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Vietnam: An Emerging Market

A Vietnamese Communist flag waves behind President Clinton as he addresses a gathering in Ho Chi Minh City on Nov. 19. Clinton's historic visit to Vietnam marks the beginning of a new era of business relations between the United States and Vietnam. Photo by Associated Press.

By Ron Chepesiuk

The contentious presidential election has dominated the media in recent weeks, so one major development may have escaped the attention of many in the Asian American business community. Earlier this month, Bill Clinton journeyed to Vietnam, becoming the first American president to visit the country since the Vietnam War.

Clinton’s visit helped heal the wounds of a war that caused major devastation to Vietnam and bitter divisions in the United States. But equally important, Clinton’s four-day trip opened up a new era in the economic relationship between the United States and Vietnam — which will have implications for Asian American companies looking for new business opportunities in Asia. Among Clinton’s entourage were executives of 50 major U.S. corporations, scouting Vietnam for potential investment and business opportunities.

Vietnam — Basic Stats Country Name: Socialist Republic of Vietnam Government type: Communist state Population: 78,773,873 (July 2000 estimated) Literacy Rate: 93.7 percent can read and write GDP: $143.1 billion (1999 estimated) GDP real growth rate: 4.8 percent (1999 estimated) GDP per capita: $1,850 (1999 estimated) Inflation rate: 4 percent (1999 estimated) Labor force: 38.2 million (1998 estimated) Unemployment rate: 25 percent (1995 estimated) Industries: food processing, garments, shoes, machine building, mining cement, chemical fertilizers, glass, tires, oil, coal, steel, and paper Source: CIA World Factbook 2000

“Clinton’s visit was a mission for peace and reconciliation, but it also gave a boost to the Vietnam economy and the country’s potential to be a U.S. trading partner,” said Vietnamese American Han X. Vo, an associate professor of economics at Winthrop University in Rock Hill, S.C.

Han X. Vo, associate professor of economics at Winthrop University. Photo courtesy of Mr. Vo.

“Economically, Vietnam is moving forward slowly because it has been in transition since 1986, when its communist government decided to adopt a market mechanism for its economy,” he added.

Already, American businesses have taken advantage of Vietnam’s burgeoning markets. Kent Kedl, executive director of Technomic Asia, a Minneapolis, Minn.-based consulting group, which has had an office in Vietnam for eight years, said Clinton’s visit validated Vietnam’s “modernization” and economic progress. “Vietnam has been opening up and American companies have been going there,” he said.

THE ROAD TO VIETNAM

Clinton’s trip is the culmination of a process of normalizing relations with Vietnam that he began early in his presidential administration. In 1993, Clinton decided to make the integration of Vietnam into the world economy a policy objective. Two years later he pursued a trade agreement with the country after leaders began cooperating with investigations into the fates of prisoners of war and those missing in action. After arduous negotiations, the United States and Vietnam finally signed a Bilateral Trade Agreement this past July 13.

“By normalizing trade relations and committing Vietnam to sweeping economic reform, it will help lay the foundation for a new American relationship with Vietnam,” announced the White House in a written statement.

The agreement has several key provisions that could be relevant for Asian American businesses. It states that Vietnam will:

• Allow Vietnamese businesses and, over time, U.S. firms for the first time, the right to import and export freely from within Vietnam’s borders.

• Lower tariffs on the full range of U.S. industrial and agricultural exports and phase out all non-tariff measures.

• Adopt the WTO standard for intellectual property right protection within 18 months and implement further protective measures in several other areas, such as satellite signals.

• Permit American people and businesses to enter the country’s full range of service areas, including insurance, banking, telecommunications, construction and accounting. Access is to be phased in over time, usually within three- to five-year period.

• Agree to protect U.S. interests from expropriation and phase out its investment licensing regime for many sectors.

