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VIETNAM
VIGNETTES®
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© 1997-2003 Vietnam Venture Group, Inc.®
All rights reserved. August 15, 2003
Issue
No. 70
August
2003
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Our 6th year on the Internet & 10th
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A Periodic Report
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COMMENTARY: Perceptions and Patience |
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We differ in many ways and yet we are so similar. Our work ethic, our body language, our loves of family and good food. But perceptions differ, even among friends who know each other well. To gain a better perspective, see our commentary (linked above) and our dispatches (linked below). |
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Exports to USA Reach 20% of VN Total |
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See VVG's monthly feature on Current Economic Indicators of Foreign Direct Investment in Vietnam
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COMMENTARY
The New York Times, in an editorial re-published in the International Herald Tribune, slammed the idea suggested here that Basa are NOT catfish by only proclaiming that they ARE catfish.While t
he leading Western paper offered no substantiation of that claim, we don’t claim to have a lock on our definition either. However, we at least offered evidence that Basa are NOT catfish based upon the definition of “catfish” found in our Internet search, and by the very appearance of the fish that certainly don’t look at all like what we have come to know as catfish.Basa have small mouths that lack whiskers and a vertically streamlined body such that it is higher from dorsal to ventral fin than it is wide. Catfish have huge, "Julia Roberts" sized mouths with whiskers (unlike Ms. Roberts), and are far more wide from the middle than they appear to be tall.
This difference raises an excellent point on perceptions based on facts: the facts may be correct on their face (that is, how something looks) but the facts can be incorrectly applied. We do not here discuss perceptions based on emotions or political needs, but recognize they too color perceptions.
When others perceive us incorrectly, we know it is our obligation to work hard to change that perception. No matter how much we might complain about the error, there is nothing the observer can or will do to change his/her perception of us unless and until we change the way we act and thus appear.
We perceive (know) that Vietnam is a good place to work, to invest in, and to live based on our long time here and frequent trips abroad to other lands for “reality checks.” Yet our perception is not yet universally accepted.
The perception of many investors about Vietnam is different from ours and has not materially changed in over ten years. We have not ever thought it possible to persuade an investor to come here and have thus restricted our services to those who already know this is a good place to be and need our help in establishing themselves.
The laws are fluid in Vietnam, but in other lands this is called flexibility and is looked upon as permitting growth and positive evolution of the laws.
Enforcement of government policies shift in Vietnam, but when the same happens in other places, we hear comments that dynamic societies must remain flexible if they seek really positive changes
State ownership of key industry sectors here is often frowned upon by foreigners, but when other states own or control aviation, ports, power, and other infrastructure and utilities it is seen as a necessary measure to insure uniform application of essential services.
Vietnam is not unique in the application of a double standard, even for pricing. Switzerland famously declares the need to provide benefits to its citizens that foreigners are not entitled to. Thailand interestingly writes domestic prices (lower than prices to foreigners) in Thai script so that foreigners will not be a aware of their practice.
While investors are starting to return to Vietnam and the numbers of FDI projects is growing, the growth in value of investment dollars remains rather small. By way of example only, we at VVG still seek a major investor for our own massive, 5-star beach resort.
It is interesting, again using our own findings as an example only, that the while the numbers of people interested in the Cua Lap Resort grows to a remarkable number (over 3,500 Internet viewers see our project every month), we have not yet located an investor that is both qualified and willing.
After more than six years effort, we wonder if the State will carve up the nearly pristine wilderness so close to HCMC before we are able to complete our task. And then how will that act be perceived by the many thousands who have shown some interest in the project?
We perceive (know) that hard working and loyal Vietnamese workers are in abundance, are willing to learn, and are easy to train and supervise for reasonable wages. We are aware that the cost of some services are too high, and other services are not yet at the levels needed.
We cannot claim that our perception of what is a catfish or a good investment opportunity is flawless, but we are far more often right than not. Reviewing ten years of this publication alone supports that claim. And as we have known for many years, the strongest asset any investor in Vietnam can bring to the table is patience.
What is the strongest asset that the policy makers of Vietnam have? The ability to change the negative perception of foreign direct investors. The piercing question is, when will they do the work that they need to do in order to change the perception? See our further dispatch on this point, below.
DISPATCHES
Exports to US surge,
reaching 20% of Vietnam's total exports. The US is Vietnam's top importer and the British Virgin Islands is pouring the most money into the country, according to half-year Government statistics.
How Vietnam Can Change Perceptions -
Something is wrong. We know what needs fixing but what can we do? Complaining and reporting will only go so far, but not far enough. Here are concrete items that need attention as found in a recent survey to determine FDI strategy in Vietnam, commissioned by the MPI and carried out by a foreign consulting firm in Vietnam.Market Access. With needs for growth in both domestic and export sales, government policies have allowed FDI access into protected domestic markets but not helped in export markets where Vietnam has competitive advantages. The perception: poor quality goods, high costs of transport due to poor infrastructure, and existing import/export policies and unpredictable changes discourage foreign investors from choosing Vietnam for their export or domestic production facilities.
