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GETTING STARTED - An Insider's Guide to Starting a Business in Vietnam
By Peter N. Sheridan

Part III -Cultural Differences

Table of Contents:

Part I - Introduction

Part II - General Business Considerations

Part III - Cultural Differences

Part IV - Mechanics of Foreign Investment - Representative Offices and Joint Ventures

Part V - More Mechanics of Foreign Investment - Fully (100%) Foreign Invested Enterprises

Part VI - Still More Mechanics of Foreign Investment - Business Co-operation Contracts and Build-Operate-Transfer Enterprises.

PART THREE - CULTURAL DIFFERENCES

Cultural differences go far beyond the basic methods of arriving at contract and dispute resolution. The demeanor of the parties is an aspect of great import in any negotiation. Friendly, honest (sometimes brutally honest), polite discussions will be the most fruitful. Do be aware that the concept of saving, or not loosing, face is key to all transactions.

Being thorough in a Vietnamese sense is also important. Caution: do not presume there is an understanding unless there has been complete and full discussions on all of your particular points. If you believe, or simply feel, that your counterpart has not been forthcoming, say so -- politely.

It may appear to and actually be obfuscation when a Vietnamese negotiator seems to not understand a provision, although he says he does. Worse, if may appear that your counterpart seems unwilling to answer a seemingly straight-forward question.

The problem may be in the form or style of the question that originated the problem, and not craftiness or cunning by the questioned.  This has often caused negotiations to deteriorate beyond repair. However, the apparent confusion of a Vietnamese citizen unintentionally put in a difficult situation, may be far more innocent and well-intentioned than many foreigners can readily imagine.

It's a Matter Of Face.  A polite Vietnamese citizen, even those accustomed to working with sophisticated westerners, can feel a loss of face to admit that he does not know an answer to a question, even if he fully understands the question. To save face for himself, he may stall, use circumlocution (verbal effusion), or simply invent an answer. He may thus try to avoid great embarrassment to admit he does not know something his visitor obviously expects him to know. He does not consider the future embarrassment from discovery of a false answer. Many answers here seem to frequently change without recrimination.

Culture and Exposure. The Vietnamese have for the most part not been taught, as we have, that if one doesn't have an answer to a question, the proper response is to say something to the effect, "I will find out and inform you."

If we don't understand a question, we are taught to ask another question, perhaps, "That seems very important. To be certain I fully understand, would you please restate that in a different way?"

Know When and How. In Vietnam one does not usually ask questions unless we know for certain that the person questioned knows the answer. If we sense the question has confused our counterpart, before he can be embarrassed, we restate the question, or tell him we really don't need an answer.

Consider a meeting with a provincial Director of Education. You seek data on the number of high school and university graduates in his province. A typical, straight-forward request would be to ask the question without embellishment or flourish. However, that has a great potential of creating a problem.

One of the many varieties that would be better form to ask might be: "Do you know anyone who may have access to data that can help me to learn the most recent graduation statistics in your province from high school and university?" This question may not give you a quick factual answer, but it leaves the examined lots of room to maneuver.   It may also go to show him how well you understand Vietnam.

"Wow! How can we be expected to know all that?" we are often asked, sometimes by folks who have worked here for several years. It's not very different from knowing when to pat a man on the back or shake his hand back home; or when to kiss a woman on the cheek or shake her hand. Know the culture in which you are working, or work with someone who does.

In this land, men sometimes kiss men and hold their hands following a business meeting. It’s not difficult to know when and how, if you know when and how. Here, ask someone a choice question ("Do you prefer this or that?"), or a negative-positive question ("You don't like that, do you?"), and you will generate a "yes" response. Learning who, how, and when to ask a question is important.

It was the executive Vice President for International Trade for a  world-class, major manufacturer of textile products who addressed the director of Education.  He came to Asia seeking a location to build a US$130 million denim mill. After spending three weeks in south east Asia, including four days in Vietnam, the hapless investor first visited us on his last day in Vietnam.