Normalizing Economic Relations with Vietnam — A Timeline 1986 • Vietnam begins its move towards market economy.  1989 • Vietnam withdraws from Cambodia and seeks admission into regional organizations. This is seen as a clear message that Vietnam intends to play a positive role in the region’s economic liberalization.  1993 • President Clinton authorizes U.S. support of international lending for Vietnam and allows U.S. firms to join in development projects in 1994. • The U.S. ends the economic embargo, and now allows Americans to export to Vietnam and compete for business opportunities. 1995 • Vietnam joins the Association of Southeast Asian Nations (ASEAN). • The U.S. opens up normal diplomatic relations with Vietnam. 1996 • The United States begins negotiations with Vietnam on a Bilateral Trade Agreement. 1997 • United States and Vietnam exchange ambassadors. 1998 • Vietnam joins the Asian Pacific Economic Cooperation (APEC) forum. • U.S. grants first waiver of the Jackson-Vanik Amendment extending U.S. export promotion and investment support program to Vietnam. 1999 • U.S. and Vietnam reach agreement in principle on key provisions of the Bilaterial Trade Agreement. • Waiver of Jackson-Vanik Agreement extended. 2000 • U.S. and Vietnam reach final agreement on Bilateral Trade Agreement. • Waiver of Jackson-Vanik Agreement extended. • President Clinton makes historic visit to Vietnam.

“From the Vietnam point of view, the agreement is a recognition that market reform must go forward if the country is to compete effectively for foreign investment with other countries in Asia, particularly China,” Vo said. “China is ahead in its efforts to globalize, but Vietnam hopes to catch up quickly.”

Congress must first approve the trade agreement, however. U.S. trade representative Charlene Barshefsky, who signed the agreement for the United States, has expressed confidence that both Democrats and Republicans would strongly back the measure’s passage, but expressed less optimism that it would happen this year.

Vietnam watchers, however, are confident that the incoming U.S. Congress won’t scuttle the historic agreement. Judith Lee, an attorney in the Washington, D.C., law office of Gibson, Dunn and Crutcher, who specializes in international trade contended that “both Republicans and Democrats want the relationship with Vietnam to move forward.”

THE REMAINING OBSTACLES

Trade and investment opportunities may be developing, but that doesn’t mean doing business in Vietnam is easy. Old guard hard-line communists still control the country, and its human rights record still falls short of international standards despite reforms since the 1980s, according to a Human Rights Watch report released last May. The report described how the Socialist Republic of Vietnam continues to “ harass, isolate, place under house arrest and silence its critics.” Among those singled out have been senior communist officials who have called for faster political reform.

“The United States needs to take a more energetic approach to raising human rights concerns with Vietnam,” said Mike Jendrzejczyk, Washington director of Human Rights Watch’s Asia Division. “This can be part of a constructive exchange: President Clinton can offer technical assistance for reform and seek commitments for improvements in return.”

As Lee pointed out, however, it’s going to take time to change the rigid bureaucracy and the communist mind set. “Vietnam hasn’t had a positive environment in which to do business because they haven’t mastered the capitalistic game yet,” she explained. “I know several companies that have been in Vietnam, and they have been frustrated by their experience.” However, she added: “Vietnam is a communist country, but it’s not North Korea.”

Still in an early stage in its move to a market economy, Vietnam didn’t even have a stock market until the late 1990s, Vo pointed out. Moreover, the Vietnamese government is cautious in light of Thailand’s stock market crash in 1997, Vo said.

“Establishing the stock market was important because it’s helping the country raise capital through foreign investment, which can be used to modernize the country,” Vo explained. “The stock market is a mirror and gives the government an indication of how efficient the economy operates.”

The Vietnam economy will need a boost to keep it rolling. When President Clinton extended diplomatic ties to Vietnam in 1995, U.S. and Western firms began moving into Vietnam. By 1997, foreign investment had reached its peak with pledges of up to $8 billion, and the country’s GDP was rumbling along at an 8 percent annual clip.