Overall, Vietnam is perceived as less attractive in terms of market access than are China, Thailand, Indonesia, Malaysia, or the Philippines. This is due to Vietnam's rather low GDP and GDP per capita in comparison to its competing neighbors in the Asean4 nations plus China.
Cost of Doing Business. Investment and operating costs in Vietnam are "rather high" in Vietnam (the numbers have not been published) compared to Asean4 plus China. Dual pricing has the effect of creating a perception of inconsistent treatment and discrimination, which has an overall negative effect on the business environment, even if it does not have a significant effect on operating costs.
The lack of some raw materials and supporting industries, coupled with high import tariffs, are another weakness contributing to the high cost of doing business in Vietnam.
Judicial Reliability. Not only are legal challenges in Vietnam greater than in neighboring nations, there is no transparency coupled with uncertainty and inconsistency in the legal and taxation systems. This leads to a reliance on political relationships and the discretionary powers of government officials.
Improvements have been made yet vague formulation and divergent interpretation of the laws lead to serious problems in implementation and enforcement. Unexpected and retrospective changes to laws and regulations from advertising to taxation are other major issues yet to be adequately addressed by the authorities.
Infrastructure: Reliability and Quality. These are still clearly inadequate, not able to meet the demands of economic development in terms of availability, cost, or quality. There has been substantial improvement over the past ten years, but the infrastructure of the nation is still below the average of the region and Asean4. While more than two-thirds of all Foreign Invested Enterprises depend on roads to transport their goods, most investors criticize the poor conditions of the nations road network.
Promotion of private participation in the development of infrastructure in Malaysia, Indonesia, Thailand, and the Philippines contributed significantly to the development of their infrastructure, and should provide a valuable example for Vietnam to follow to increase the quality and reduce the costs of infrastructure and utilities, both key factors to attracting FDI to Vietnam.
Accountability of Officials. Or lack of it due to corruption, is a factor that stifles the growth of foreign direct investment. The government is aware of the problem and the damage caused to the nation's economy. There have been various measures taken to try to tackle the problem, but corruption is a factor that discourages FDI and remains a critical concern for Vietnam's economic growth.
World-wide surveys done in 1999 and 2002 by Transparency International are cited, where the ratings range from zero (highly corrupt) to 10 (highly clean). Vietnam's index in 1999 was 2.6 and the nation then ranked as the 75th most corrupt of 99 nations. In 2002, Vietnam's ranking slipped to 2.4, thus confirming the perception that corruption in Vietnam increased in recent years in spite of the factors often claimed by the State to be tackling the problem.
Local Suppliers of Parts and Materials. The cost of material and labor are the highest cost and thus most critical components in determining the location of any manufacturing facility. Labor cost (discussed below) is not high in Vietnam, thus the cost of parts and materials is the single most expensive and critical part of any FDI decision about manufacturing here.
Due to the underdeveloped domestic industrial sector, access to local parts and materials is limited. Foreign Invested Enterprises are thus compelled to import these, particularly with regard, but not restricted only, to electronics and automobiles. High end colorants, medicines, paper, and tools are also in short supply if they are present at all.
The high, sometimes unreasonably high, import tariffs contributes to the high cost of material and parts. While the average import duties may range from 30% to 60% it is not surprising to find imported "luxury" goods taxed at more than 150 per cent.
The lack of suppliers of parts and materials reduces the competitiveness of Vietnam compared with Asean4 and China. This problem will only intensify as Vietnam becomes obligated under AFTA in 2005 to reduce import duties on commodities from 80% to below 20 per cent. If the materials are not produced in Vietnam before that time, the cost of foreign imports will be lower than domestically produced goods, and there will be no incentive for foreign investors to set up operations in Vietnam.
Perceptions of FDI in Vietnam are not all negative.
Labor Market. With a population of over 80 million, more than 90% of whom are able to read, and half of the total population forming its labor force, the labor force increases by 1.1 to 1.2 million each year. However, while the cost of labor is relatively low in comparison to other countries in the region, the trained work force is rather small (12% of the total, according to government sources).
The work force has been characterized as still at the emerging state and underdeveloped. A lack of technical, managerial, and business awareness are perceived as the main shortcomings of Vietnamese nationals. A survey of Japanese businessmen shows that 43.3 % state that recruitment of local management staff in Vietnam is "challenging." This is the third most critical problem faced by foreign investors after quality of infrastructure and the legal system.
While Vietnam has the competitive advantage of a young and inexpensive labor force, the quality of that force remains very low, thus reducing Vietnam's overall competitiveness in high-tech industries.
Social and Political Environment. In general, the climate is considered more stable than in other nations in the region. The Political and Economic Risk Consultancy in HK (PERC) rated Vietnam first in terms of social and political stability after the September 11, 2001 attacks in America.
