largest employer in the world).
The North and South regions of the country are still VERY different from each other and require different marketing strategies; purchasing behavior differs greatly in these two regions and it is critical to understand what value really means to consumers (which I would agree is important to know ANYWHERE you do business). Yoann presented some similar challenges to us as GIBC, but also laid out the significant challenges facing the country today stemming from governmental corruption, tax regulations and increased inflation.
Hoi An, our last presenter of the morning, is the managing director of Dragon Capital, a successful integrated investment group centered around the emerging financial markets of Vietnam. I felt like he really put things into perspective for me by stating comparative GDP between our countries: GDP in the U.S. is 40 times larger than in Vietnam ($15 trillion vs. $103.5 billion). When it comes to investing – Vietnam is very cheap compared to other countries in the region since world valuation has dropped significantly since 2008 resulting from the inflationary challenges mentioned earlier. He shared with us some notes on their investing strategies, which I think are pretty similar to investment groups located in the U.S. (look at companies with high profit growth, look at larger companies that have better returns since they typically weather the global economic storms more successfully, etc.). The difference is: Vietnam has incredible room for growth, so much so that investing in Vietnam now could make one very wealthy 10-20 years down the road.