He related a tale of "typical" woe concerning his Vietnamese meetings. One was with a provincial Director of Education. The size of the potential labor pool is essential for establishing a high-tech manufacturing facility. The foreign executive asked the right question in the wrong manner of the director in seeking the number of local high school and university graduates in his province. From the investor’s point of view, he asked the proper authority in a polite manner. However, when the answer he received contained a lot of hand-waving and words without meaningful fact, the investor became infuriated at the Director!

Not Well-Informed. No one in the investor’s party knew that the provinces have been seeking modern methods of tracking such data for years. The Director could not answer the question because he did not have the data.  Yet the important foreign visitor expected him to have that information.

Many provinces don't even have a simple PC network to collect and collate the data. From the Vietnamese point of view, an informed investor should have known that the Director did not have such information. However, by asking the question, the investor caused a loss of face to himself. He asked a question he should have known not to.    He also put the Director in jeopardy of loosing face to openly admit he did not have the data.

A second faux pas. The Director, to save face all around, talked a blue streak, waved his hands about, and smiled broadly. He smiled to try to relieve the tension. Little did he know that to smile at such a time was insensitive from the Western point of view. To not accept the smile as a relief of tension was rude from the Vietnamese point of view. It came as no surprise that the investor did not invest in Vietnam, but chose the higher wages, less literate, less easily trained and less reliable work force of a neighboring country where his questions were answered in the way he liked to hear.

We recently spoke of this and other simple but crucial cultural differences with a senior member of the Ministry of Foreign Affairs. Although he lived and worked for many years in the west, he was astounded as we helped him to better appreciate an area of basic yet simple misunderstandings.

Smile and Get Punched. For westerners, if another causes us distress and then smiles at us, we suffer further and possibly greater distress by the smile. The smile makes the wrong-doer appear as a dimwit, or worse, that he intentionally caused the distress in the first place. 

When the smiler is Asian, we often hear of the "inscrutable Asian. We never know what he is thinking behind that smile."  Consider an office guest who spills coffee on my new, white sofa. Should he dare to smile at me just after that terrible act, I may feel a strong desire to bless-him-out, if not punch him in the nose!  I would not ever consider anger for an error, even a bad one, but let him smile at me after the error....!!

However, if my guest is Vietnamese, upon spilling the coffee, I should expect him to smile.  He may even giggle and smile to show me a happier, kinder, more gentle face. He will want me to know the error was innocent. He will anticipate my displeasure and expect that I will be less likely to show my anger if he appears docile, meek, even supplicating. 

The smile is certainly not because he feels the situation is humorous, or because he is a fool. To the contrary, he is showing, politely and according to his social customs, his embarrassment.  And, he is trying his best to stem the anger he anticipates I must feel for his clumsiness.

Why do most western folks get angry, as did the textile executive, when we confront a smile at just exactly the wrong time? Culture, habit and training. We are not all saints. Even foreigners with a long experience in Asia still suffer wretched feelings of frustration, if not anger, when facing a smiling dolt who caused us discomfort. However, unlike a new visitor, we more often will put a check on our anger.

In light of this new understanding, go back and reconsider the meeting between the foreign textile manufacturer and the provincial Director of Education.  The foreigner asks a seemingly simple question, expects a direct response, and receives a long-winded, unresponsive reply. The Director of Education most probably is trying to save face for them both.

Remember, your frustration can be simply a matter of culture, habit and training.  However, if it walks, talks, and looks like a duck, it may be.

Another Province, Another Opportunity.   During the initial meeting concerning a major land development project, we met with senior provincial authorities.  The provincial deputy Director of Planning and Investment took more than one hour to present  five items of great importance to getting his provincial People's Committee approval for the project:

• Reduce the amount of land requested.  Large projects have a more difficult time receiving approval and investor support.
• Reconsider initial planning to take into account the local needs and not merely the desires for greater profits by foreign investors.
• Keep the Total Investment Capital to a value the State considers reasonable, and do not seek larger projects to simply increase foreign profits.
• Increase the percentage of ownership by the domestic Joint Venture partner over time, and do not ask that partner to make any additional contribution to capital beyond than the value of land use rights (that burden the Joint Venture with unrealistically high annual rent).
• Work out the land use fee with the Government along the guidelines set forth by the government and don't worry about trying to show increased profits.

Gut Grabbing. Some of these five provisions are repugnant on their face.  We were prepared to start politely discussing the reasons why.  However, it was the sixth and last point that grabbed our guts.