Compared to the Asean4 plus China nations excluding Thailand, Vietnam has less religious-ethnic minority problems and is considered a safe place for investment.
Conclusion. The perception of Vietnam does not compare well to that of its competitor nations due to key factors such as quality of infrastructure, potential market access, lack of a transparent and stable legal and tax system, lack of domestic suppliers of material and parts, and a high amount of official corruption.
Vietnam's advantages include a stable political and social system, its low cost of labor, and its high potential market growth.
Vietnam's success over the past 10 years has been impressive in terms of FDI promotion and attracting industries to build here. However, Vietnam's neighbors have been at it for the past 30 years while China has implemented its open policies for more than 20 years. They have the advantage of more developed infrastructure, a more comprehensive legal framework, and are formidable competitors for Vietnam.
Yet, none of them has the same impressive, highly emotional, and thus substantial market appeal in the USA of the "Made In Vietnam" label.
Now it is up to the Vietnamese to work all the more hard to change the perceptions of foreigners that Vietnam is NOT a good place to invest in.
We know they can do it but often wonder why it takes them so darned long?
- On July 24, 2003 the ITC concluded that the American catfish industry suffers material injury due to the import of Vietnamese catfish and approved the imposition of anti-dumping tax on the catfish proposed by the U.S. Department of Commerce (DOC). The commission issued a ruling on August 7 under which the DOC placed an anti-dumping tax of 36.84-63.88% on Vietnamese frozen tra and basa fillets imported into America from January 31, the date when DOC issued a preliminary decision.
Many others do not agree with this decision but we yet wonder about the wisdom of anyone trying to gain advantage over others by less than forthright means. In this way, both foreigners AND Vietnamese should pay attention.
In this case, Basa were NEVER called “catfish” before someone thought “they” could gain an advantage in the US market by using that name. Perhaps next time planners will consider talking with others who no doubt understand US markets much better than the hopefully former market advisors. Planners: do you need VVG’s contact numbers?
Mail – We receive little mail of a critical nature (pro or con – most mail concerns retaining VVG for services in Vietnam) except for the mail we are still receiving from American buyers who are regretting the loss of Basa fish in their local markets.
It is not a lot of mail (under 150 letters a month) but all of the writers (100%) comment upon the Vietnamese decision to try to falsely market Basa fish as catfish in the first instance.
Having entered the market improperly by calling their product “catfish,” the Vietnamese authorities in charge set the stage for the only possible outcome – American buyers tried the fish thinking it was in fact catfish, found it to be a superior product, and now want it back on their shelves.
As one correspondent from Mississippi who wants to see Basa fish return writes, “The Vietnamese authorities who made the decision to falsely claim their product ‘catfish’ thus escaped necessary market entry costs demanded of all new entrants. To the eventual harm of their own countrymen, those same Vietnamese who intentionally made the initial false claim now cry foul as they seek the benefit of their adverse action to recover their ill-gotten position in the market.”
There are lessons to be learned here. We can only hope that our friends in Vietnam and those who are considering investments in Vietnam are paying attention.
Undertake proper research; don’t rely on so-called “inside” information; don’t rely on being well served by either (i) not retaining consultants or (ii) paying high prices to so-called experts who are not experts beyond their billing practices; don’t blame others for your own actions; do work quickly to resolve issues by understanding the real problems; and be open to correcting your own errors before you too quickly blame others.
Foreign law firms can provide consulting and other legal services but are not allowed to send their lawyers to act as attorneys for their clients at the Vietnamese court.
According to Government Decree 87/2003/ND-CP issued by the Government on July 22, 2003 foreign law firms can provide consulting on foreign and international laws but not Vietnamese law, except when they have a degree from a Vietnamese law school and meet the same requirements for Vietnamese lawyers.
Foreign lawyers who want to practice in Vietnam must have a license granted by the Ministry of Justice and are sent to Vietnam by a foreign law organization.
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The Phu My Bridge linking District 7 with districts 2 and 9 of HCM City will be built under the build-operate-transfer form by a consortium of five local companies, including Hanoi Construction Corp., Construction Investment and Development, Infrastructure Investment and Development, Chau Thoi Concrete 620, and Thanh Danh Construction and Trading.
The 1,946-meter cable-stayed bridge, which is projected to cost VND1.63 trillion (US$ 1.05 billion), plans to open to traffic in 2008.
Hanoi Construction Corp is the parent of VVG’s strategic partner, INVESCO.
Vietnam Vignettes is a periodic report distributed since early 1994. It is NOT a newsletter although for the ease of linkage we have called it that. It is a summary of domestically published media reports from more than 17 industrial sectors that we at VVG follow and report upon for our clients. Our primary sources are: Vietnam Economic Times, Saigon Weekly News, Viet Nam Daily News, Vietnam Investment Review, and Vietnam Business Journal. * Due to the importance of certain topics of key importance to trade with Vietnam, we will occasionally include some wire and other media reports.
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