Vietnam’s leadership, however, has been unable shake off its communistic past. Today, the country has a reputation for being one of Southeast Asia’s worst investment environments.

John Conroy, owner of the Plattsburg, New York-based Conroy International Inc., a consulting company that provides services to Western companies wanting to enter the Vietnamese market, said he understands the country’s bad reputation. Conroy has been in contact with Vietnam on a regular basis since 1989. “Lots of companies left five or six years ago because they felt they were just spinning their wheels,” Conroy explained. “Every day, there was another road block and it was impossible to make advances.”

The hope is that the old guard will move aside for economic reformers when the 9th Party Congress meets next March in Hanoi. “The economic reformers will eventually get the upper hand,” Conroy predicted. “There will still be obstacles [to modernization], but the reform process can’t be stopped.”

MOVING FORWARD

Five Resources for Vietnam Trade and Investment Vietnam Embassy (Washington DC) Excellent resource for up-to-date information on Vietnam business and trade. http://www.vietnam-embassy-usa.org Vietnam Economic Times The only English language business magazine written, edited and published in Vietnam. Each issue features an in-depth article about investment trends and new business opportunities. http://www.vn-economy.com.vn Center for Trade with Vietnam An American organization that seeks to establish good economic relations with the country. Has plenty of articles, facts and links. http://www.free-yellow.com U.S. Vietnam Trade and Investment Businesses sources, trade leads, and up-to-date news and reports. http://www.us-vietnam.com Vietnam Business Directory Guide to Vietnam businesses in America and Vietnam. Good source to locate and research resources in Vietnam for investment purposes. http://vietnamimpex.-bizhosting.com

Last month Vietnam launched an initiative that shows it’s serious about reform and becoming a part of the new global economic order. Vu Khoan, Vietnam’s Minister of Commerce, announced that his country intended to energize its five-year bid to join the World Trade Organization (WTO) by offering an initial market access on merchandising goods during November entry talks. In a meeting with WTO Director-General Mike Moore, Khoan said that Vietnam would also try to enhance its chances of WTO entry by preparing new legislation for a host of areas, including insurance, trade-related investment, intellectual property protection and custom valuation rules.

“WTO Membership is not going to happen overnight, but I believe Vietnam has less obstacles to overcome than China,” Lee said.

The good news: Vietnam’s investment and business climate has shown signs of improvement this year. The Xinhua News Agency reported last October that the country’s exports and imports rose sharply the first 10 months of the year. The Vietnamese foreign investment sector’s total exports during the period reached $5.52 billion U.S., a 50 percent increase, and the country’s imports rose $12.28 billion U.S., a 32.2 percent increase.

Robert L Mallet, U.S. Deputy Secretary of Commerce, told the New York Times that U.S. exports to Vietnam could climb to between $800 million and $1 billion within two years of the signing of the Bilateral Trade Agreement’s ratification. That compares to $29.4 million in 1999.

Vietnam, no doubt, will offer Asian American businesses plenty of investment and trade opportunities in the years ahead. The country’s infrastructure is woefully inadequate, and roads, harbors, communication systems and hotels and industries will need to be built. The insurance sector is non-existent and the banking and financial services sector will have to be strengthened.

Meanwhile, Vietnam is rich in timber in oil and minerals and has a large pool of inexpensive labor. “The Vietnamese worker has two positive characteristics,” says Vo, “They are hard working and exhibit a spirit of entrepreneurialism.”

Any Asian American wanting to do business in Vietnam is advised to proceed cautiously, though. “Do your market research,” Kedl said. “When China began to open up about 10 years ago, the people who went in did so on intuition and made mistakes. We learned that we had to do analysis first to see where the opportunities were.”

Conroy pointed out that Vietnam is a complex country with a unique culture, so it’s advisable that an American business collaborate with locals. “Don’t just throw money at the place like a lot of Americans are prone to do when they go into a foreign market,” he said.