Emerging
Market Potential in Vietnam

Despite a history
plagued with economic challenges including wars and a communist party, Vietnam
has become one of Asia’s
best-performing economies behind China. Vietnam is a small country located in
south eastern Asia, but doesn’t let their size hinder their trade relations. In
fact, even with the currency crisis that gripped Southeast Asia in the late
1990s, Vietnam’s economic growth rate has yet to drop below 4.8 percent. Even
more promising, Vietnam has grown nearly 8 percent a year over the past decade and
shows little sign of slowing down. Currently, Vietnam is enjoying two booming
industries, manufacturing and tourism, and has potential to be an emerging
market in today’s economy.

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 Due to its troubled history, many people find
it difficult to imagine Vietnam as an economic force in the market. However, there
are many reasons that provide optimism as a potential emerging market. The Vietnamese
economy is strong and diversified, the population is young, the labor is low
cost, and trade is free as part of the World Trade Organization. After
implementing a doi moi almost twenty years ago, the “renewal” policy
initiated free-market reforms while preserving a communist political
system.  The existence of a literate and
low-wage workforce act as a powerful magnet for international companies.

QUESTION
1: What, if
anything, can Western countries do to help improve the political climate for
doing business in Vietnam?

The political climate in
Vietnam can be improved for doing business with the help of several different
Western countries. The former economy has been greatly hindered with the
absence of trade and diplomatic relations between the United States and
Vietnam. Once the U.S. government lifted the trade embargo with Vietnam, they
were able to pave the way for a host of U.S. companies to pursue opportunities
in Vietnam. By developing these closer ties with the government, they can
provide aid for infrastructure improvements and help the government to
streamline the bureaucracy. It can reform state owned subsidiaries and will
ensure a level playing field in all sectors of the economy.

It
wasn’t until late 2001, that Vietnam and the United States signed a trade deal to
give Vietnam normal trade status with the United States. This proved beneficial
for both countries as it meant that Vietnam could ship goods to the U.S. market
at the lowest possible tariff rates, and U.S. companies could gain continually
greater access to Vietnam. As a result, Vietnam’s export activity (worth around
$20 billion in 2003) is thriving, mostly due to its cheap, capable workforce
and growing foreign investment. Vietnam’s exports to the United States are
doubling each year. The diversified nature of the country’s exports—including
commodities, agricultural products, and manufactured goods—means it is somewhat
immune to large swings in the price of any one export. With abundant natural
resources, Vietnam is one of the largest exporters of rice in the world. Vietnam
is now the world’s largest exporter of pepper, it may soon overtake Thailand in
rice exports, and it even exports tea to India.

Additionally, Western
countries can provide support by decreasing tariffs for trade, to lower the
cost for exports into the U.S. This will increase Vietnam’s revenue and
economy. Thus, increasing their wealth, so that when a firm tries to develop in
Vietnam that it would be more profitable. Another improvement can improve the
standard of living of Vietnam, if Western countries can also help improve the
educational country of Vietnam they could create more skilled labor in the
country. 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 from
Western companies. Without a change in the mindset of the nation’s government
and its people, Vietnam is not likely to experience rapid progress.

QUESTION
2: What problems
might a company encounter while conducting market research in Vietnam? Explain
your answer.

A company may encounter
several problems when attempting to conduct market research in Vietnam. One of
the problems is a drastic cultural difference. In Vietnam over half of
the people live in rural regions, and since most of the market study performed
by corporation only focus on urban areas of Vietnam, the results may be varied
with a larger margin for error. Although the country is relatively small in
land mass, it would be very time consuming and expensive to conduct any sort of
doo-to-door research. To further complicate any research, more than half of
internet consumers in Vietnam are under 25, which would limit any sort of
online analysis as it wouldn’t reach the older generations.