The deputy director of planning and investment told us that, due to the "known" and "demonstrated" inability of foreign investors to raise sufficient capital to complete major land development projects, the foreign investor must place the sum of US$1 million to $2 million on deposit in a Vietnamese State Bank.

The purpose of the deposit was ostensibly to show the investor's financial ability and thus gain the government's confidence in proceeding with the project.  The deposit would also be a project guarantee and be forfeit if the foreign investor withdrew from the project.   

We Agreed. Our immediate internal reaction was to walk away from the table, but for the fact that we were intrigued. This was the first time in 4 years operation that we were confronted in an open meeting with a bribe request.  All bribes are usually sought privately, and outside an official office.

We therefore reconsidered and elected to play his game.  Our reply was to agree, subject to confirmation that we were proceeding on a Joint Venture, and not fully foreign invested project.  The official gave us a broad smile and confirmed that this was to be a Joint Venture.

We then said, presuming a split of 70% foreign to 30% domestic ownership, we could recommend the foreign interests establish a $1 million  fund in Vietnam as soon as the Vietnamese side established a $428,000 or 30% deposit fund in America.  The smiles from the Vietnamese side disappeared.  

We explained, without being ask, that as all Vietnam if not the investing world knows how difficult that particular Province is to work with, and as the world knows how difficult Vietnamese business is in general, the 70% partner needed similar, equitable assurance that the Province would go forward and the State would grant ultimate approval.  Of course, if the Province or the State failed to go forward, its 30% deposit would be forfeit.

We elected to rube the wound because of the extraordinary rudeness of the official openly asking for a bribe, and such a huge one.  We continued that if the deputy Director proposing the deposit desired to have a 50/50 Joint Venture, then of course we would expect the Vietnamese side to first establish a US$1 million deposit account in America to equal the account we were prepared to recommend that the American investor establish.

Change In Tune, but .... This was, of course, the opening gambit and not the sum total of our discussions that day.  It was gratifying that the client, while giving us the authority to proceed as we needed, was not present.  We could not have reminded him on the spot of the need for a rapid and decisive response, or the rules of brinkmanship.

The project continues to be under discussion.  However, there is no longer any need to discuss or consider a "deposit."  Privately, other members of the provincial leadership later told us they did not support the need for a deposit.  Earlier foreign investors became verbally abusive and broke off discussions on their projects when the same request was made of them by the same official.  In earlier times, we know that investors made concessions to include making illegal payments.  We are pleased to report that times and procedures are changing.

Fully Foreign Invested....  We approached several international and domestic business leaders on the thought of proposing a land development project in which the Vietnamese would accept less than a 30% share, and where the Total Legal Capital would equal Total Investment Capital. That would drive up the dollar cost for the Vietnamese partner and drive down the cost for the new enterprise to be formed.  We thought it would distinguish the new project from the others, and give it a chance for financial success.

No one agreed with us. We were cautioned to not even broach the subject as it would be too volatile, to radical a departure from accepted practices, and would certainly doom our work on the project to failure.

VVG does not always do what we are told.  Living and working in the frontier, we urge our clients and friends to be flexible, and stretch the envelope.  We made our presentation to the People's Committee Chair and he rejected the idea.  But he listened and he understood. The Chair offered us an opportunity in the closing month of 1998 that could not be refused. 

That involved our own now closed Cua Lap Resort project, since approved by the People's Committee and granted approval to others by the MPI.  On over 150 ha with invested capital projected at over US$ 300 million, this is an object lesson that we can change the face of Vietnam and bow out, and be proud of our impact.

Lessons Learned: be realistic, persistent, and just a little bit bold, while always being attentive to innovation, politeness, and patience.

Please Read More from This Article:

Part I - Introduction 

Part II - General Business Considerations 

Part III - Cultural Differences - you are here now!

Part IV - Mechanics of Foreign Investment - Representative Offices and Joint Ventures

Part V - More Mechanics of Foreign Investment - Fully (100%) Foreign Invested Enterprises

Part VI - Still More Mechanics of Foreign Investment - Business Co-operation Contracts and Build-Operate-Transfer Enterprises.

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