Another
major challenge that a company can encounter in Vietnam, is the very simple
fact that many of the people there are really poor. Although the country is
working on improving the poverty, the World Bank labeled about 20 percent of
the population as poor in 2008 whereas as much as 70 percent of the population
poor in the 1980s. The government has not been able to regulate all commerce
happening in the country, with a large black market and underground trade limiting
the economic potential every day. Do Duc Dinh of the Institute on the World
Economy says, “There is a huge unofficial economy. For most people, we can live
only 5 days or 10 days a month on our salary. But people build houses. Where
does the money come from? Even in government ministries, there are two sets of
books—one for the official money and one for unofficial (Wild &Wild, p. 319).”

Vietnam
is controlled primarily by the Communist Party, which is a political party that
advocates the application of the social and economic principles of communism
through state policy and is currently struggling to adapt to the principles of
a market economy, and the layers of bureaucracy built up over decades of
communist rule slow the pace of change. Companies would have to understand the
culture and customs of Vietnam, because something normal in the United States
with our democratic government, may not be acceptable, even offensive, and
could cost that company a large loss for not understanding their way of doing
things. For example, the government sometimes still behaves in ways that leave potential
international investors confused and disconnected even despite the efforts of
the State Committee for Cooperation and Investment (Wild &Wild, p. 319).
And laws concerning taxes and foreign exchange are in constant flux. It is
imperative to find the right business partners to help with business on a local
level that know more about the ways of the country. These Western companies
would need people who they can depend on in order for that company to be
successful in Vietnam.

Time
zones are another factor of consideration. Some American companies may need to
travel, and for smaller or entrepreneurial companies this may be a big sacrifice.
Most international projects require collaboration, so it may morning on one side
of the earth and night on the other which makes it difficult to set-up
videoconferencing and other communications.

QUESTION
3. What would be
your perception of a product with the label “Made in Vietnam”? Do you think the
type of product would play a role in forming your perception?

The country image embodies every facet of a nation’s
business environment, it is highly relevant to the selection of sites for
production, manufacturing or assembly. Because products stamped with a “Made in
Vietnam” can cause a certain discord with the public. It is also important to
note that a country’s image can also change over time. People’s perception of
where a product is made can often make or break a sale. The thought behind the formation of an attitude towards
global brands is complex, since it hinges on many different factors. Yet the
understanding of what the customer perceive is crucial to the success of global
brands if these brands are to remain competitive in the fastest growing markets
in the world.

It depends on the
customer and the market but certain low-cost products will be unlikely to have
any negative connotation if labeled “Made in Vietnam.” Low-cost products meaning
they will be of average quality in terms of performance and durability because skills
and labor is limited. In addition, the product will be available at a lower
cost since the labor is cheap. Although the labels do not affect all products
to the same degree, they can present important positive or negative images and
boost or dampen sales.

The opposite is true, if
a customer is in the market for a high-priced luxury or technical product. Just
the fact that it was made in Vietnam would likely discourage buyers from such a
label. As these products made in more developed countries are evaluated more
positively than products from less developed countries like Vietnam’s current
state (Wild &Wild, p. 305). However, as Vietnam
develops economically over time, any negativity of such a label on
sophisticated goods would be expected to decline. It is hard to have such a negative connotation of products
made in Vietnam when so many other products we use every day are made and
assembled overseas.

CONCLUSION

Vietnam’s
emerging market, although full of potential, is riddled with many challenges
for investors in Vietnam. Everything from the population to the infrastructure
and political party is disconcerting. With a population of only 82 million most
of 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 is
undeveloped as well. Only 25 percent of roads are paved, electricity sources
are somewhat unreliable, there is roughly one telephone per 100 people and the
banking system is undeveloped. And although Vietnam holds tremendous long-term potential,
it may be two decades before Vietnam reaches the level of economic development
found even in Thailand today.

From
the problems a company could encounter when conducting a market strategy like
the cultural difference, the different time zones, to the poor economy and the unfavorable
political party, Vietnam carries many negative preconceptions. Many strides
have been conducted on the home front to find and plan the restoration of
Vietnam’s image. But with the help of developed Western countries and an open
mind in potential investors, Vietnam has potential to become an emerging market
in the global market.

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